CSRD – A quick introduction

Posted 6th September 2024

Introduction to CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a new directive from the European Union (EU) and came into effect on 5 January 2023. The new directive covers EU domiciled businesses, as well as subsidiaries of non-EU companies. It will require disclosure of Environmental, Social and Governance (ESG) impacts, and how these may affect its business performance.

The CSRD aims to provide greater clarity for investors and financial analysts, shareholders, consumers and other stakeholders. Enabling wider society to evaluate company sustainability performance could bring about wide ranging and positive change.

Here are some key aspects about the new directive which you may not be familiar with:

What is Double Materiality?

CSRD reporting is based on the concept of double materiality. Companies and businesses adopting CSRD will need to disclose information on how their activities affect nature, biodiversity and ecology together with people and communities. They will also need to disclose how E&S risks may impact on the business performance, sustainability goals and measures. For instance, companies must not only report their energy usage and costs but also detail how energy use impacts the environment, set targets for reducing that impact, and explain how achieving those targets will affect their finances.

What is Expanded Scope?

Expanded scope relates to sustainability disclosures and reporting requirements. Its purpose is to improve the disclosure process and provide investors and consumers with a simpler, more consistent way to understand and compare an organization’s ESG impact, leading to better-informed decisions based on sustainability data.

Which Companies Must Comply?

By 2028, the following companies and businesses need to comply with the CSRD:

Listed Undertakings: These include companies listed on an EU-regulated market exchange (except for listed ‘micro undertakings’ that fail to meet specific criteria).

Large Companies: The CSRD classifies a large company as one that meets two out of three criteria: more than 250 employees, a turnover of over €40 million, and over €20 million total assets. These companies must also consider information at the subsidiary level.

Listed SMEs: There is a transitional period during which SMEs can opt out until 2028, but there are benefits for them to comply with reporting.

Non-EU Companies: Non-EU companies with a net turnover of €150 million in the EU and at least one subsidiary or branch in the union also fall under the CSRD requirements.

What is Detailed Reporting?

The CSRD will require companies to be more detailed in their sustainability reporting, covering ESG issues such as environment, biodiversity and ecology, social, and human rights, as well as anti-corruption and bribery. CSRD reports will need to be published in a dedicated section of a company’s management report, for example an annual report or it could be within a standalone sustainability report.

Goal and Aims of CSRD

The new CSRD will aim to reduce climate risks, environmental and biodiversity loss-related risks thereby potentially improving sustainability across Europe. It will help companies align with Europe’s 2050 climate neutrality target and dovetails with the European Green Deal initiative. Better standardised non-financial reporting will improve consistency and quality of current data and this we hope will improve business performance with benefits for all stakeholders.

Can International Biodiversity Consultants Ltd help?

IBC have been assisting European multinationals identify and document potential biodiversity impacts and are also supporting development of mitigation action programmes to address negative impacts across their global footprints.

Contact IBC via their email: info@ibioconsultants.com or use IBC’s online contact form.

References:

[1] https://plana.earth/policy/corporate-sustainability-reporting-directive-csrd

[2] https://oneclicklca.com/en/resources/articles/corporate-sustainability-reporting-directive-csrd/

[3] https://www.persefoni.com/blog/what-is-csrd

[4] https://www.ibm.com/topics/csrd

[5] https://www.polyteia.com/news-en/the-corporate-sustainability-reporting-directive-csrd-everything-you-need-to-know

[6] https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/corporate-sustainability-reporting-directive_en

[7] https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

[8] https://ecochain.com/blog/csrd-esrs-eu-reporting-guidelines/