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The EU Parliament has officially adopted the Corporate Sustainability Reporting Directive – here’s everything you need to know 
The EU Parliament has officially adopted the Corporate Sustainability Reporting Directive – here’s everything you need to know 
The Corporate Sustainability Reporting Directive (CSRD) makes it mandatory for all large companies operating in the EU to report on their environmental impact from 2024 onwards. November 15, 2022
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On 10 November 2022, the European Parliament officially adopted the Corporate Sustainability Reporting Directive (CSRD) – with a huge majority of 525 votes in favour of the regulation.

In (very) brief, this means that sustainability information will now be included in the corporate annual reporting process for businesses operating within the EU. 

And for more detail, read on.

This post will cover:

  • What is the Corporate Sustainability Reporting Directive?
  • Who does it apply to? 
  • What will reporting include?
  • How can companies prepare?
"Sustainability is the only path to be on."
Mairead McGuinness
Mairead McGuinnessEuropean Commissioner for Financial Stability, Financial Services and the Capital Markets Union

What is the Corporate Sustainability Reporting Directive?

The Corporate Sustainability Reporting Directive is a new EU regulation on how companies should report on their sustainability efforts – replacing the Non Financial Reporting Directive.

In April 2021 the European Commission adopted the Sustainable Finance Package, with the aim of improving the flow of funds in the European Union towards sustainable business activities.

EU sustainable finance report

Within the Package, one of the measures was the Corporate Sustainability Reporting Directive (CSRD), which proposed that all large companies operating in the EU should be obliged to report on their environmental impact every year – aiming to standardise and make mandatory corporate sustainability reporting, for increased accuracy and transparency on business environmental impact and to increase business climate action. 

The EU Parliament reached a provisional agreement to adopt the CSRD in June 2022, and officially voted to adopt the CSRD on 10 November 2022. The legislation will come into effect for the fiscal year 2024, with the first reports due in 2025.

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What companies does the Corporate Sustainability Reporting Directive apply to?

The CSRD obliges all large companies operating in the EU to report on their sustainability performance, which means around 50,000 companies will now be reporting annually on sustainability – around 75% of the total turnover of all EU companies. The Non Financial Reporting Directive currently requires 11,700 companies to report, so it’s a big step up in which companies are included.

With the CSRD in force, 50,000 companies will be reporting annually on sustainability – around 75% of the total turnover of all EU companies.

‘All large companies operating in the EU’, in practice means:

  • Companies with more than 250 employees OR more than €40M turnover OR more than €20 Million in total assets
  • All listed companies on the European Stock Exchange (except micro-enterprises).
The CSRD applies to all EU listed companies and large companies i.e those with over 250 employees, over €40M turnover, or over €20 Million in total assets.

Although the legislation will be in force from 2024, there will be a phased approach to introducing reporting across companies: 

  • From 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive, with reports due in 2025;
  • From 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with reports due in 2026;
  • From 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt-out until 2028.

It’s also expected that non-European companies with branches or subsidiaries with a turnover of over €150 million in the EU will also have to report, to be brought in at a later date (currently expected from 2029).

What will reporting need to include?

Corporate sustainability reporting will need to meet new EU Sustainability Reporting Standards, developed by the European Financial Reporting Advisory Group – the first draft of which was approved on 15 November 2022.

The Standards are likely to include:

  • Analysis of the risks and opportunities of climate change and how they are being taken into account in business plans
  • Governance and management of sustainability
  • Measurement of GHG emissions across Scopes 1, 2, and 3
  • Targets for emissions reductions and progress towards these targets
  • Disclosure of any purchases of carbon offsets and carbon removals.

We also know that reports will need to be submitted digitally, and that they will be subject to independent, third-party auditing and certification to ensure sustainability reporting by companies is reliable and comparable. 

How can companies prepare for the Corporate  Sustainability Reporting Directive coming into effect?

If your company is included in those that will need to comply with the Corporate  Sustainability Reporting Directive, we’d recommend starting to get everything in order sooner rather than later.

And, we’re likely to see more and more corporate sustainability reporting legislation come into force globally over the next few years for all kinds of businesses – so even if your company won’t be required to report on environmental impact by the CSRD, it’s still a good idea to get ahead of the game. Plus, beyond the legislation, there’s a very strong business case for working on sustainability anyway – from risk management to customer loyalty to employee satisfaction and more.

There are plenty of actions to get started with to put you in good stead for the changes:

  1. Take a look at the Task Force on Climate-Related Disclosures (TCFD) recommendations on corporate climate reporting – they’re currently the most accepted and adopted standard for how companies should disclose on climate, so once you are subject to mandatory climate disclosure it’s likely to be under guidelines similar to these recommendations, meaning they’re a great place to start to understand what you’ll be required to include in reporting. 
  2. Calculate your existing carbon emissions to understand your starting point and identify areas for improvement.
  3. Set rigorous targets and KPIs to reduce emissions as much as possible, always using a respected framework such as Science Based Targets.
  4. Buy high-quality offsets to compensate for emissions you’re unable to reduce (or that will need long-term work to reduce).
  5. Identify climate risks to your business, and put mitigation measures in place – climate should definitely be part of your risk management process.
  6. Explore climate opportunities in your industry – how could your business respond to climate change beyond your own carbon footprint? For instance, in the payments industry that may be exploring how to offer consumers and/or businesses a ‘green’ payments alternative.

As a first step, developing an impactful sustainability strategy which lays out how you will approach sustainability – including all of the actions above – how it aligns with your overall goals and vision, and how different roles within the business will contribute to this, will ensure that there’s strategic alignment and buy-in on sustainability. 

Checklist for an impactful sustainability strategy

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