What is the Corporate Sustainability Reporting Directive (CSRD)?

CSRD

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Introduction

The Corporate Sustainability Reporting Directive (CSRD) is a new regulation by the European Union that enhances and expands sustainability reporting requirements for companies. It replaces the Non-Financial Reporting Directive (NFRD) and aims to ensure that businesses provide transparent, reliable, and comparable sustainability data.

CSRD is part of the EU’s Green Deal and plays a crucial role in directing investments towards more sustainable business practices. By standardizing sustainability reporting, the directive helps investors, consumers, and regulators make informed decisions about a company’s environmental, social, and governance (ESG) impact.

Why Was CSRD Introduced?

The CSRD was introduced to address the shortcomings of the NFRD, which applied to only around 11,600 companies and lacked detailed reporting requirements. The key drivers behind CSRD include:

Improving corporate transparency in sustainability reporting.
Standardizing ESG disclosures to enhance comparability across industries.
Encouraging long-term sustainable investment by providing reliable data.
Aligning with global sustainability frameworks, such as the EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR).
Preventing greenwashing, ensuring companies disclose verifiable sustainability data.

Who Must Comply with CSRD?

The CSRD applies to a broad range of businesses, with compliance requirements rolling out in phases based on company characteristics. The directive gradually expands its scope, ensuring that large companies, listed SMEs, and certain non-EU entities fall under its reporting obligations over time.

Companies will need to assess their eligibility based on factors such as employee count, revenue, total assets, and market presence. The timeline for compliance extends from 2024 to 2029, with different milestones for various types of businesses.

CSRD Compliance Timeline

The directive is being implemented in phases:

📌 January 1, 2025 – All large EU companies fall under CSRD.
📌 January 1, 2026 – Listed SMEs must begin reporting (optional opt-out until 2028).
📌 January 1, 2028 – Non-EU companies meeting turnover thresholds must comply.

Key Requirements Under CSRD

Businesses subject to CSRD must:

Report sustainability-related risks and impacts alongside financial data.
Follow the European Sustainability Reporting Standards (ESRS) for structured disclosures.
Obtain third-party assurance (external audits) to verify sustainability reports. The level of assurance will initially be limited but is expected to transition to reasonable assurance over time.
Provide double materiality assessments, considering both the financial impact of sustainability factors on the business and the company’s broader impact on the environment and society.
Align reporting with climate-related risks, emissions, human rights policies, and governance frameworks.
Ensure reports are machine-readable and accessible, improving data transparency.

How CSRD Impacts Businesses

CSRD is not just a regulatory obligation—it is a strategic shift towards sustainable business. Companies that proactively integrate ESG factors into their decision-making can benefit from:

Increased investor confidence and access to sustainable finance.
Enhanced brand reputation and stronger customer loyalty.
Better risk management, reducing exposure to environmental and social risks.
Competitive advantage in a market increasingly driven by sustainability.

Conclusion

The Corporate Sustainability Reporting Directive (CSRD) represents a major step forward in ensuring businesses operate transparently and responsibly. As reporting standards evolve, companies must prepare for compliance and view sustainability as a key component of long-term success.