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Overview

The CSRD supersedes the NFRD from financial year 2024 onwards. Compared to the NFRD, the main changes include an extension of the companies in scope, an extension of the reporting requirements for a company’s value chain, further specifications of the double materiality concept and reporting contents, requirements for the integration of sustainability information in the management report, the assurance and digital tagging of the information reported, and requirements for the sanctioning regime for statutory auditors and enforcement.

Scope

Companies that are subject to the CSRD:

• first reporting in 2025 covering the financial year 2024 by companies already subject to the NFRD

• first reporting in 2026 covering the financial year 2025 by other large¹ companies

• first reporting in 2027 covering the financial year 2026 (with the ability to opt-out for another two years) by small and medium-sized enterprises (SMEs) listed on EU regulated market, small and noncomplex credit institutions, and captive (re) insurance undertakings, but excluding microenterprises.

In addition, from financial year 2028 onwards, EU branches and subsidiaries of non-EU undertakings are also subject to the CSRD if the non-EU undertaking has a net turnover of  EUR 150 million in the EU for each of the last two consecutive years and either a large or listed EU subsidiary or an EU branch with a net turnover of at least EUR 40 million.
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^{1 The Accounting Directive determines a company to be large if it exceeds at least two of the following criteria on its balance sheet date: (i) a balance sheet total of EUR 25 million, (ii) net turnover of EUR 50 million, and (iii) an average of 250 employees during the financial year.}

Reporting content

Compared to the NFRD, the reporting content is extended and includes the following:

• a description of the company’s business model and strategy, particularly for sustainability matters;

• a description of time-bound sustainability-related targets, including potential GHG emission reductions, a description of progress made to achieve these targets, and specification of whether the targets are based on scientific evidence;

• a description of the role of administrative, management, and supervisory bodies in sustainability matters and their expertise and skills or access to these to fulfill this role;

• a description of the company’s sustainability-related polices;

• information about existing sustainability-linked incentive schemes for members of the administrative, management or supervisory bodies;

• a description of the due diligence processes, the principal actual or potential adverse impacts in the firm’s own operations and ‘value chain’, actions taken to identify and track these impacts, and actions to mitigate these adverse impacts;

• a description of sustainability-related risks and how these risks are managed; and

• indicators relevant to the disclosures of the these issues.

In addition, the CSRD further clarifies the requirement of the double materiality concept, which combines two perspectives.

• Financial materiality provides the outside-in perspective on the impact of sustainability issues on a company’s performance, position, and development.

• Impact materiality provides the inside-out perspective on the impact of the company on people and the environment.

The CSRD specifies that ‘undertakings should consider each materiality perspective in its own right, and should disclose information that is material from both perspectives as well as information that is material from only one perspective’.

In addition, companies need to provide information on key intangible resources, which are nonphysical resources that are fundamental to the business model and add to value creation.

The CSRD highlights the consideration of the company’s complete value chain in the disclosure, including own operations, business relationships, and the supply chain and requires that in the case of information gaps on the value chain during the first three years of application, companies should disclose their efforts, reasons, and plans for obtaining missing information.

Reporting format

The CSRD requires the inclusion of sustainability information in the management report; providing the necessary disclosure under the CSRD in a separate sustainability report is therefore no longer possible. In addition, sustainability information should be prepared and marked up in an electronic reporting format.

Assurance

The CSRD prescribes limited assurance on the company’s sustainability reporting, including compliance with the reporting standards, the process for identifying the information reported, the mark-up of sustainability reporting, and the reporting requirements detailed in Article 8 of the Taxonomy Regulation. The assurance can be carried out by the statutory auditors. Furthermore, member states can define whether auditing firms other than the ones carrying out the statutory audit of financial statements or independent assurance service providers are also allowed to provide assurance on sustainability reporting.² The European Commission shall also adopt standards for limited assurance by October 2026.

Moreover, the CSRD foresees a potential transition to reasonable assurance based on a preceding assessment of its feasibility for auditors and undertakings. If that assessment is positive, the European Commission shall adopt applicable standards for reasonable assurance by October 2028, including a date by which reasonable assurance has to be performed.

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^{2 All assurance providers are required to fulfill certain requirements, including a minimum level of theoretical knowledge of sustainability and sustainability reporting.}

Reporting standards

The CSRD prescribes the adoption of sustainability reporting standards based on delegated acts and technical advice provided by the EFRAG. These delegated acts are to be adopted sequentially. A first set of sector-agnostic European Sustainability Reporting Standards (ESRS) was adopted by means of a delegated act by the Commission in July 2023. Further delegated acts shall be adopted by the end of June 2024 to define sector-specific standards, proportionate standards for listed SMEs, and standards for third-country companies in scope of the CSRD.

Links and sources

• EUR-Lex, Corporate Sustainability Reporting Directive (CSRD)

• Hummel, K., Jobst, D., 2024. An Overview of Corporate Sustainability Reporting Legislation in the European Union. Accounting in Europe. DOI: 10.1080/17449480.2024.2312145

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