
Corporate sustainability reporting directive 2024
The Corporate Sustainability Reporting Directive (CSRD) introduces phased sustainability reporting for entities from 2025, using European Sustainability Reporting Standards (ESRS). Key requirements include double materiality assessments, mandatory disclosure in management reports, assurance processes, and compliance roadmaps. Businesses must integrate financial and sustainability reporting to align with evolving EU regulations.
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OVERVIEW
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) expands the existing Non-Financial Reporting Directive (NFRD), making sustainability reporting as critical as financial reporting. It requires entities to disclose sustainability-related information in line with the European Sustainability Reporting Standards (ESRS). This must be presented in a dedicated section of the management report. The directive applies to entities based on size, revenue, and balance sheet criteria, with different thresholds for large entities and small- to medium-sized enterprises (SMEs).
What does it require?
Entities must produce a ‘sustainability statement’ as part of their management reports, ensuring mandatory and material disclosures are made. These disclosures span governance, strategy, impact, risk, and opportunity management. Two cross-cutting and ten topical ESRS set specific requirements, covering general, sector-specific, and company-specific sustainability issues. Companies must evaluate materiality through a double materiality assessment, considering both financial and impact perspectives.
Timelines and scope of the CSRD
The CSRD adopts a phased approach begining in 2025, covering financial year 2024. Large European listed entities with over 500 employees or meeting other thresholds (>€40 million revenue or >€20 million balance sheet total) must comply first. Smaller entities and non-EU companies with significant EU operations are incorporated in later phases, with global reporting requirements for non-EU parent companies starting in 2028.
Reporting requirements
Individual or consolidated reporting may be required depending on an organisation’s structure and scope. Large listed entities must always report individually, while exemptions apply for consolidated groups under specific conditions. The CSRD mandates the inclusion of governance details, strategy alignment with sustainability goals, and an overview of risks and opportunities within management reports. To enhance reliability, organisations must provide assurance for sustainability data, initially at a limited level before transitioning to reasonable assurance by 2027.
Disclosure requirements
Disclosures follow ESRS guidance, which requires clarity and relevance. Governance-related disclosures must detail board diversity and roles, while strategy disclosures highlight sustainability-related impacts and integration into overall business strategy. Impact, risk, and opportunity management disclosures should explain materiality assessments and rationale. Entities must also provide metrics and targets relevant to their material sustainability topics.
Double materiality assessment
The double materiality approach assesses both an entity’s impact on the environment and society and the financial implications of sustainability risks. The process involves value chain mapping, stakeholder engagement, severity assessment, and continuous monitoring. Each step ensures stakeholder interests are considered and incorporated into reporting. This assessment is pivotal in defining material topics and typically takes 10 weeks to complete.
How do entities prepare for the CSRD?
Preparation involves a four-step process: conducting a double materiality assessment, making disclosures by material topic, performing a gap analysis of current practices, and developing a compliance roadmap. Aligning with ESRS, entities must identify key sustainability areas, address gaps in reporting, and implement the necessary measures to achieve compliance.
What is the EU taxonomy?
The EU Taxonomy defines sustainable activities across six objectives, including climate change mitigation, circular economy, and biodiversity preservation. Organisations must evaluate their activities for eligibility and alignment and report key metrics, such as turnover and capital expenditure. A step-by-step process ensures alignment with these objectives, promoting transparency in sustainable practices.
Assurance and future requirements
The CSRD introduces a phased assurance approach, starting with limited assurance in 2025. By 2027, this will progress to reasonable assurance, requiring entities to provide robust evidence supporting their sustainability claims. Organisations should prioritise building internal systems to meet these evolving requirements.