The EU Corporate Sustainability Reporting Directive (CSRD) explained

Erich Molz


5 minutes



The CSRD is the successor of the Non-Financial Reporting Directive (NFRD) and part of a larger legislative package to help achieve the EU’s sustainability goals in general and its climate goals in particular. Its goal is to make companies’ sustainability performance data more available, reliable and comparable through standardized reporting requirements on environmental, social and governance issues. It will impose new and extensive sustainability reporting obligations on virtually every listed or large company in the EU, including listed SMEs. The details are still in the making; it is expected that the CSRD will enter into force in 2023.

January 19, 2022
Michael Dolejs

Background & Goals

With the development of the NFRD in the mid-2010s, the EU amended existing corporate accounting directives to increase transparency regarding corporate social responsibility and provide investors with the company-level data they need to make sustainability-oriented investment decisions.

However, the NFRD left a lot of room for EU Member States to decide on the specifics of companies’ sustainability reporting. This has led to reporting disparities between Member States and thus to rather unreliable and hardly comparable data from companies. To change that, the EU vowed to deliver a major upgrade of the NFRD in its 2018 Action Plan for Financing Sustainable Growth.

Moreover, with the Paris Agreement and the EU’s aspiration to become the first Net Zero continent, the policy context has changed considerably in the past years. The goal now is to make the whole EU economy sustainable in the long-term. The role of companies in this endeavor is thus more in the spotlight than ever. The CSRD caters to these developments.

How is it related to SFDR and EU Taxonomy?

The CSRD can be regarded as one pillar of a troika of EU regulations on sustainability reporting: While the Sustainable Finance Disclosure Regulation (SFDR) is meant to direct investments to sustainable economic activities, the EU Taxonomy defines which economic activities can actually be called “sustainable” (see our recent articles on the SFDR and the Taxonomy). The CSRD, then, ensures that the necessary ground-level data on these activities from companies across Europe is available, reliable and comparable.

These three regulations are thus deeply intertwined: companies falling under CSRD have to make Taxonomy-related disclosures; their reporting goes to financial market participants, who themselves are subject to SFDR reporting requirements which also include Taxonomy-related disclosures. Hence, affected companies can thus expect pressure from their investors to adequately disclose sustainability information in compliance with CSRD and the EU Taxonomy.

Who is affected?

The CSRD as currently proposed by the European Commission will apply to basically all listed and large companies in the EU, including non-EU companies that either have subsidiaries in the EU or transferable securities listed on EU-regulated markets. Current estimates put the figure at around 49,000 affected companies, up from 11,600 under the NFRD.

Specifically, a company falls under CSRD reporting requirements if

  1. it is listed (except micro-companies), or
  2. it fulfills two of the following three criteria:
  • more than 250 employees
  • more than EUR 40 million turnover
  • more than EUR 20 million in total assets..

Non-listed small and medium-sized enterprises (SMEs) will thus not be subject to the CSRD at this stage.

Reporting requirements

In essence, the proposed CSRD builds on the NFRD reporting requirements and substantially expands them to cover all three areas of corporate sustainability (environment, social, and governance). It also clarifies the concept of “Double materiality”, i.e. sustainability risks affecting a company and the company’s own impact on sustainability.

Generally, using uniform reporting standards set by the EU, companies have to disclose forward-looking and retrospective information, and qualitative and quantitative information on:

Figure 1. Examples of information to be reported per the European Commission’s CSRD proposal.

The current proposal aims to oblige companies to disclose this information in their management report, removing the option of a separate non-financial report (as was the case with NFRD), thus putting sustainability performance on an equal footing with financial performance. Reports are also to be published in XHTML format to build an online open-access database where EU companies can be instantly compared with each other on their sustainability performance.

The administrative, management and supervisory bodies of companies affected will now also bear collective responsibility for ensuring compliance with the reporting standards. Moreover, companies affected will now also have to provide third party assurance. Only a limited level of assurance is required initially, yet the EU has left the door open for tightening this to a reasonable level of assurance in the future.

Note that the European Financial Reporting Advisory Group (EFRAG), the body responsible for drafting the CSRD’s reporting standards, will work closely with other international sustainability reporting initiatives (such as GRI, IFRS/ISSB, TCFD, and CDP - check out our overview) to achieve as much consistency and homogeneity as possible.

In September 2021, EFRAG published a first draft standard for climate-related reporting, envisioning disclosures on 3 strategy areas (business strategy and climate; climate impacts, risks & opportunities; climate governance), 2 implementation areas (policies & targets; actions & resources), and 5 performance areas (energy consumption & mix; scopes 1 & 2 GHG emissions; scope 3 GHG emissions; alignment with EU Taxonomy; financial exposure to physical & transition risks, opportunities).

Figure 2. Draft architecture of the future European Sustainability Reporting Standards under the CSRD. EFRAG has already published working papers on the topics in light blue. Source: EFRAG.

Outlook & Timeline

The European Commission published its proposal for the CSRD on 21 April 2021. While the necessary legislative procedures among the EU institutions and the development of the exact reporting standards by EFRAG are still taking place, the CSRD will become reality very soon: it is expected to apply from 01 January 2023 onwards, i.e. from the financial year 2023. Hence, companies affected only have about 1 year left to ponder essential questions about their business models and operations, to ensure effective collaboration across departments and business units, and to set up their performance measurement and data collection systems.

Only listed SMEs will likely be granted an additional 3 years to prepare before the CSRD applies to them. In the current timeline, they would thus have to make their first CSRD disclosures on the financial year 2026. Importantly, the Commission aims to introduce separate, simpler reporting requirements for them.

The upshot

The CSRD will change the world of corporate sustainability for good: it will turn sustainability from a marketing exercise to a financial reality for tens of thousands of companies in the EU. The extensive requirements will pose a challenge not only for those that have so far shied away from assessing their sustainability performance but even for companies who already report under the NFRD. Yet with the right preparation and the right partners, these challenges can be overcome and turned into opportunities.

Salacia Solutions is your partner when it comes to the CSRD. We are a Software-as-a-Service provider that simplifies environmental impact tracking and reporting for businesses and investors. We help you report in a transparent, traceable and consistent manner that is fully in line with legislation such as the SFDR, CSRD and the EU Taxonomy as well as underlying methodologies such as the GHG Protocol. Get in touch!

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