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Home » Blog » CSRD » The Evolving Landscape of Sustainability Reporting: The CSRD Requirements

The Evolving Landscape of Sustainability Reporting: The CSRD Requirements

CSRD Requirements

The Corporate Sustainability Reporting Directive, CSRD requirements are a key component of sustainability reporting in the EU. It significantly strengthens and expands the existing Non-Financial Reporting Directive (NFRD), CSRD requirements often mandate a wider range of companies to disclose comprehensive information on their:

  • Sustainability practices: This encompasses initiatives, policies, and strategies companies implement to manage their environmental and social impact.
  • Sustainability impacts: Companies must report on the positive and negative effects of their operations on environmental and social aspects, including climate change, resource depletion, employee well-being, and community engagement.
  • Sustainability risks: Identifying and disclosing potential environmental and social risks their business faces, such as climate-related disasters, resource scarcity, and social unrest.
  • Sustainability opportunities: Companies need to highlight how they plan to capitalize on opportunities arising from the transition to a sustainable economy, such as developing innovative green technologies or entering new environmentally friendly markets.

Who Does the CSRD Apply To?

The CSRD applies to a significant portion of the European business landscape, impacting approximately 49,000 companies. This includes all large companies and all companies listed on regulated markets within the EU (except micro-enterprises). The criteria for classification focus on size, location, and revenue, specifically targeting companies with more than 250 employees and a net turnover exceeding EUR 40 million or a total balance sheet exceeding EUR 20 million. Notably, the directive also captures non-EU companies generating substantial revenue within the EU, directly involving US companies and other international firms in its ambit.

Evolution of the CSRD from 2022 to 2024

Evolution of the CSRD from 2022 to 2024

2022: Laying the Foundation for Comprehensive Reporting

  • The initial CSRD proposal aimed to extend the reporting requirements established under the NFRD.
  • It introduced the concept of double materiality, emphasizing not just how sustainability issues affect companies but also the impact of companies on society and the environment.
  • The 2022 directive paved the way for more comprehensive reporting requirements and the necessity for digital reporting formats to facilitate accessibility and analysis.

2023: Integration and Assurance

  • In 2023, the focus shifted towards:
    1. Integrating the EU Taxonomy for clarity on environmentally sustainable economic activities.
    2. Strengthening assurance requirements for reported sustainability information to enhance reliability and credibility.
  • Companies began aligning their reporting with the EU Taxonomy, facilitating a clear understanding of their environmental impact.
  • The directive specified the need for external assurance, elevating the reliability and credibility of sustainability reports.

2024: Increased Specificity and Broader Scope

  • By 2024, the CSRD saw further refinement in several areas:
    1. Application of double materiality
    2. Reporting frameworks
    3. Templates for disclosures
  • The directive became more prescriptive, detailing the number of data points companies must report on and the ESG reporting format.
  • This year also saw a greater emphasis on the societal and governance aspects of sustainability alongside environmental considerations.

Compliance for US Companies: A Global Reach

US companies, along with other non-EU entities operating significantly within the EU market (generating a net turnover of EUR 150 million), are required to comply with CSRD. This global reach underscores the directive’s influence beyond European borders, compelling US firms to align with EU standards in sustainability reporting, including undergoing assurance and audit of their sustainability information.

Assurance and Audit Requirements: Building Trust

A key component of the CSRD is the requirement for assurance and audit of the reported sustainability information. This ensures the accuracy and reliability of the data presented, building trust among investors, regulators, and the public. The directive mandates that companies have their sustainability reports independently verified, emphasizing the importance of transparency and accountability in corporate sustainability practices.

Double Materiality: A Holistic View

Double materiality is a cornerstone of the CSRD, requiring companies to report on:

  • How sustainability issues affect their business operations and financial performance (financial materiality)
  • The impact their activities have on people and the environment (environmental and social materiality)

This comprehensive approach to materiality ensures a holistic view of a company’s sustainability performance.

Reporting Timelines and Complexity

The phased introduction of CSRD requirements allows companies time to adapt, with larger companies needing to comply earlier than smaller firms. This timeline reflects the directive’s ambition to progressively bring a wide range of companies under its scope, increasing the depth and breadth of sustainability reporting across sectors.

The complexity of CSRD reporting, including the sheer number of data points to be disclosed, underscores the necessity for specialized software platforms. These platforms can facilitate data collection, management, analysis, and reporting, helping companies navigate the intricate requirements of the CSRD efficiently and effectively.

Conclusion: A Trajectory Towards Sustainability

As the CSRD evolves, its increasing specificity and scope highlight the EU’s commitment to integrating sustainability into the core of corporate governance and reporting.

Lythouse has effective software solutions to manage CSRD reporting, to know more Request a demo.

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