Everything you need to know about CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a new regulation implemented by the European Union, launched as part of the September 2022 Green Deal. Under this directive, major corporations will, starting in 2024, be required to report the impact of their activities on people and the environment. Aspects to be included in the report are sustainability performance indicators such as reduced energy consumption, safe working conditions and efforts designed to reduce pollution/contamination. Under the CSRD, companies will be required to report on their sustainability performance, just like they are expected to provide annual reports on their financial performance. This will make matters more transparent, and will allow consumers and investors to compare companies on the basis of their sustainability efforts.

Previously, under the Non-Financial Reporting Directive (NFRD), only major, listed companies that employ more than 500 persons were required to report. Under the CSRD, more companies will be required to report. Starting from 2025, companies will have to submit CSRD reports if they meet two or more of the following three criteria:

• Workforce exceeding 500 employees;
• Annual revenue exceeding €50 million;
• Balance sheet total exceeding €25 million.

In 2026, the rules regarding the first criterion will be tightened: companies whose workforce exceeds 250 employees will be required to report. Even smaller companies will be indirectly affected by the CSRD, in that major corporations will request their suppliers and clients to provide detailed information, since they will be required to report on all the companies in their value chain. It is essential that companies start early to prepare for this – that they have all the data and reports ready to go by the time they are expected to file their reports.

The general purpose of the CSRD is to get companies to provide more extensive and standardised information on environmental, social and governance aspects in their reporting. In this way, ‘greenwashing’ will be prevented, and fairer comparisons between companies will be able to be made. CSRD reports have two principal components. On the one hand, companies are expected to report on their corporate activities in line with the EU taxonomy. On the other hand, they are expected to report on all aspects of their operations, in line with the European Sustainability Reporting Standards (ESRS). It is important to note here that CSRD regulations concern a duty to report, rather than a duty to implement sustainability measures.

This is a uniform sustainability reporting language used to assess whether a company’s activities can be regarded ‘sustainable’. It is important to take this into account at an early stage, since companies with a larger share of sustainable activities are likely to receive favourable green loans and investments. In addition, customers increasingly focus on companies’ sustainability records.

All corporate activities included in the EU taxonomy list must be assessed. The annual report must then state what percentage (in CapEx, OpEx and revenue) of the company’s activities are included in the EU taxonomy list, and what percentage of these are actually environmentally sustainable. Activities are considered environmentally sustainable if they make an additional contribution to one of six environmental themes (climate change, climate adaptation, water consumption, circular economy, pollution or biodiversity) and do not cause any harm to others. In addition, activities must meet the Minimum Safeguards with regard to subjects such as human rights.

This section outlines in detail how companies must report on various sustainability-related themes with regard to all aspects of their operations. A double materiality assessment will help you determine which themes matter to your organisation, be they internal or external. After all, you do not have to report on every theme. The assessment not only concerns the impact of your activities on the environment, but the opportunities and risks posed to the company by sustainability themes.

Companies are increasingly expected to assume responsibility for the activities undertaken by other companies in their value chain. They will soon have to start reporting on these, too. What with the soon-to-be-adopted Corporate Sustainability Due Diligence Directive (CSDDD), investigations into the other companies in the value chain are expected to be the most time-consuming reporting requirement in the future. The 12 ESRSs have been subdivided into two general standards and ten ESG themes. ESG stands for ‘Environmental, Social and Governance’ and is shorthand for the various subjects that come under the heading of ‘sustainability’. The introduction of the various ESRSs is a way to ensure that companies be transparent about their sustainability efforts and that they disclose certain basic information, thus allowing people to compare companies in terms of how they perform in these fields. They only have to do so for those themes that were found to be important in the double materiality assessment.

Under the CSRD, companies are required to report in depth on their sustainability practices, which puts quite a burden on them. Volantis believes in CSRD reporting because it provides companies with an opportunity to green their corporate activities in a structured manner. It allows companies to try and outdo other companies with regard to sustainability aspects that matter to them. Investors and clients appreciate these efforts, which may result in financial benefits. We encourage companies to collaborate with each other, so as to improve transparency and develop effective transition plans. CSRD reporting is a great way to benefit from sustainability ambitions.

Companies will encounter opportunities as well as challenges. It is important that companies seek partners with whom they can report and develop economically attractive transition plans. This will allow them to implement corporate social responsibility, present transparent reports and implement changes that will help them meet their sustainability targets. Together we can benefit from CSRD reporting and create a more sustainable future.

We will be very happy to discuss CSRD reporting or other sustainability-related subjects with you.