The European Union recently enacted its new Corporate Sustainability Reporting Directive (CSRD) in January 2021, forming part of the European Green Deal. The CSRD is responsible for bringing sustainability reporting up to date, following on from the Non-Financial Reporting Directive (NFRD). While the NFRD only applied to companies with more than 500 employees, the new CSRD applies to all companies inside the European Union.
Under the new CSRD rules, companies are going to be required to take a double materiality approach when it comes to sustainability reporting. This entails assessing and benchmarking not only the environmental impacts of their operations, but also the social and economic impacts. It’s designed to provide a comprehensive view of how companies are performing in comparison to national and international standards. The intention is for sustainability reporting to become as commonplace and widely accepted as financial reporting.
It’s worth noting that the CSRD rollout is being done over a four year period, starting in 2025. This period will be split into two separate phases, with the first phase focusing on developing internal reporting infrastructure and the second phase focusing on public reporting. In between these two phases, companies should be expecting to receive guidance from the EU Commission about how to comply with the new requirements.
At its heart, the CSRD is an attempt to stimulate corporate sustainability and transparency, making sure annual reports don’t just focus on the financial bottom line. It’s an acknowledgement by the EU that businesses have a responsibility to reduce their impact on the environment and ensure responsible business practices. By incentivising a move towards sustainable development, the CSRD could be the push some companies need to transition to a more efficient, low-carbon economy.
The CSRD timeline is an important one for companies to take note of if they want to stay compliant with the new directive. Companies should begin to work towards meeting the new requirements now, in order to achieve compliance by 2025. This includes getting to grips with the new double materiality reporting framework and looking at ways to develop internal reporting infrastructure. The good news is that there are plenty of resources available to help companies make the transition.
Overall, the CSRD is an ambitious piece of legislation that requires careful planning. Companies have four years to make sure they are compliant before public reporting begins. But by taking the time to understand the new requirements and developing an effective sustainability reporting strategy, companies can make sure that they are well positioned for success.