The engine that powers sustainable organisations
On April 21, 2021, the European Union (EU) Commission suggested a proposal for the Corporate Sustainability Reporting Directive (CSRD). It is meant to replace the Non-Financial Reporting Directive (CSR-RUG). The purpose of the CSRD is to encourage more private investment for the transition into a climate-neutral economy.
The EU Commission wants to expand the application of the CSRD, which means more companies will have to report their sustainability information. Currently, about 11,000 companies do this, but with the proposed changes, it will increase to around 49,000 companies.
Under the new rules, large companies will need to start reporting in 2023, while smaller businesses will start collecting the necessary data in 2026.
Companies that are considered to be large enterprises:
Companies that are considered to be SMEs:
However, the Directive only applies to SMEs traded on exchange-regulated markets in the EU.
After the Corporate Sustainability Reporting Directive is adopted by the end of 2022, big companies will need to start collecting data based on the new standards from January 2023 and submit their reports in early 2024.
For smaller companies (SMEs), reporting will begin in the financial year 2026. They will start collecting data in January 2026 and submit their reports at the beginning of the financial year 2027. An easier-to-use standard is being developed specifically for SMEs.
The EU, for the first time, is developing legally binding, concrete standards according to which reporting must take place. While drawing from widely used voluntary frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosure (TCFD), the Corporate Sustainability Reporting Directive will maintain a distinction.
This will require companies to adapt to new criteria and questions in accordance with reporting standards. The standards also require the information gathered to reflect in the company’s annual report, as opposed to standalone sustainability reporting.
In keeping with the concept of ‘Double Materiality’, companies are expected to report not only the impact of their actions on society and the environment, but also the risks and opportunities arising from social and environmental developments for the company.
Currently, sustainability reporting is audited using a method called “limited assurance.” This means that evidence is presented to assess the credibility and plausibility of the reported facts. However, the goal is to eventually switch to a more robust method called “reasonable assurance” as soon as auditing standards for sustainability information are developed and available.
Now the question arises, what specific challenges does the CSRD pose for companies? Let's have a look at three upcoming special challenges:
Together with experts from large, medium-sized and small companies with experience in sustainability reporting, we have developed a software solution that makes it easier for you to implement the new directive.