EU CSRD: Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive is the European Union’s new solution to holding corporations accountable for their impacts on the environment.
Written by a human
As consumer interest continues to grow into sustainability, it can affect behavior in investing and purchasing, for example. This regulation is therefore being introduced to bring standards for comparison, so that the public can clearly see the impact of varying corporations on the environment, and make clearer decisions based on this data.
What’s the EU CSRD and why is it necessary?
The EU’s CSRD is part of a wider regulatory framework, known as the sustainable finance package.
The sustainable finance package was introduced to support corporations in being more transparent in their commitments to environmental, social and governance (ESG) activities. Moreover, it was brought in to hold companies accountable in introduction of ‘climate tech’, data collection and reporting; ensuring this is standardized across industries and companies.
This regulation ultimately provides investors with the knowledge to make more-informed decisions, and supports them in re-orienting their investments towards sustainability.
Having been officially adopted in January 2023, it asks companies to share information on how they monitor the performance of their ESG schemes, and measure the impact of their company on the planet.
It can be compared to the UK’s Taskforce on Climate-Related Financial Disclosures.
CSRD requirements (EU)
The EU’s Corporate Sustainability Reporting Directive will apply to around 50,000 companies, but together, they make up around 75% of the EU’s annual turnover.
The regulation requires compliant companies to submit an annual report on their business activities, policies and other relevant data, based on the previous financial year. The first report will be due on the 1st of January 2025, based on the financial year ending in 2024.
There are 12 European Sustainability Reporting Standards which companies must report on in compliance with the CSRD. Some specific disclosures include:
- Environmental protection measures such as reporting your carbon footprint
- Social responsibility and guidelines for employee treatment
- Human rights policies and reporting violations
- Anti-corruption and anti-bribery reporting through corporate governance programs and ethics training
- Diversity reporting including a detailed breakdown of board members’ ages, genders and ethnicities
Sustainability goals or targets must also be reported as part of EU CSRD reporting requirements, as well as progress towards these goals. Organizations will also be required to outline potential sustainability risks, and how they could impact overall financial performance.
CSRD vs NFRD
The EU CSRD regulation is largely based on an older set of sustainability reporting standards, known as Non-Financial Reporting Directive (NFRD). The NFRD was introduced in 2014 to bring transparency to a greater range of social and environmental issues, rather than just finances.
But the scope of the CSRD expands on the old scope, both in terms of who must comply, and how much they are required to report on.
The NFRD only applied to public-interest companies with more than 500 employees, and requirements were to describe the disclosures, goals and outcomes.
Instead, the CSRD applies to ‘large companies’ of more than 250 employees with more than €50 mil in turnover OR €25 mil in assets. It requires reporting on broader ESG topics, and asks companies to be more prescriptive in their reporting. For example, it includes a digital reporting format that’s read by screens and tested for reporting compliance.
What’s the EU CSRD timeline?
28th Nov 2022:
The final bill for the EU CSRD regulation was approved by the European Union Council.
5th January 2023:
The regulation has now come into enforcement. Each obligated EU company must begin collecting their data, analyzing, and getting ready to report. By the end of this year, each individual country has adopted the CSRD into national law.
1st January 2025:
The first report is due by this date, based on information from the financial year ending 2024.
1st January 2026:
The CSRD regulation applies to small and medium enterprises (SMEs) listed under regulated markets. Compliance will require the first report due by this date, based on the financial year ending 2025.
1st January 2028:
Small credit unions and insurance businesses will come under compliance to the CSRD by this date. They’ll have to submit their first report based on data from the financial year ending 2027.
1st January 2029: CSRD for non European companies with branches or significant activities (more than €150 mil in annual turnover) will be under compliance from this date. They’ll have to submit their first report based on data from the financial year ending 2028.
What are the challenges of compliance?
There are some unique challenges associated with this EU CSRD regulation, including:
- Double materiality
- Aligning with external regulations
- Vast information requirements
Double Materiality
The terms of these regulations are much more complicated than those that compliant companies have seen before. Double materiality refers to the two-factor reporting assessment. Organizations must not only assess their impact on financial matters, but also on people and environmental matters.
Data centers are likely to suffer from this concept in particular, since the amount of energy it takes to operate is significantly higher than other services.
Aligning with external regulations
Parts of the CSRD refer to external regulations, like the Task Force on Climate issues, and the EU Taxonomy. Companies must align their compliance with these related requirements, and ensure their overall approach to sustainability meets each of these criteria.
Vast information requirements
The detailed nature of the assessment and reporting requirements mean that businesses will find it challenging ‘do it all’. From setting realistic carbon footprint targets to explaining how they’ll prevent human rights violations, there is a lot to manage.
Automated compliance helps to solve the CSRD challenges
The challenges of the EU CSRD can be overcome by partnering with an automated compliance solution, like Global Relay.
With a particular emphasis on green data centers, we can support your sustainable initiatives.
And in future years for CSRD, non-EU companies will be required to take notice. So ensure you stay ahead of evolving regulations like the CSRD with custom-built data connectors that can capture communications from any channel. And take a proactive approach to sustainability risks when you trust the industry leader.
Book a demo to see if Global Relay fits your regulatory needs.
