In this article we dive deeper into the newly proposed Corporate Sustainability Reporting Directive (CSRD). The goal of this new EU directive is to give investors and consumers more information about the footprint of organizations they buy from. With this knowledge about companies, investors, partners and consumers can make well-informed choices in which company they want to invest, which they want to work with or from which to purchase - and hopefully make more sustainable choices along the way. Funding economic activities that support environmental objectives is one of the key drivers to achieve the EU’s 2050 carbon neutrality objective.
Up to now, the Non-Financial Reporting Directive (NFRD) is in place. Under the NFRD, only large companies (>500 employees) are required to publish reports on social responsibility (including relevant KPIs). In practice, several shortcomings were identified related to the comparability, reliability and relevance of the non-financial information provided.
Therefore, the CSRD was presented. The CSRD will require many companies ( >50.000 compared to c. 11.700) to disclose more detailed information about their carbon footprint. The proposal requires companies' assurance on reported information, has more detailed reporting requirements, and requires companies to ‘tag’ the reported information, so it is machine readable. This allows auditors to efficiently review and evaluate the data. In addition, a standardized format will be used which will be more insightful for investors and which ensures that the comparability between companies will improve.
When exactly do companies need to comply? The CSRD applies to you if your company meets at least two of the following conditions::
- €40m in net turnover;
- €20m in assets;
- 250 or more employees.
Also, companies based outside the EU must comply if they have subsidiaries in the EU or have securities on EU-regulated markets (micro-enterprises form an exception).
The proposed law will probably be adopted in late 2022, which means that companies have to start gathering information in 2023 and report accordingly in 2024. Sustainability reporting will no longer be a non-binding choice and therefore, the best preparation is to start now.