CSRD Reporting
The Corporate Sustainability Reporting Directive (CSRD) is a regulatory framework introduced by the European Union (EU) to enhance the quality, consistency and comparability of sustainability reporting by companies operating within the EU. It represents a significant evolution of the existing Non-Financial Reporting Directive (NFRD) and aims to align sustainability reporting with the broader sustainability agenda and the EU's Green Deal objectives.
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The CSRD entails a set of rules and requirements for companies to report on their environmental, social and governance (ESG) performance, similar to ESG reporting. However, it goes beyond voluntary reporting and establishes mandatory obligations for a broader range of companies. The directive expands the scope of reporting to include more companies, introduces stricter reporting standards, and enhances the assurance requirements.
Purposes of CSRD
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Transparency
The primary purpose of the CSRD is to improve transparency and accountability in corporate reporting, enabling stakeholders to make informed decisions and assess a company's sustainability performance. By mandating comprehensive and standardized reporting, the CSRD aims to facilitate the integration of sustainability into business strategies, enhance risk management, and drive sustainable investments.
The CSRD is meant for a wide range of stakeholders, including investors, consumers, employees, regulators, and civil society. Investors, in particular, rely on sustainability information to assess the long-term viability and resilience of companies. The CSRD enables them to compare the sustainability performance of different companies, identify risks and opportunities, and allocate capital more responsibly.
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Key changes with NFRD
The CSRD introduces several key changes compared to the previous NFRD. Firstly, it expands the scope of reporting to include more companies. While the NFRD applied to large public-interest entities, the CSRD lowers the thresholds, bringing more companies, including small and medium-sized enterprises (SMEs), within the reporting requirements. This broader scope aims to capture a larger portion of the EU's corporate landscape and ensure a more comprehensive understanding of sustainability performance.
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Stricter reporting standards
Secondly, the CSRD introduces stricter reporting standards. It establishes a common reporting framework based on international standards, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). This harmonization enhances the consistency and comparability of reported information, making it easier for stakeholders to analyze and benchmark company performance.
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Assurance requirements
Additionally, the CSRD enhances the assurance requirements for sustainability reports.
It introduces a requirement for external assurance of reported information to enhance the reliability and credibility of disclosures. This assurance process ensures that reported data is accurate, complete and in compliance with the reporting standards
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Digital reporting
The CSRD also emphasizes the importance of digital reporting. It introduces the concept of "European Single Electronic Format" (ESEF), which requires companies to prepare their annual financial reports and sustainability reports in a digital, machine-readable format. This digitalization enables easier access, analysis, and comparability of reported information, supporting efficient decision-making and fostering innovation in data utilization.