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The European Union is set to make significant changes in the world of corporate sustainability reporting. In this article, we will be discussing the European Corporate Sustainability Reporting Directive (CSRD or EU CSRD) and the European Sustainability Reporting Standard (ESRS).
The EU CSRD will replace the existing Non-Financial Reporting Directive (NFRD) and will require all large and listed companies in the European Union to report on their sustainability performance. The CSRD introduces new, mandatory disclosure standards, the ESRS. The ESRS will make sustainability reporting more consistent, comparable, and reliable across the European Union.
The Corporate Sustainability Reporting Directive (CSRD) replaces the existing NFRD in the European Union. It requires companies to report on a range of sustainability issues, including environmental, social, and governance (ESG) factors, such as greenhouse gas emissions, employee health and safety, and diversity and inclusion. The newly introduced reporting requirements will be mandatory, and companies will need to provide assurance on their sustainability reporting.
The CSRD applies to all listed companies (except micro-undertakings), and large companies that meet at least two of the following criteria: > 250 employees, turnover exceeding €40 million, and balance sheet total exceeding €20 million in assets.
The CSRD has three main objectives: to make sustainability reporting more consistent and comparable, to improve the quality and reliability of sustainability information, and to drive progress in the sustainability performance of EU companies.
In simpler terms, the goal of the CSRD is to make sure that companies report their sustainability efforts in a consistent and comparable way. This helps investors choose sustainable investments by providing reliable information. It also helps consumers and society as a whole make informed decisions. The CSRD also encourages companies to identify and address any sustainability impacts, risks, and opportunities they may have, leading to better management of sustainability issues.
The CSRD is a more comprehensive and ambitious directive than the NFRD. The NFRD focused on a broader set of ESG issues and did not provide a set of clear, mandatory disclosure requirements. The CSRD, on the other hand, applies to a broader range of companies and requires mandatory reporting on a more extensive and detailed range of sustainability matters.
The CSRD also introduces several new obligations, such as the inclusion of the sustainability statement in the management report and the provision of assurance on sustainability reporting.
In general, sustainability reporting standards are guidelines that provide companies with a framework for disclosure on their sustainability performance. Different standards cover different ranges of social, environmental, and governance issues and are generally designed to make sustainability reporting more consistent, comparable, and reliable.
Sustainability reporting standards help companies to:
Examples of widely used sustainability reporting standards include the Global Reporting Initiative (GRI) Standards and the standards of the Sustainability Accounting Standards Board (SASB).
The European Sustainability Reporting Standards (ESRS) are reporting standards that will make sustainability reporting more consistent, comparable, and reliable across the European Union. The ESRS are aligned with existing standards and frameworks, including the Global Reporting Initiative (GRI) Standards and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Moreover, the ESRS aim to encourage companies to disclose relevant and reliable sustainability information in a transparent and consistent manner. It provides a clear framework for companies to report on sustainability issues, including social and environmental impacts, risks and opportunities. The reporting requirements will be mandatory, and companies will need to provide assurance on their sustainability reporting. Here is an overview of the different European Sustainability Reporting Standards:
The European Financial Reporting Advisory Group (EFRAG) is responsible for the technical development of the European Sustainability Reporting Standards. EFRAG submitted twelve final drafts to the EU Commission at the end of 2022, which define the way reporting will be done under the CSRD.
The ESRS are submitted as technical advice to the European Commission, which will adopt the standards after consultations with EU member states and relevant European bodies (including, for example, the European Securities and Markets Authority, ESMA).
The EU CSRD and the ESRS go hand in hand to improve sustainability reporting in the European Union. In effect, the ESRS is a reporting standard that will be used to meet the requirements of the EU CSRD. The EU CSRD sets out reporting requirements and obligations, while the ESRS provide a framework and methodology for reporting on sustainability issues.
Both the CSRD and ESRS are legally binding. They are part of the same legal framework around corporate sustainability transparency. The CSRD is the overarching framework - the Directive itself. The ESRS spell out in more detail the requirements introduced by the CSRD, and will be adopted by the EU as delegated acts, alongside and as part of the CSRD.
The European Corporate Sustainability Reporting Directive (CSRD) will introduce new reporting requirements for large companies and listed SMEs operating within the European Union, as well as for third-country companies with significant operations in the EU. To comply with the CSRD, companies will need to take the following steps:
By taking these steps, companies can ensure that they are compliant with the new reporting requirements, and are contributing to a more sustainable future. Additionally, implementing appropriate sustainability reporting practices can help companies identify and address sustainability impacts, risks and opportunities, contributing to their long-term success and sustainability.
The EU Corporate Sustainability Reporting Directive represents a significant step forward towards achieving a sustainable future for the European Union. The directive will make sustainability reporting more consistent, comparable, and reliable, and will help companies to better identify and address sustainability impacts, risks and opportunities.
With the adoption of the CSRD, companies will need to ensure that they are compliant with the new reporting requirements. By doing so, they will not only be contributing to a more sustainable future but also ensuring that they remain competitive in an increasingly environmentally and socially conscious market.
Daato is a solution for sustainable organizations that helps clients future-proof their ESG reporting and ESG management. Daato is a one-stop shop for everything ESG-related, from compliance to action.
At Daato, it is our purpose to assist you to manage ESG performance in one place, covering the supply chain. We also provide a platform for bringing all ESG data together in one place and reporting on legal and voluntary frameworks. Additionally, Daato helps you to identify and manage ESG risks and opportunities in the financial system and report in accordance with standard frameworks. It can further help you assess your current reporting practices against the new ESRS standards, and support the identification of material impacts, risks and opportunities as part of the double-materiality assessment, required to meet the CSRD and ESRS requirements.