The Corporate Sustainability Reporting Directive (CSRD) marks a monumental shift in sustainability reporting for companies operating within the European Union. Replacing the previous Non-Financial Reporting Directive (NFRD), this new directive elevates transparency standards. It requires businesses to provide more detailed, reliable, and comparable information on their environmental, social, and governance (ESG) performance.
Understanding the CSRD's requirements is not just a matter of regulatory compliance; it is a strategic opportunity to integrate sustainability into the core of the business. Companies are called upon to make a profound change in how they measure, manage, and communicate their impacts. This transition demands careful planning and precise knowledge of the obligations to be met.
This guide provides a clear and operational overview of the CSRD. It explains in detail what it is, which companies it applies to, its progressive deadlines, and the concrete actions it entails.
What is the CSRD?
The CSRD is a European directive that obligates a much broader range of companies to prepare a sustainability report according to common and rigorous standards. The goal is to place sustainability information on equal footing with financial information, ensuring that investors and other stakeholders have access to reliable data for their decisions.
The directive introduces two key concepts that define its approach:
- European Sustainability Reporting Standards (ESRS): Unlike the NFRD, which allowed companies some flexibility in choosing standards, the CSRD mandates the use of the European Sustainability Reporting Standards (ESRS). Developed by EFRAG (European Financial Reporting Advisory Group), these standards provide a mandatory and detailed framework on what and how to report.
- Double Materiality: Companies must analyze sustainability from a dual perspective. They must report both on how sustainability issues affect their economic performance (financial materiality) and on the impact their activities have on the environment and society (impact materiality). [Learn more about the concept of double materiality]
Furthermore, the CSRD makes the verification (assurance) of sustainability information by an independent third-party auditor mandatory. This will begin with a limited assurance level, which is set to become a reasonable assurance level in the future.
Who Does the CSRD Directive Apply To?
The scope of the CSRD is much broader than that of the previous NFRD. It involves approximately 50,000 companies across Europe, compared to the previous 11,000. The obligation applies progressively to different categories of companies:
- Large public-interest entities already subject to the NFRD (with over 500 employees).
- All large companies that exceed at least two of the following three criteria:
- More than 250 employees on average during the financial year.
- A total balance sheet of more than €25 million.
- Net sales revenue of more than €50 million.
- Listed Small and Medium-sized Enterprises (SMEs) on European regulated markets (with the exception of micro-enterprises).
- Non-EU companies that generate significant net revenue (over €150 million) within the EU and have at least one subsidiary or branch in the Union's territory.
Certain exemptions are provided, such as for subsidiaries whose financial statements are already consolidated in the parent company's sustainability report, provided the latter is prepared in compliance with the CSRD or equivalent standards.
The Deadlines: A Gradual Application
The CSRD introduces a phased implementation schedule to give companies time to adapt. It is crucial for each business to identify its effective date to plan the necessary activities.
- January 1, 2024 (reporting in 2025): The first companies required to apply the new rules are large public-interest entities already subject to the NFRD, with more than 500 employees.
- January 1, 2025 (reporting in 2026): The obligation extends to all other large companies that were not subject to the NFRD but now fall within the new size criteria.
- January 1, 2026 (reporting in 2027): It will be the turn of listed SMEs. However, these companies will have the option to postpone implementation (opt-out) for up to two years, until 2029, using simplified standards.
- January 1, 2028 (reporting in 2029): The obligation for third-country companies with significant net turnover in the EU comes into effect.
Main Requirements of the CSRD
Complying with the CSRD is a complex process that goes beyond simply drafting a document. It requires a structural change within the organization. Here are the main requirements:
- Conduct a Double Materiality Analysis: This is the starting point. The company must conduct a structured analysis to identify which ESG topics are material from the dual perspective (financial and impact). This process will define the content of the report.
- Collect Data According to ESRS: Once material topics are identified, it is necessary to implement processes for collecting the quantitative and qualitative data required by the specific ESRS. This often requires the involvement of various business functions (HR, finance, operations, purchasing). [Discover the standards and metrics for ESG reporting]
- Integrate Information into the Integrated Report: Sustainability information should not be published in a separate report but must be included in a dedicated section of the annual or integrated report. This highlights the integration between financial and sustainability performance.
- Electronic Formatting (XHTML/iXBRL): The report must be prepared in XHTML electronic format, and sustainability information must be "tagged" using the iXBRL digital taxonomy to make it machine-readable and automatically comparable.
- Obtain Third-Party Assurance: The sustainability report must undergo an external audit by a statutory auditor or another accredited body. This ensures the reliability of the information communicated to the market.
Conclusion: From Obligation to Competitive Advantage
The CSRD marks the beginning of a new era for corporate transparency. Although the requirements are complex, companies that act in a timely manner can turn this obligation into a real competitive advantage. Solid and credible sustainability reporting strengthens investor confidence, enhances reputation, attracts talent, and stimulates innovation toward more resilient and responsible business models.
Preparing for the CSRD requires a strategic vision and a methodical approach. At Uyolo, we support companies at every stage of the compliance journey, from materiality analysis and data collection to the creation of a fully compliant and valuable report.
Discover how our ESG platform can support you on your CSRD compliance journey and with the integrated management of sustainability data.
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