Corporate Sustainability Reporting Directive (CSRD)

In the evolving landscape of corporate responsibility and sustainability, the Corporate Sustainability Reporting Directive (CSRD) represents a significant regulatory shift for non-financial compliance. Designed to enhance transparency and accountability in corporate sustainability practices, the CSRD mandates comprehensive reporting requirements for various companies. This article explores the essential aspects of the CSRD, its implications, and how companies can navigate and benefit from these new regulations.

Understanding the New CSRD Norm

The CSRD is a European Union directive that aims to standardize and strengthen sustainability reporting across businesses. It builds upon the previous Non-Financial Reporting Directive (NFRD) by expanding the scope of companies required to report and enhancing the depth and quality of the information provided. It aims for transparency, accuracy, completeness, and comparability of industry data and important insights into business impact, risk, and opportunity. The CSRD introduces detailed reporting requirements on environmental, social, and governance (ESG) factors, ensuring that companies provide clear, comparable, and reliable data on their sustainability performance.

Key aspects of the CSRD include:

  • Scope Expansion: It applies to more companies than the NFRD, including all large companies and all companies listed on EU-regulated markets.
  • Detailed Reporting: Companies must report not only on their impact but also on their sustainability risks and opportunities.
  • Audit Requirement: Reports must be audited to ensure accuracy and reliability.
  • Digital Reporting: Companies must use the European Single Electronic Format (ESEF) for reporting, which facilitates digital access and comparability.

Pressures induced by CSRD

The CSRD creates several pressures for companies, including:

  • Increased Reporting Obligations: Companies must now provide more detailed and frequent disclosures about their sustainability practices and impacts.
  • Higher Compliance Costs: Adhering to new reporting standards and auditing requirements can increase operational costs.
  • Enhanced Scrutiny: As reporting becomes more standardized and transparent, companies face greater public and regulatory scrutiny over their sustainability practices.
  • Competitive Pressure: Companies must not only comply but also demonstrate leadership in sustainability to maintain a competitive edge and attract investors.

Who Needs to Report under the CSRD?

The CSRD broadens the scope of reporting compared to its predecessor, covering:

  • Large Companies: All large public and private companies within the EU, as defined by meeting at least two of the following criteria: a net turnover of over €40 million, total assets exceeding €20 million, or more than 250 employees.
  • Listed Companies: All companies listed on EU-regulated markets, including SMEs listed on stock exchanges.
  • Non-EU Companies: Non-EU companies with significant operations within the EU may also be required to report, depending on their size and impact.

Short info: For Romanian companies, the CSRD was adapted under the Order OMFP nr. 85/2024 and the specific requirements are aligned for companies reporting by the accounting rules OMF 1802/2014 or OMF 2844/2016 regarding the moment when the reporting of sustainability information must begin. Medium& Large Entities and also Mother companies/Large Groups should report if they meet specific criteria. The reporting starts from 2025 for the financial year 2024 considering specific calendars and criteria (see the calendar).

Explanation of definitions of medium & large companies/groups from RO order:

Medium and Large Entities are those which at the balance sheet date, exceed the limits of at least two of the following three criteria.

–     Total assets: 17,500,000 lei (equivalently of 3.946.953 euro)

–     Net turnover*: 35,000,000 lei (equivalently of 7.893.906 euro)

–     Average number of employees during the financial year: 50

A large group is the group made up of the parent company and its subsidiaries to be included in the consolidation and which, on a consolidated basis, exceeds the limits of at least two of the following three criteria at the parent company’s balance sheet date, for two consecutive financial years:

–     Total assets: 105,000,000 lei;

–     Net turnover*: 210,000,000 lei;

–     Average number of employees during the financial year: 250.

* Net turnover means income, as defined by IFRS (International Financial Reporting Standards).

“We cannot solve our problems with the same thinking we used when we created them.” Albert Einstein, Physicist – Quote

Key Steps in Compliance with CSRD Using ESRS Standards
To comply with the CSRD, companies should follow these key steps using the European Sustainability Reporting Standards (ESRS):

  • Understand the Standards: Familiarize yourself with the ESRS, which provides detailed guidelines on reporting requirements, including sector-specific and general standards.
  • Conduct a Double Materiality Assessment: Identify and assess the sustainability issues that are material to your business and stakeholders: the impacts, risks, and opportunities for the business
  • Develop Reporting Framework: Establish a reporting framework that aligns with ESRS guidelines, ensuring that you cover all required disclosures.
  • Gather and Analyze Data: Collect relevant data on your sustainability performance, risks, and impacts. Ensure data accuracy and consistency.
  • Prepare the Report: Draft your sustainability report in accordance with ESRS standards, ensuring transparency and clarity.
  • Audit and Review: Have your report audited by an independent auditor to verify its accuracy and reliability before publication and issue an independent Assurance Statement.
  • Publish and Monitor: Publish your report in the European Single Electronic Format (ESEF) and continuously monitor and improve your sustainability practices.

How CSRD Helps in Building a Sustainability Management System

The CSRD serves as a catalyst for developing a robust sustainability management system by:

  • Establishing Clear Guidelines: It provides a structured approach to sustainability reporting, guiding companies in identifying and managing key ESG factors.
  • Encouraging Integration: By embedding sustainability reporting into corporate governance, companies are encouraged to integrate sustainability into their core strategies and operations.
  • Driving Continuous Improvement: Regular reporting and auditing foster a culture of continuous improvement, pushing companies to enhance their sustainability performance and practices.
  • Promoting Stakeholder Engagement: Enhanced reporting requirements help engage stakeholders by addressing their concerns and expectations more effectively.

The CSRD represents a transformative shift in corporate sustainability reporting, driving companies towards greater transparency, accountability, and strategic integration of sustainability. By understanding and adapting to these new regulations, businesses can not only comply with legal requirements but also harness the benefits of improved sustainability management and stakeholder engagement.

CONTACT US to understand how this new norm affects you.