The intensively discussed Corporate Sustainability Reporting Directive, of which a first draft was already published by the Commission in April 2021, has received its final approval by the European Council on November 28th, 2022. The CSRD will be published in the Official Journal of the European Union and enters into force 20 days afterwards. The new rules have to be implemented by member states within the next 18 months.
The CSRD is finalized!
The CSRD represents a fundamental update to the previous Non-Financial Reporting Directive (NFRD). In addition to a significant expansion of the scope and its own European Sustainability Reporting Standards, the CSRD also introduces an external audit requirement for the reported sustainability information.
According to the CSRD, companies will in future have to report on how their business model affects their sustainability and, in addition, they must address how external sustainability factors affect their own activities, which will equip investors and other stakeholders with an improved information basis for decisions on sustainability issues.
The following article provides a brief overview of the most important facts regarding the CSRD. In the following days, we will of course also publish a more in-depth analysis of the new CSRD!
The CSRD introduces detailed reporting requirements, which in future will ensure that all large companies and all listed companies are required to report (in the management report) on sustainability aspects such as environmental rights, social rights, human rights, and governance factors. The reporting obligations will also apply to non-European companies, generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds.
Thus, the CSRD extends its scope to non-capital-market-oriented large companies as well as small and medium-sized companies listed on a regulated market in the EU.
To quality as a large company, two of the following three criteria must be met:
- Balance sheet total > EUR 20 Mio
- Turnover > EUR 40 Mio
- Number of average employees > 250
CSRD: Application date
In the meantime, the legislature has deviated from the original ambitious goal of the first draft. The now planned phased introduction of the reporting obligations is as follows:
- Reporting obligation in 2025 for the reporting year 2024:
All companies already subject to the NFRD, which was implemented in Austria with the NaDiVeG, must carry out reporting in accordance with the CSRD (or the expected national legal act) on the financial year 2024.
- Reporting obligation in 2026 for the reporting year 2025:
- All large companies not previously covered by the scope of the NFRD will be covered by the new reporting obligation for the financial year 2025.
- Reporting requirement in 2027 for reporting year 2026:
Listed small and medium-sized companies (excluding listed micro-entities) as well as non-complex credit institutions and captive insurance undertakings will be required to report starting with the financial year 2026.
- Reporting requirement in 2029 for the 2028 reporting year:
Companies outside the EU with net turnover exceeding EUR 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
Large companies in particular should not overlook the fact that a great deal of preparatory work is required for the 2025 reporting year, which should ideally be initiated now.
European Sustainability Reporting Standards
As part of the CSRD, the European Financial Reporting Advisory Group (EFRAG) is responsible for developing European Sustainability Reporting Standards (ESRS). The first drafts of the ESRS, which consist of general and ESG-specific standards, have already been published and revised. The first set of finalized standards should be available by June 30th, 2023. Another set of simplified standards for small and medium-sized companies is expected by June 30th, 2024. In addition, the publication of supplementary and sector-specific information is planned.
CSRD: external audit requirement
The CSRD also introduces an external audit requirement on published sustainability information, which is intended to ensure that reporting requirements are met and, in particular, to prevent greenwashing. For the time being, a limited assurance audit is foreseen, which, after review and adoption of own standards by October 1st, 2028, will transition to a reasonable assurance audit.
The CSRD represents a part of the European Green Deal and the Agenda for Sustainable Finance. Companies are faced with some major tasks; our experts are happy to assist you with all related questions. Be it in the preparation of a sustainability report, the definition and determination of company-relevant ESG-KPIs or the support in the conceptual design of a sustainability strategy. Contact our experts about the new reporting requirements and learn how you can benefit from the sustainability trend! Would you like to learn more about how we at TPA integrate environmental, social and regulatory issues into responsible corporate governance? Take a look at our latest TPA Sustainability Report.