The Corporate Sustainability Reporting Directive (CSRD), effective from January 5, 2023, enhances the rules governing the disclosure of social and environmental information by entities.
The CSRD requires all large and listed entities (except listed micro-enterprises) to engage in corporate sustainability reporting. It requires entities to identify both their impacts on people and environment as well as the sustainability matters that financially impact the undertaking.
The new rules ensure that investors and other stakeholders have access to the necessary information for evaluating investment risks associated with climate crisis and other sustainability issues. The new rules are aligned with the European Green Deal’s objective of making Europe the first climate-neutral continent by 2050. It is the EU’s response to achieving the targets laid down in the 2015 Paris Agreement. The EU’s action package ‘Fit for 55’ works towards the first step: reducing net emissions by at least 55% by 2030.
On 6 June, the Commission initiated a four-week public feedback period on a first set of sustainability reporting standards for entities, considering technical advice provided by the European Financial Reporting Advisory Group (EFRAG) in November 2022. After considering the feedback received, the Commission will finalise the standards as delegated acts and submit them for scrutiny to the European Parliament and Council.
In 2025, reporting entities already subject to the Non-Financial Reporting Directive (NFRD) shall publish their reports for the first time reflecting the new rules on 2024 data. In 2026, large reporting entities not currently subject to the NFRD shall publish their report on 2025 data. In 2027, listed SMEs, small and non-complex credit institutions and captive insurance entities shall publish their report on 2026 data.
The new CSRD rules shall apply to all large entities, regardless of whether they are listed or non-listed, if they meet at least two of the following criteria: having 250 or more employees, achieving a turnover of €40 million or more, or possessing total assets of €20 million or more. It’s important to note that small and medium-sized listed entities are granted an additional three years to comply with these regulations.
Over 49,000 entities, representing more than 75% of the total turnover of EU entities, are subject to the new directive.
The above scope includes large subsidiaries of non-E.U. parents (i.e., all E.U. companies are subject to these criteria regardless of the origins or domicile of their ownership).
Scope of the reporting requirements
Overall requirements include sustainability reporting in their annual reports, external (limited) assurance, as from the financial year 2024, specified reporting principles and designated formats and timelines.
In terms of general disclosures, entities must provide information regarding their business model, strategy, and policies. This includes the disclosure of key performance indicators (KPIs) and targets, focusing on forward-looking information. Furthermore, entities must disclose details about their entity and sustainability governance, double materiality assessment, due diligence, risk and opportunity management.
In addition to the general disclosures, topic-specific disclosures are also required. These include environmental disclosures, including compliance with the EU Taxonomy, as well as social, governance and sector-specific standards disclosures.
NFRD Obligations and Transition to CSRD
Until entities adopt the rules of the CSRD, the rules introduced by the NFRD remain in force. The NFRD imposes reporting obligations on large public-interest entities with over 500 employees, requiring them to disclose information related to environmental protection, social responsibility, treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on entity boards in terms of age, gender, educational and professional background.
To effectively meet the disclosure report requirements mandated by CSRD starting from 2024, entities must now keep an eye on the evolving sustainability regulations, formulate their sustainability strategy, and determine their approach to addressing the specific obligations that apply to them.
Our team at LLPO can assist to advise in order to act proactively and ensure compliance with CSRD challenges.
The content of this article cannot be considered as a legal advice. For any further information or advice on the particular matter, we strongly recommend that you contact us to be guided accordingly.