Launched by the European Commission in 2021, the Corporate Sustainability Reporting Directive (CSRD) aims to unify non-financial reporting among businesses, elevating the uniformity and caliber of data accessible to the public. Significantly, these updated guidelines will influence a broad spectrum of entities, becoming operational from January 1, 2024.The term CSRD refers to the Corporate Sustainability Reporting Directive, initiated by the European Commission in April 2021. This innovative regulatory structure for sustainability in Europe was officially documented on December 16, 2022, within the Official Journal of the EU.This directive mandates that large enterprises release non-financial disclosures in line with the standards set at the European scale (ESRS). The directive emphasizes transparency on threats, prospects, and significant repercussions concerning social, environmental, and governance facets.At its core, the directive aims to realize the goals set by the European Green Deal, with the target of achieving carbon neutrality by 2050.
ℹ️ Previously, the non-financial performance reports of European businesses fell under the guidance of the NFRD (Non-Financial Reporting Directive). Yet, viewed as not being adequately forward-thinking, it will be succeeded by the renowned directive (EU) 2022/2464, commonly referred to as "CSRD."
The CSRD is aimed at both financial and non-financial businesses governed by the Accounting Directive and the Transparency Directive, specifically encompassing:
- European companies traded on regulated markets, inclusive of listed SMEs, though micro-enterprises defined by the Accounting Directive are omitted.
- Additional large European enterprises, irrespective of their listing status, that surpass two out of the three specified benchmarks (250 employees, revenue over 40 million euros, and/or assets above 20 million euros).
- Non-European enterprises with branches or subsidiaries in the European Union generating more than 150 million euros in revenue.
SMEs will face a lighter reporting load. The stature of European branches and subsidiaries will be factored in as well. In the same vein, non-European businesses are only tasked with revealing data about their environmental and social repercussions.
For clarity, SMEs that adhere to these specifications will have to comply:
- A staff count of 10 employees or fewer;
- A balance sheet total of 250,000 € or below;
- Annual revenues of 700,000 € or less.
❗️ Crucial Point: When a parent company compiles consolidated reports, its subsidiaries might be relieved from the reporting obligation. Yet, the exempted firms are still obligated to supply specific data. It's also worth noting that major listed entities cannot avail of this provision.
To reiterate, the CSRD was showcased to both the European Commission and the European Parliament on April 21, 2021. Following its publication on December 16, 2022, in the Official Journal of the EU, it was incorporated into the national laws of all EU member states by the close of that year.
The directive's implementation will be staggered across four specific dates
- January 1, 2025 (reflecting the 2024 fiscal year) will cater to both European and non-European companies already adhering to NFRD guidelines.
- January 1, 2026 (for the fiscal period of 2025) will target large European businesses and non-European entities listed on European regulated markets that aren't under NFRD obligations.
- January 1, 2027 (representing the 2026 fiscal year) is dedicated to listed SMEs from both European and non-European regions. An important detail: these SMEs can avail an extra two-year deferment provided they present valid reasons.
- January 1, 2028 (attributed to the 2027 fiscal year) will affect non-European corporations generating more than 150 million euros in European revenue via a branch or subsidiary. Below, we've encapsulated the CSRD schedule in a concise table format.
What should you do before January 1st, 2026, if your company is not yet subject to NFRD?
STEP 1
Opportunity and risk analysis regarding the EU directive and its significance for your company.
STEP 2
Establishing a CO2 footprint for Scopes 1, 2, and 3.
STEP 3
Setting emission reduction targets for your company.
STEP 4
Expanding energy/environmental management systems.
STEP 5
Aligning data management and control with a recognized reporting standard.
STEP 6
Monitoring the main sources of emissions.
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