Content of this page:

Overview

Compared to the NFRD, the main changes relate to an extension of the firms in scope, an extension of the reporting requirements for a company’s value chain, further specifications of the double materiality concept and the reporting contents, the requirements for the integration of sustainability information into the management report, the assurance and digital tagging of the reported information, and changes in the sanctioning regime and enforcement.

Scope

Companies that are subject to the CSRD:

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

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

• first reporting in 2027 covering the financial year 2026 by small and mediumsized enterprises (SMEs) listed on EU regulated market, small and noncomplex credit institutions, and captive (re) insurance undertakings; however, excluding microenterprises.

In addition, branches and subsidiaries of third country undertakings, where the undertaking generated a net turnover of more than EUR 150 million in the EU in each of two preceding years.
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¹ The Accounting Directive determines an undertaking to be large if it exceeds at least two of the following criteria on its balance sheet date:

• a balance sheet total of EUR 20 million,

• net turnover of EUR 40 million,

• an average number of employees during the financial year of 250.

Reporting content

Compared to the NFRD, the reporting content is extended to include the following:

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

• a description of time-bound sustainability-related targets, including potential GHG emission reduction, a description of progress made to achieve those targets and a 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 regarding their expertise and skills (or access to those) 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 those 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, information on intangibles (i.e., nonphysical resources that are fundamental to the business model and that add to value creation) shall be disclosed.

This information shall account for the short-, medium- and long-term horizons and contain both forward-looking and retrospective information as well as both qualitative and quantitative information.

Reporting format

The CSRD requires the inclusion of sustainability information in the management report. Thus, opting out into a separate sustainability report is 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 pursuant to Article 8 of the Taxonomy Regulation. The European Commission shall also adopt standards regarding limited assurance by October 2026.

Moreover, the CSRD paves the way for a potential transition towards reasonable assurance based on a preceding assessment of the feasibility of reasonable assurance for auditors and undertakings. In case of a positive outcome of that assessment, the European Commission shall adopt applicable standards for reasonable assurance by October 2028 including a date by when reasonable assurance has to be performed. Amendments to Directive 2006/43/EC further specify the assurance requirements.

Reporting Standards

The CSRD prescribes the adoption of sustainability reporting standards based on delegated acts. These delegated acts shall be adopted in a sequential manner with a first set of standards to be adopted by the end of June 2023 and a second set of standards to be adopted by the end of June 2024. In November 2022, the EFRAG sustainability reporting board approved a first set of European Sustainability Reporting Standards (ESRS), which have then been submitted to the European Commission.

Updates

Updates to this page:

Links and Sources

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

• EFRAG, First Set of draft ESRS

• Hummel, K., Jobst, D., 2023. An Overview of Corporate Sustainability Reporting Regulations in the European Union. (SSRN)

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