Corporate Sustainability Reporting Directive – A Refresher

In the last few years, organizations have started integrating sustainability into their business strategy. With the aim of making a positive impact on the environment and society, the European Union (EU) has introduced new legislation that will require organizations to report against the Environment, Social, and Governance (ESG) metrics.

Released in April 2021, the Corporate Sustainability Reporting Directive (CSRD) proposal will provide a common reporting framework for non-financial data across the EU. With the focus on strengthening the sustainability reporting mechanism, CSRD will replace the current Non-Financial Reporting Directive (NFRD). Introduced in 2018, NFRD set the rules of sustainability standards and disclosures for roughly 11,700 EU organizations. CSRD will broaden the scope, covering approximately 50,000 companies listed on the regulated market.

The comprehensive CSRD will ensure that organizations do not omit information required by investors and other stakeholders. Currently, it is difficult to compare and benchmark the ESG data reported by various companies. The new sustainability framework will ensure that companies report reliable and comparable sustainability information

Focus On ‘Double Materiality’

Double materiality ensures that organizations disclose the sustainability issues affecting the company as well as identify the material issues of the company that may impact the environment and people. Under the CSRD proposal, organizations will have to mandatorily conduct a double materiality assessment and report according to EU sustainability standards. This fundamental shift in reporting will ensure coherency in ESG disclosures and transparency in sustainability information.

Scope And Timeline Of CSRD

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The new EU rules will apply to all large companies regulated by the EU market and EU-listed companies (except micro-companies) that meets any two of the following three criteria:

  1. Net turnover of 40 million Euros
  2. Balance sheet assets of more than 20 million Euros
  3. More than 250 employees.

The first set of sustainability reporting standards is expected by June 2022 and will be adopted by October 2022. From 2024, EU corporations will have to report their first set of Sustainability Reporting Standards for the 2023 financial year. A separate proportionate reporting standard will apply to all Small and medium enterprises (SMEs) from 2027.

e-list of ‘Member XBRL Software Providers’ by XBRL US here.

Format Of Reporting

The submission will be in accordance with the European Single Electronic Format (ESEF) regulation. The organizations will need to submit management reports (within the annual report) in xHTML format.

Global Standardization

CSRD aims to bridge the gap between the EU and global sustainability reporting standards. The European Financial Reporting Advisory Group (EFRAG) is co-constructing the new EU sustainability standards with the Global Reporting Initiative (GRI). This initiative will bring harmonization of sustainability reporting and the framework will be compatible with international sustainability standards while meeting the EU’s ambitious goals. This will enable a global baseline for comparability of corporate disclosures across geographies.

Auditor’s Role

It will be mandatory for organizations to get their information evaluated externally through an auditor. While auditing was not required in NFRD, the new CSRD proposal puts additional responsibility on assurance around sustainability information. Management and audit professionals will ensure that there is more transparency and credibility in the sustainability reporting processes.

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If your firm has to comply with CSRD sustainability standards, it is important to start preparing for the new implementation this year. Our cloud-based SaaS solution IRIS CARBON® can help you in your journey toward CSRD compliance and disclosure requirements. With over 17 years of experience in the XBRL/iXBRL space, IRIS CARBON® is being used in over 27 countries across the globe.

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Download Our Brochure On ESG Reporting in the EU