On January 2023 the Corporate Sustainability Reporting Directive (CSRD) of the European Parliament (EP) and the Council entered into force. This Directive replaces the existing European Non-Financial Reporting Directive (NFRD), published in 2014, with regards to sustainability reporting. CSRD together with the Regulation on sustainability‐related disclosures in the financial services sector (SFDR) and the Taxonomy Regulation are the central components of the sustainability reporting requirements underpinning the EU’s sustainable finance strategy. From November 2022 the final standards are available, under which the sustainability disclosure requirements applicable to companies subject to CSRD are homogenised.
New Sustainability Reporting Framework (CSRD - ESRS)
Executive summary
The CSRD strengthens the existing reporting requirements of the NFRD and extends the scope of companies which are required to report on sustainability matters. Companies subject to CSRD will have to report according to the according to the European Sustainability Reporting Standards (ESRS). These standards aim to ensure more standardized, comparable reporting and set out the requirements that companies reporting on sustainability-related impacts, risks and opportunities under the CSRD need to meet. These standards, unlike the guidelines for complying with the NFRD, will be mandatory.
Main content
This Technical Note summarizes the main novelties of the CSRD and the general requirements of the ESRS:
a) Corporate Sustainability Reporting Directive (CSRD): Main developments with respect to NFRD
- Extension of the scope of application of the reporting requirements to all large companies (listed and non-listed on EU regulated markets) and all listed SMEs.
- Same ESG-related information, but with additional mandatory requirements, such as: double materiality analysis; a description of greenhouse gas (GHG) emission reduction targets to at least 2030 and 2050; consideration of short, medium and long-term horizons when reporting; and disclosure of information in accordance with Article 8 of the Taxonomy Regulation.
- Mandatory new ESRS developed by the EFRAG.
- Mandatory sustainability reporting assurance by a statutory auditor (natural person), audit firm (legal person) or independent verification service provider and publication of the subsequent assurance opinion. The assurance opinion shall be published together with the sustainability reporting.
- Mandatory inclusion of sustainability reporting in the company’s management report.
b) European Sustainability Reporting Standards (ESRS)
European Sustainability Reporting Standards are 12 sector-agnostic standards that cover general and specific requirements on environmental, social and governance topics in compliance with CSRD.
- Scope of the Disclosure Requirements (DR).
- Two cross-cutting standards applicable to all sustainability issues: ESRS 1 - General requirements and ESRS 2 - General disclosures.
- Ten specific topical standards: 5 Environmental standards, 4 Social standards and 1 Governance standard.
- All Disclosure Requirements except ESRS 1 include the following reporting areas: i) Governance; ii) Strategy; iii) Impact, risk and opportunity management; and iv) Metrics and targets.
Next steps
- By 2024, sector-specific and SME-specific ESRS will be published.
- By July 2024 at the latest, member states must have implemented CSRD.
- CSRD plans a phased-in approach for the disclosure of the new requirements, taking into account the principle of proportionality. The year of first disclosure for each type of company is provided below, always by reference to the balance sheet date of the financial year for which the report is drawn up and within the 12 months following that date:
- 2025: companies already subject to the NFRD.
- 2026: large companies that are not currently subject to the NFRD.
- 2027: listed SMEs (except micro undertakings), small and non-complex credit institutions and captive insurance undertakings.
- 2029: third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
Download the technical note on New Sustainability Reporting Framework (CSRD - ESRS).