CSRD Reporting: EU Adopts Final Guidance

Originating from the need to enhance the consistency of sustainability information, the Corporate Sustainability Reporting Directive (CSRD) mandates a comprehensive framework for reporting on Environmental, Social and Governance (ESG) activities. CSRD was introduced to address the limitations of its predecessor, the Non-Financial Reporting Directive (NFRD). It aims to provide stakeholders, including investors and consumers, with detailed insights into the sustainability practices of organisations. Starting in 2024, companies that were previously subject to the NFRD will need to comply with the new CSRD requirements, with their first reports due in 2025.

Key Principles of the CSRD

The directive outlines specific requirements for what companies need to report, including the impact of their operations on the environment and society, and the sustainability measures they are implementing. Here are some key facts about CSRD:

Scope and Applicability

CSRD expands the scope of sustainability reporting to include all large companies and listed Small Market Enterprises (SMEs) in the EU. It applies to over 50,000 companies, up from 11,700 under the previous NFRD. Companies exceeding two out of three criteria (250 employees, €40 million (roughly £33 million) in turnover, or €20 million (roughly £16,000,000) in assets) fall under the CSRD.

Reporting Standards

Companies subject to the directive must use European Sustainability Reporting Standards (ESRS). The ESRS are a set of guidelines developed by the European Financial Reporting Advisory Group (EFRAG) to ensure comprehensive, comparable and consistent sustainability reporting across the EU.

Audit and Assurance

It introduces a requirement for sustainability reports to be audited by a third party. This ensures the accuracy and reliability of the reported data, enhancing trust and transparency for stakeholders under the CSRD.

Digitalisation

Sustainability reports must be submitted in a digital format, making them easily accessible and comparable across the EU.

Objective

The primary goal of the CSRD is to improve the transparency and comparability of sustainability information. It aligns with the EU’s Green Deal and sustainable finance agenda, aiming to support the transition to a more sustainable economy.

Implementation Timeline

CSRD comes into force in stages, starting from the financial year 2024, with full implementation expected by 2026. This phased approach allows companies time to adapt to the new requirements.

Compliance and Penalties

For greater accountability, member states will impose sanctions and penalties for non-compliance with the CSRD. This enforcement mechanism ensures that companies adhere to the reporting requirements.

Integration with Other Regulations

CSRD integrates with other EU regulations such as the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR) to create a cohesive framework for sustainability reporting and investment transparency. The Taxonomy Regulation establishes a classification system for environmentally sustainable economic activities; CSRD requires companies to disclose their sustainability performance in line with the Taxonomy Regulation, ensuring that reported data reflects whether economic activities meet the EU’s environmental objectives.

The SFDR mandates financial market participants to disclose how they integrate sustainability risks and opportunities into their investment decisions. It aligns with the CSRD by requiring detailed reporting on sustainability impacts, risks and opportunities, thereby enhancing transparency for investors. The CSRD’s disclosure requirements support the SFDR’s goal of providing consistent and comparable information for investors about sustainability.

Related Insight: Your Guide to Sustainability Regulations

Final Guidance Released by the EU

Significant revisions have been made from the draft to the final version of the directive. The final guidance provides clearer definitions and more structured reporting frameworks, which are expected to facilitate better compliance by companies. It also includes additional examples and templates to guide organisations in preparing their reports, ensuring that all necessary information is comprehensively covered. As it’s now halfway through 2024, companies previously under the NFRD are advised to start preparing for compliance with CSRD.

CSRD Compliance: A Roadmap for Companies

Necessary Steps and Best Practices

To navigate the complexities of CSRD reporting, companies should begin by understanding the essentials of the directive. Key steps include identifying the scope of reporting requirements, assessing current practices against CSRD standards and planning for necessary adjustments.

Challenges and Solutions

Adopting CSRD can pose challenges, particularly for companies transitioning from NFRD. These challenges involve understanding the detailed reporting requirements and integrating them into existing corporate frameworks. Our sustainability scientists at Tunley Environmental provide tailored solutions to overcome these hurdles, offering expert guidance, comprehensive training and robust frameworks to ensure seamless integration and compliance with the new regulations.

The Bottom Line

Considering the ever-changing landscape of sustainability regulations, working with sustainability experts like Tunley Environmental offers significant benefits, including staying ahead of regulatory changes, enhancing transparency and fostering long-term sustainable growth.

Understanding how the new regulation specifically impacts your business is essential for navigating this transition effectively. To this end, companies are advised to take proactive steps by consulting with our expert sustainability scientists. This proactive approach will provide you with tailored guidance on the implications of the CSRD for your operation and offer the best practices for adopting these changes seamlessly. To learn more about how Tunley Environmental can help your organisation align with CSRD best practices, book a free consultation here.