Guides
A guide to the CSRD and ESG reporting
What is the Corporate Sustainability Reporting Directive (CSRD) and what businesses will it affect?
The Corporate Sustainability Reporting Directive (CSRD) is a significant EU regulation that brings together financial data, ESG information and assurance for the first time.
On 10 November 2022, the European Parliament voted overwhelmingly to pass the directive. The full proposal text can be read here.
What does it mean for businesses?
For firms based in the EU or with subsidiaries within the region, the path to more sustainable practices is now unavoidable.
With the CSRD confirmed, companies are facing up to some key facts:
- ESG is entering the annual reporting process
- Sustainability information will sit alongside financial information
- The amount of data that needs to be collected will significantly increase
- So too, will the number of people involved in the integrated reporting process
- Sustainability information will be audited
In short, the CSRD is a piece of EU legislation establishing environmental, social and governance (ESG) reporting requirements for organisations.
Annual reports must now contain ESG information
In short, the CSRD is a piece of EU legislation establishing environmental, social and governance (ESG) reporting requirements for organisations.
It aims to replace the Non-Financial Reporting Directive (NFRD), which has been criticised partly because it implies ESG has no financial relevance.
With the CSRD, there is no ambiguity.
Annual reports must incorporate sustainability information, including topics within ESG defined by 13 standards.
Information about ESG must be treated with the same rigour and suspicion as financial information.
CSRD will initially impact 50,000 organisations
Around 50,000 organisations will be required to comply with the CSRD. The European Commission has planned a phased rollout to ensure compliance.
The CSRD will also affect non-EU companies with EU-based subsidiaries or securities listed on EU-regulated markets with a net turnover of over €150m.
As the CSRD was introduced after Brexit, the UK is considered a third country.
Improving ESG reporting
CSRD aims to improve the accessibility of ESG reports, increase trust and transparency in ESG reports, and better demonstrate the financial value of sustainability information.
It is essential to present this information in a standardised format that enables investors to compare firms and their ESG efforts.
The CSRD is a significant milestone that will improve the quality of ESG reporting across the EU.
As a side benefit, long-established reporting practices will also undergo widespread reform.
The CSRD is a spark that’s igniting a revolution in annual reporting.