Corporate Sustainability Reporting Directive

May 20, 2024
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The CSRD requires companies to report on their impact on sustainability issues (including ESG factors) and the information necessary to understand how sustainability issues affect the company's development, performance and position.

It aims to standardise sustainability reporting so that financial institutions, investors and the public have easier access to reliable data.

As a non-EU company, CSRD can affect you in two ways:

  • You may have a reporting obligation within the scope of CSRD.
  • You may be a supplier to a company that is subject to this obligation and they may ask you for information on your ESG performance in order to fulfil their own reporting requirements.

1. Is your company in scope? What is your reporting deadline? What do you need to report?

2. What are your materiality and disclosure requirements?

The European Sustainability Reporting Standards define how the CSRD is implemented and what information needs to be reported.

2.1 First set of ESRS

The first set comprises 12 standards that address various aspects of ESG issues:

ESRS 1: Fundamental principles to be followed when preparing sustainability reports. It requires companies to disclose all material information about their sustainability-related impacts, risks and opportunities in accordance with applicable standards.

ESRS 2: Disclosure requirements that apply broadly to sustainability reporting, such as details about the company, its business overview and disclosures related to estimates. It also requires disclosures on strategy, governance, effectiveness and progress.

  • What is double materiality?

    Double materiality is the core principle of the ESRS that guides the overall framework. It is one of the features that distinguishes the ESRS from other reporting systems. For a disclosure to be material to the company, it must provide either impact materiality, financial materiality, or both.
    • Impact materiality: Actual or potential material impact on people or the environment.
    • Financial materiality: Material risks and opportunities affecting cash flows, performance, development etc…

Companies must determine for themselves whether an ESRS topic is material or not. If they decide it is not material, they need to explain why.

Topical standards: ESG issues regardless of industry, showing the company's impacts, risks and opportunities in these areas and how they affect the company's value creation. Disclosure is both qualitative (policies, objectives, action plans...) and quantitative (resources and performance measurement...). As reporting is based on a materiality analysis, not every company is obliged to report on all issues, but on the most important ones.

2.2. Second set of ESRS

Standards for SMEs: First drafts of two types of standards have been prepared and are in public consultation until 21 May 2024. The LSME ESRS for listed SMEs and the VSME ESRS (voluntary) for SMEs and micro-enterprises that are not in scope but are affected by CSRD through the supply chain.

  • It consists of: Basic Module, Narrative-Policies, Actions and Targets Module, and the Business Partners Module

Sector specific standards*: Disclosure requirements depending on the sector in which companies operate. Sector-specific ESRS are still in the early drafting stage. Priority sectors are:

  • Oil and gas
  • Coal, quarries and mining
  • Road transport
  • Agriculture, farming and fisheries
  • Motor vehicles
  • Energy production and utilities
  • Food and beverages
  • Textiles, accessories, footwear and jewellery

Third country standards*: Standards to be developed specifically for non-EU companies. Allows for the implementation of the first third country reports to be published in 2029.  Work in this area has not yet started.

*The European Parliament and the Council of the EU have agreed to delay the adoption of sectoral and third country standards until June 2026.

3. What are your formatting and assurance requirements?

Companies must include their sustainability report in the annual report. The information must be presented in a digital, machine-readable format. The sustainability report must then be subject to limited assurance by statutory auditors or other accredited assurance providers selected by EU Member States. This assurance covers compliance with the CSRD and ESRS, the process for identifying reported information, the electronic tagging of sustainability reports and compliance with the reporting requirements set out in Article 8 of the EU Taxonomy Regulation. Initially, limited assurance is required, with a transition to reasonable assurance planned following the European Commission's feasibility analysis.

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