What is the Corporate Sustainability Reporting Directive (CSRD)?
The Corporate Sustainability Reporting Directive (EU CSRD) is the newly adopted EU legislation (Oct 2022) that requires large companies to regularly report on their environmental and social impact activities.
The CSRD introduces a comprehensive reporting framework for non-financial data, it is redefining the scope and nature of sustainability reporting. The directive establishes a standardised approach to reporting, marking the first instance of a common framework for such disclosures.
It allows investors, consumers, policymakers, and stakeholders to evaluate large companies' non-financial performance and encourages the development of more responsible business.
Compliance is coming soon
Companies must submit their report aligning with the Corporate Sustainability Reporting Directive on 1 January 2025, (for the 2024 financial year). Data collection and auditing is an arduous process requiring time and resources. If your company is not familiar with it or are wondering, "does my company need to comply?" then it is time to become an expert and CoolPlanet can very much help you here.
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Who does the Corporate Sustainability Reporting Directive apply to?
The Corporate Sustainability Reporting Directive requires all large companies - meaning companies with more than 250 employees and more than €40M turnover and/or more than €20 Million in total assets - and all listed companies (except micro-enterprises, less than 10 employees or below €20M in turnover) to report on their sustainability.
Nearly 50,000 companies in the EU will need to follow detailed EU sustainability reporting standards, corresponding to 75% of all EU companies turnover.
How did EU CSRD come about?
To help improve money flow towards sustainable activities across the EU, the European Commission adopted the Sustainable Finance reporting Package (April 2021). One of the proposed measures within this package was the Corporate Sustainability Reporting Directive (EU CSRD). Evidence suggests that companies' information is not sufficient in the reporting as is.
According to the European Commission, "reports often omit information that investors and other stakeholders think is important". Reported information can be difficult to benchmark from company to company, and users are often unsure whether they can trust it. For example, investors need to assess this information to report under the Sustainable Finance Disclosures Regulation (SFDR) and channel money to sustainable activities.
The CSRD aims to ensure that businesses report reliable and comparable sustainability information to re-orient investments towards more sustainable technologies and companies.
Which information will have to be disclosed?
The new Directive will replace the Non-Financial Reporting Directive (NFRD) and will be phased in from the beginning of 2024. The CSRD goes beyond the NFRD and aims to make Europe a global leader in sustainability reporting.
Under the NFRD (Non-Financial Reporting Directive) 2014/95/EU companies have to publish information related to:
- Environmental protection
- Social responsibility and treatment of employees
- Respect for human rights
- Anti-corruption and bribery and
- Diversity on company boards
The CSRD is adding additional requirements on as follows:
- Double materiality concept: Sustainability risk (including climate change) affecting the company plus companies’ impact on society and environment
- Process to select material topics for stakeholders More forward looking information, including targets and progress
- Disclose information relating to intangibles (social, human and intellectual capital)
- Reporting in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation
- Businesses will correspondingly have to start reporting how sustainability risks might affect their performance.
While the EU provides voluntary reporting guidelines for NFRD reports, the CSRD introduces more detailed reporting requirements and requirements to report according to mandatory EU sustainability reporting standards. The CSRD reporting will align with the already existing Sustainable Finance Disclosure Regulation and the EU Taxonomy.
What are the next steps?
- 2025: Businesses already subject to the NFRD will have to start reporting on the financial year 2024
- 2026: Large undertakings not currently subject to the NFRD will have to start reporting on the financial year 2025
- 2027: Small and medium enterprises and small and non-complex credit institutions and captive insurance undertakings will have to start reporting for the financial year 2026 - with a further possibility of voluntary opt-out until 2028
- 2029: Non-European companies that have branches or subsidiaries will have to start reporting
Penalties for non compliance
The sanctions imposed under the Corporate Sustainability Reporting Directive can be significant, as per the requirements set by the European Commission. The specific nature and amount of fines will vary across Member States. For instance, in Germany, companies that fail to report compliance with the Non-Financial Reporting Directive (amended by the CSRD) may face fines up to the highest of the following: €10 million, 5% of the company's total annual turnover, or twice the profits gained or losses avoided due to the breach.
In contrast, French businesses are not subject to fines if they do not report in accordance with the NFRD, unless a concerned party requests the disclosure of non-financial information. If the information is not provided subsequently, a judge may impose financial penalties.
To be fully prepared, businesses should start collecting data now. It is not easy to stay on top of the requirements and understand which data must be collected and when. We’re here to help.
CoolPlanet can help
CoolPlanet, a leading decarbonisation partner, specialises in assessing whether your company collects and analyses the appropriate data, evaluates your existing technology, and provides recommendations and help you deliver new implementations and strategies. By partnering with us, you can ensure compliance with CSRD and all your ESG reporting obligations, meet other legal requirements, and uncover potential opportunities for energy savings and efficiency. Discover how our comprehensive decarbonisation management system can assist your company in achieving its reporting and net-zero objectives.