The Corporate Sustainability Reporting Directive (CSRD), is a European regulation published on December 16, 2022 – which was developed and put into effect following the Non-Financial Reporting Directive (NFRD).
As a part of a broader set of European measures dedicated toward improving corporate transparency and encouraging capital and activities towards eco-friendly practices, the CSRD works to standardize non-financial reporting by companies at the European level in order to increase transparency, facilitate data comparison, and support the achievement of climate goals by 2050.
Entities required to report under the CSRD include companies exceeding certain thresholds in terms of workforce (50,000 companies concerned), turnover (€40 million) or balance sheet (€20 million). However, it is important to note that these requirements are subject to change in accordance with ongoing EU omnibus and discussions.
The CSRD requires companies to publish a non-financial performance report in accordance with ESRS standards, i.e. the European Sustainability Reporting Standards (ESRS). These standards cover environmental, social, and governance (ESG) aspects and are based on the concept of double materiality, and take both the company's impact on its environment and how environmental risks could impact their operations into account.
As a result, a company’s evaluation is not only limited to their financial performance, but also includes their impact on the environment and society. This approach illustrates the development and concept of materiality, which historically focused on analyzing financial risks for shareholders before evolving to include stakeholders and transparency outside an organization’s typical financial framework.
In practice, the CSRD now requires a systematic and structured analysis – which involves all internal and external stakeholders. This process usually includes mapping the value chain, identifying ESG and financial impacts, and then prioritizing these issues in a double materiality matrix.
The CSRD has therefore introduced new measures including:
The CSRD will be implemented over time between 2024 to 2028, depending on the size and status of the companies. However, it is important to note that large companies already subject to the NFRD, such as large European companies with over 500 employees, are already eligible to be required to report under the CSRD.