Corporate Sustainability Reporting Directive (CSRD)
The CSRD expands the scope of the Non-Financial Reporting Directive (NFRD) by strengthening and expanding its predecessor’s requirements. About 50,000 companies globally will be affected, as they will have to report across a wide range of topics, including climate change, pollution, biodiversity, resource use and workers in a value chain.
European Commission tasked the European Financial Reporting Advisory Group (EFRAG) with developing detailed disclosure standards to help implement the CSRD’s requirements in practice, known as European Sustainability Reporting Standards (ESRS).
Information Required Under the ESRS
The first set of 12 standards, includes two cross-cutting and ten topical standards that cover general disclosures for all sectors. A forthcoming second set will lay out sector-specific standards, alongside proportionate standards for SMEs.
ESRS 1 General requirements
ESRS 2 General disclosures
ESRS E1 Climate change
ESRS E2 Pollution
ESRS E3 Water and marine resources
ESRS E4 Biodiversity
ESRS E5 Resource use and circular economy
ESRS S1 Own workforce
ESRS S2 Workers in the value chain
ESRS S3 Affected communities
ESRS S4 Consumers and end-users
Double Materiality Assessment
Under the first set of ESRS, only ESRS 2 on general disclosures includes mandatory reporting requirements. Aside from ESRS 1, which does not detail specific content but provides general reporting concepts, the 10 topical standards (E1-E5, S1-S4 and G1) are subject to the double materiality assessment.
Double materiality assessment of impacts, risks and opportunities (IROs) is how companies determine which aspects are material to their business and stakeholders and, therefore, must be included in their CSRD reports.
CSRD Reporting Timeline
CSRD compliance will be phased in between 2024 and 2029, starting with larger companies with more than 500 employees and giving smaller ones time to comply. Non-EU companies with subsidiaries or branches in the bloc will also be affected if they exceed a certain threshold.
Transposing Into National Laws
The CSRD is a directive. This means it’s not directly applicable under domestic law and member states have to transpose it into a national law.
Penalties for non-compliance and general rules for enforcement are left to each EU country, therefore, enforcement procedures and penalties could look different across jurisdictions.