Sustainability reporting is gaining momentum across the European Union (EU). Passed by the European Parliament and the EU Council in December 2022, the Corporate Sustainability Reporting Directive (CSRD) requires more than 50,000 companies to include a sustainability report in their management reports as part of their financial statements. The CSRD aims to improve the sustainability reporting framework by improving the quality of available sustainability information to meet the needs of various stakeholders and help Europe become a more sustainable economy. Companies may face considerable challenges in meeting these comprehensive and specific requirements, so it’s necessary to identify resources companies will need to meet CSRD requirements.
Key CSRD requirements:
- A single reporting standard – sustainability reports will have to be prepared using a single reporting approach according to European Sustainability Reporting Standards, which are aligned with the existing sustainability standards, the EU taxonomy and other transparency requirements.
- Part of your management report – your sustainability report will be part of your financial statements and should be inserted in your management report (in the designated section).
- An independent auditor’s opinion – the CSRD states that your sustainability report will need to obtain a limited assurance conclusion from an independent auditor, upgrading to a reasonable assurance opinion in the future.
- An electronic reporting format (ESEF) – sustainability reports will have a mandatory electronic format and tagging.
- Dual materiality – companies will have to comply with the principle of dual materiality, which has two dimensions: impact materiality and financial materiality. A sustainability matter meets the condition of dual materiality if it’s material in terms of impact or from a financial perspective, or both.
Large companies meeting two of the three criteria:
- EUR 25 million in total assets
- EUR 50million in revenue
- 250 employees
- Small and medium companies listed on a regulated market.
Third-country companies with large EU subsidiaries or branches meeting certain criteria –
- Net revenue > EUR 150 million in the EU for two consecutive financial years.
However, Council and Parliament agreed on Feb 2024 to delay sustainability reporting for certain sectors and third-country companies by two years.
The agreement will give more time for companies to prepare for the sectorial European Sustainability Reporting Standards (ESRS) and for specific standards for large non-EU companies, which will be adopted in June 2026, two years later than the originally scheduled date.
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