The Corporate Sustainability Reporting Directive (CSRD) is a European directive that requires companies to publish detailed reports on their environmental, social and governance (ESG) sustainability performance. Progressively mandatory from January 1, 2024, it replaces the NFRD and applies to over 50,000 companies in Europe. The CSRD, directly linked to the CSR transformation, introduces the double materiality obligation and uses 12 European Sustainability Reporting Standards (ESRS) to standardize reporting. These ESRS are divided into 3 themes: environment, social and governance.
2. What are the changes for companies?
3. What information should be published?
The CSRD introduces the concept of double materiality, requiring companies to assess both the impact of their activities on the environment and society (impact materiality) and the impact of environmental and social issues on their own financial performance (financial materiality). This approach provides a global view of the risks and opportunities associated with ESG issues, thereby enhancing the relevance and transparency of the information provided to investors and other stakeholders.
The CSRD aims to harmonize reporting standards by adopting the European Sustainability Reporting Standards (ESRS). These standards standardize extra-financial reporting practices across Europe, facilitating the comparison and analysis of ESG data between companies. This convergence enables companies to follow clear and consistent guidelines, improving the transparency and reliability of published information. An essential component of this directive is the integration of IRO (Impacts, Risks, Opportunities) into CSR (Corporate Social Responsibility) strategy.
The information disclosed as part of the CSRD must be verified by third-party auditors. This external verification ensures the credibility and accuracy of ESG reports. The auditors examine the data to ensure that it is complete, accurate and in line with ESRS standards, thereby reinforcing investor and stakeholder confidence in the information provided by companies.
The CSRD encourages the digitization of extra-financial reports, making it easier for stakeholders to access and analyze data. Digitization enables ESG information to be disseminated faster and more widely, making reports more accessible and usable. Companies must use standardized digital formats to publish their reports, which improves the efficiency and transparency of the reporting process.
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With the implementation of the CSRD, the number of companies required to publish extra-financial reports has increased significantly. The directive is no longer limited to large listed companies, but also encompasses mid-sized companies exceeding the thresholds of 250 employees and 25 million euros in balance sheet value. Overall, in Europe, the number of companies affected will rise from around 5,000 to 7,000, to 50,000. This widens the scope of application compared with the previous NFRD, which only applied to around 11,000 companies.
Companies must disclose the significant impacts of their activities on the environment and society. This includes greenhouse gas emissions, use of natural resources, biodiversity, as well as social effects such as working conditions and human rights. CSRD requires an in-depth analysis of the direct and indirect consequences of a company's operations on external stakeholders.
Financial information must include the risks and opportunities linked to ESG issues that could affect the company's economic performance. This includes climate risks, environmental regulations, consumer expectations in terms of sustainability, as well as market opportunities linked to sustainable products and services. Dual materiality ensures that companies fully integrate ESG dimensions into their financial strategy.
To prepare for ESRS, companies need to carry out a gap analysis between their current practices and the new requirements of the directive. This assessment enables them to identify areas requiring adjustment, and to plan the actions they need to take to comply with ESRS.
Failure to comply with CSRD obligations may result in financial and legal penalties. Regulators will have the power to impose fines and other penalties on companies that fail to publish reports in line with the directive's requirements.
Whether you're a company looking to comply with the new requirements of the CSRD or a specialist sustainability consultant, FocusTribes is here to help. We support companies in the preparation and implementation of detailed extra-financial reports according to European ESRS standards. What's more, we help sustainability consultants find the right assignments for their skills.
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