What is CSRD?

What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is a European Union legislative framework aimed at enhancing and standardizing sustainability reporting among companies. It builds on the Non-Financial Reporting Directive (NFRD) to improve transparency, accountability, and the quality of sustainability information disclosed by businesses. The main goal of the CSRD is to ensure that stakeholders, including investors, consumers, and the public, have access to reliable and comparable sustainability data, enabling informed decision-making.

CSRD reporting requirements are founded on principles of inclusivity, accountability, and sustainability. Companies are required to disclose information about their environmental, social, and governance (ESG) performance, as well as their impact on society and the environment. This aligns corporate practices with the European Green Deal and broader sustainability goals, promoting responsible business conduct. The directive also encourages the adoption of common reporting standards, facilitating better comparisons across industries and regions.

In today's corporate world, effective sustainability reporting is crucial. As stakeholders demand greater transparency regarding corporate practices, adhering to CSRD requirements helps build trust and credibility. It also helps organizations identify risks and opportunities associated with sustainability, leading to improved performance and long-term value creation. By complying with the Corporate Sustainability Reporting Directive, companies can enhance their reputation while contributing to a more sustainable future.

Why was the CSRD introduced?

The Corporate Sustainability Reporting Directive (CSRD) was introduced to enhance and standardize sustainability information reporting by companies across the European Union. It builds on the Non-Financial Reporting Directive (NFRD) and addresses the growing demand for transparency in corporate practices. As global awareness of environmental and social issues rises, stakeholders—including investors, consumers, and regulatory bodies—seek detailed insights into how businesses operate and their societal impact.

A key driving factor behind the CSRD is the urgent need to address sustainability challenges like climate change and social inequality. By mandating comprehensive sustainability reporting, the directive ensures companies provide relevant and reliable information reflecting their sustainable development efforts. This is vital for building trust and maintaining accountability in an era of intense corporate scrutiny.

The CSRD significantly impacts corporate accountability by requiring companies to disclose their governance, strategies, IROs (Impacts, Risks, Opportunities), Policies, Actions, Metrics, and Targets in a structured manner. This fosters a culture of transparency and encourages organizations to adopt responsible practices. As companies align their operations with sustainability goals, they contribute to broader initiatives aimed at promoting environmental stewardship and social responsibility, driving a more sustainable future.

Who must comply with the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) sets a framework for companies to disclose their environmental and social impacts, aiming for greater transparency and accountability. Companies subject to the CSRD primarily include large public-interest entities such as listed companies, banks, and insurance companies. Specifically, any company meeting two of the following three criteria must comply: a net turnover of more than €40 million, total assets exceeding €20 million, or more than 250 employees.

However, the CSRD also introduces considerations for small and medium-sized enterprises (SMEs). While the directive primarily targets larger corporations, SMEs listed on regulated markets or part of a large group will also be required to comply. This means smaller entities must prepare for potential reporting obligations if they fall into specific categories, broadening the directive's impact on the business landscape.

The CSRD has global implications, extending its reach beyond the EU's borders. Non-EU companies with substantial operations or revenues within the European market will also be subject to these reporting requirements if they exceed the defined thresholds. This underscores the directive's aim to create a level playing field, compelling businesses worldwide to align with European sustainability standards, enhancing the overall quality of sustainability reporting.

CSRD requirements and reporting standards

The Corporate Sustainability Reporting Directive (CSRD) introduces stringent requirements for mandatory disclosures and reporting metrics, enhancing transparency and accountability in corporate sustainability practices. Companies must provide comprehensive information on their sustainability impacts, risks, and opportunities, including detailed reporting on environmental, social, and governance (ESG) factors. These reports must be presented in a clear and comparable manner, allowing stakeholders to easily assess progress and commitment to sustainable practices.

A foundational concept of the CSRD is double materiality, requiring companies to consider how sustainability issues affect their financial performance and how their operations impact the environment and society. By embracing this dual perspective, businesses can identify and address risks more effectively, fostering resilience and long-term sustainability. This holistic view encourages responsible practices benefiting not just the bottom line but also the broader community.

Additionally, the CSRD mandates the use of XBRL (eXtensible Business Reporting Language) tagging and the European Single Electronic Format (ESEF) for digital reporting. XBRL tagging ensures that each piece of financial data is machine-readable and easily accessible for analysis, enhancing transparency and comparability. ESEF requires annual financial reports to be prepared in XHTML format with Inline XBRL, making the data both visually accessible and machine-readable. These technologies improve the accuracy and accessibility of sustainability reports, ensuring that stakeholders can easily navigate and analyze the information.

The CSRD also encourages integration with existing reporting frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). Aligning CSRD requirements with these established guidelines allows companies to streamline reporting processes and enhance the credibility of their disclosures. This integration enables organizations to present a cohesive narrative of their sustainability journey, making it easier for stakeholders to understand their commitments and achievements.

Timeline for CSRD implementation

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulation set to enhance sustainability reporting across the European Union. To ensure smooth compliance, businesses must be aware of key dates associated with its implementation. The directive officially came into force on January 1, 2024, with companies required to start reporting for the financial year 2023. This timeline is crucial for organizations to align their sustainability practices with the directive's requirements.

The CSRD adopts a phased approach to compliance based on company size. Large companies—those meeting two out of three criteria (over 250 employees, €40 million in revenue, or €20 million in total assets)—are expected to comply first, submitting their first reports by May 2025. Small and medium-sized enterprises (SMEs) listed on EU regulated markets will have a longer timeline, with requirements applicable by 2026.

As sustainability reporting evolves, staying abreast of future amendments and updates to the CSRD is essential. The European Commission may review the directive periodically to ensure it remains relevant and effective. Businesses should prepare for potential changes by developing robust sustainability strategies and reporting frameworks that can adapt to evolving regulations.

Preparing for CSRD compliance

Most companies required to comply with the CSRD are expected to publish their reports in 2026. However, many are delaying the process, underestimating the time and effort needed for their CSRD reporting journey. To effectively prepare for CSRD compliance, businesses should follow a structured approach. The first step is to assess current reporting practices and identify gaps in sustainability data collection. This involves engaging with stakeholders to understand their expectations and the specific requirements set forth by the CSRD. Companies can then establish a robust framework for gathering and managing relevant sustainability metrics, ensuring data accuracy and timeliness.

The role of technology in sustainability reporting is crucial. Advanced software solutions can streamline data collection, automate reporting, and enhance data analysis capabilities. Leveraging technology ensures a higher degree of transparency and reliability in sustainability reports, meeting CSRD mandates efficiently. Cloud-based platforms enable real-time data access and collaboration among team members, making the reporting process more agile and responsive.

To gain a deeper understanding of how technology can empower your sustainability reporting, we invite you to read our comprehensive ebook "Prepare your Tech Stack for CSRD". In this ebook, you will discover valuable insights and practical tips on how to optimize your tech stack for CSRD compliance. Don't miss out on the opportunity to level up your reporting practices and stay ahead of the curve.

Watch our On-Demand Webinar: Unlock the Future of Sustainability with IFS and PwC UK to gain expert insights into best practices for CSRD compliance and how technology can streamline sustainability reporting.

Implementing best practices for effective reporting and transparency is essential for organizations striving to meet CSRD requirements. This includes adopting a clear and consistent reporting framework, such as the Global Reporting Initiative (GRI) standards or the Sustainability Accounting Standards Board (SASB) guidelines. Additionally, engaging stakeholders through regular communication and updates on sustainability initiatives fosters an environment of transparency and accountability. By doing so, businesses not only comply with the Corporate Sustainability Reporting Directive but also build trust with stakeholders, enhancing reputation and long-term success.