Corporate Sustainability is a crucial notion today, driving the transformation of business practices towards a more equitable, environmentally friendly, and socially conscious paradigm. In line with this vision, the European Union has taken a significant step towards promoting sustainable practices with the adoption of the Corporate Sustainability Reporting Directive (CSRD). This directive not only redefines the way companies report on their performance, but also lays a solid foundation for the transition to a more responsible future.
In concrete terms, the CSDR can be defined as an EU law that sets stringent requirements for corporate sustainability reporting. It aims to improve the transparency and standardization of ESG (environmental, social and governance) reporting, enabling investors and stakeholders to make more informed and sustainable decisions.
In a global context marked by the urgency of addressing environmental, social and governance (ESG) challenges, Corporate Sustainability is emerging as an imperative. ESG criteria, which encompass environmental, social and governance aspects, have gained a relevant role in business and investment decision-making.
This directive is a milestone in the evolution of sustainability reporting requirements, and it also fits fundamentally into the framework of the European Green Pact, bridging the gap between the ecological transition and corporate accountability. Sustainability reporting now takes on an equal importance to financial reporting.
Scope of the CSRD: Who is Affected and when will it apply?
The CSRD not only redefines reporting practices, but also the parameters of who is subject to these regulations. More than 49,000 EU companies, including those listed on regulated markets, large companies and credit and insurance institutions, are affected by the directive. This reflects the wide range of organisations that must take responsibility for sustainability and transparency.
Deadlines for Implementation
1. From 1 January 2024:
- Public interest companies with more than 500 employees subject to the previous NFRD regulation will report in 2025.
2. From 1 January 2025:
- Large listed and non-listed companies with more than 250 employees and/or turnover of €40 million and/or €20 million in assets shall report in 2026.
3. From 1 January 2026:
- Listed SMEs (except micro-enterprises).
- Small and non-complex credit institutions.
- Captive insurance companies.
- These organisations shall report in 2027, with the option to delay reporting until 2028.
4. In 2029:
- Third country organisations with at least one subsidiary or branch with a registered office in the EU or with a net turnover of more than €150 million in the European community shall report for the financial year 2028.
Affected Companies and Entities
The CSRD affects the following categories of companies and entities in the EU:
1. Companies listed on regulated markets (except micro-enterprises).
2. Large European companies and subsidiaries of non-EU companies operating in the territory of the EU. They are considered as such if they meet at least two of the following requirements:
- Turnover exceeding EUR 40 million.
- Balance sheet total of EUR 20 million or more.
- More than 250 employees during the financial year.
3. Insurance companies and credit institutions, regardless of their legal form.
4. Listed micro companies and unlisted SMEs have the option to comply with the provisions on a voluntary basis.
Subsidiaries may be exempted if the parent company includes them in its report.
The CSRD sets out mandatory requirements for these companies and entities to disclose sustainability-related information in their management reports.
CSRD Reporting Requirements and Content
The CSRD sets out a number of mandatory requirements that organisations must meet in their sustainability reporting. These requirements must include:
- A description of the organisation’s business model and strategy.
- Sustainability objectives.
- Policies in place.
- Incentive systems related to sustainability issues.
- Sustainability due diligence procedures.
- Identification of key sustainability-related risks.
- Adapt to a digital taxonomy of sustainability reporting rules to enable consistent labelling.
Reports should be certified and verified by independent third parties and published in specific management reports.
Challenges and Opportunities for Organisations
Effective implementation of CSRD is not without challenges. Companies must adapt their reporting practices and systems to meet the stricter requirements of the directive. In addition, the process of collecting, verifying and disclosing sustainability-related data can be complex and demanding.
However, these challenges are accompanied by significant opportunities. The CSRD not only imposes obligations, but also offers tangible benefits. Companies that adopt sound sustainability reporting practices can attract investors interested in sustainability, identify investment opportunities aligned with the transition to more sustainable practices, reduce costs through the identification and mitigation of ESG risks, and enhance their reputation by demonstrating their commitment to social and environmental responsibility.
Conclusions: Towards a Sustainable and Responsible Future.
Corporate Sustainability has established itself as a fundamental pillar for organisations today. The CSRD, as an instrument of change, reflects the European Union’s commitment to promoting more responsible and sustainable business practices. As we move towards a future where sustainability is embedded in the very essence of business, it is imperative that organisations respond boldly and adopt practices that make a positive impact on the world. The CSRD is a step in this direction, but it is also a reminder that the road to sustainability is continuous and requires ongoing commitment. Ultimately, Corporate Sustainability and the CSRD represent the opportunity to lead lasting change towards a more equitable, environmentally friendly and socially conscious world.
