The evolution from the Non-Financial Reporting Directive (NFRD) to the Corporate Sustainability Reporting Directive (CSRD) marks a significant shift in the European Union's approach to sustainability reporting. This change not only broadens the scope of reporting but also redefines who must comply and how. Understanding these changes is crucial for businesses to prepare effectively.
Under the NFRD, compliance was limited to large public-interest entities with more than 500 employees. This included listed companies, banks, and insurance companies. However, the CSRD casts a wider net:
All Large Companies: This includes all large companies, whether they are public-interest entities or not. 'Large' is defined as meeting at least two of the following criteria: more than 250 employees, a balance sheet total of more than €20 million, and a net turnover of more than €40 million.
Companies Listed on Regulated Markets: The CSRD extends to all companies listed on regulated markets, except micro-enterprises. This inclusion significantly increases the number of companies that need to comply.
Non-EU Companies: Non-EU companies generating a net turnover of €150 million in the EU and having at least one subsidiary or branch in the EU are also subject to CSRD requirements.
Scope of Reporting: The CSRD demands more detailed reporting on sustainability matters, including climate change, social rights, and governance aspects. Companies must now report on how sustainability issues affect their business and vice versa.
Quality and Depth of Information: The CSRD emphasizes the quality, consistency, and comparability of sustainability information. This means companies must provide more detailed and reliable data than what was required under the NFRD.
Digital Format and Accessibility: The CSRD introduces a 'single electronic reporting format,' making it easier for stakeholders to access, compare, and analyze sustainability information.
Assurance of Sustainability Reporting: Unlike the NFRD, the CSRD requires that sustainability reports be audited to ensure their reliability. This change will likely increase the accountability and accuracy of sustainability reporting.
Assessment and Gap Analysis: Companies should start by assessing their current reporting practices against CSRD requirements to identify gaps.
Strengthening Data Collection and Management: Robust systems for data collection and management will be essential, given the CSRD's emphasis on detailed and reliable reporting.
Training and Capacity Building: Educating and training staff on CSRD requirements will be crucial for effective implementation.
Engaging with Auditors and Consultants: Early engagement with auditors and sustainability consultants can provide insights into best practices and help streamline the compliance process.
Technology and Software Solutions: Investing in appropriate technology and software can aid in managing, reporting, and auditing sustainability data efficiently.
Stakeholder Engagement: Proactive communication with stakeholders, including investors, customers, and employees, about the company's sustainability practices and reporting can build trust and transparency.
The transition from NFRD to CSRD is more than just a regulatory change; it represents a shift towards a more sustainable and transparent corporate world. By understanding who needs to comply, the key changes, and how to prepare, companies can not only ensure compliance but also demonstrate their commitment to a sustainable future.
References
BDO USA, "Comparison of Draft CSRD to NFRD Requirements." Read more
Grant Thornton, "CSRD reporting: What you need to know." Read more
ESG Enterprise, "NFRD vs. CSRD: What are the differences?" Read more
BeCredible, "Understanding the EU Taxonomy: Differences between NFRD, CSRD, and SFDR." Read more
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