Understanding CSRD: The New Sustainability Reporting Directive of EU

What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a new directive from the European Union, aiming to transform how businesses report on sustainable development. Entering into force in January 2023, CSRD replaces the previous Non-Financial Reporting Directive (NFRD) with stricter and more comprehensive reporting requirements. It mandates businesses to transparently and thoroughly report and assess the environmental and social impacts of their activities.

Who are required to report under CSRD?
According to EU regulations, all large, medium, and small listed companies operating within the EU are required to submit CSRD-aligned annual reports. The number of companies required to report is expected to be around 50,000, a significant increase from the 11,000 under the NFRD. To be specific, the reporting requirement applies to:

1. NFRD-listed companies: Companies previously required to report under NFRD
2. Large companies: Non-NFRD companies meeting at least 2 of the following 3 criteria:
Balance sheet > €25 million
Net turnover > €50 million
Number of employees > 250
3. Listed medium and small companies: Companies meeting at least 2 of the following 3 criteria:
Balance sheet > €5 million
Net turnover > €10 million
Number of employees > 50
4. Non-EU companies: Non-EU companies with a significant EU presence, meeting the above criteria or:
Net turnover > €150 million in the last 2 fiscal years AND meet one of these following criteria:
At least 1 subsidiary in the EU recognized as a large company
At least 1 subsidiary listed on an EU market
Branch in the EU with net turnover > €40 million

What is the reporting timeline for CSRD?
CSRD outlines a reporting timeline based on the type of company with specific deadlines as follows:
Stage 1: Reporting starts in 2025 for the fiscal year 2024, applicable to companies under NFRD.
Stage 2: Reporting starts in 2026 for the fiscal year 2025, applicable to non-NFRD large companies.
Stage 3: Reporting starts in 2027 for the fiscal year 2026, applicable to listed medium and small companies.
Stage 4: Reporting starts in 2029 for the fiscal year 2028, applicable to non-EU companies
Why is CSRD important?
CSRD reporting helps investors, social organizations, consumers, and other stakeholders gain a clear understanding of the operations of their partnered companies.
It also presents an opportunity for companies to demonstrate their commitment to sustainable development, reduce negative environmental impacts, and foster a more responsible business community.
Source: CSRD Institute, European Commission