Corporate Sustainable Reporting Directive (CSRD) – regulation memo

CSRD defines the content of sustainability reporting standards in a legally binding way and will make publicly available sustainability performance data from in-scope companies.

On 21 April 2021, the European Commission published its proposal text on the Corporate Sustainability Reporting Directive (CSRD).

On 22 June 2022, the Council and European Parliament reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

In November 2022, the European Financial Reporting Advisory Group (EFRAG) published the draft EU sustainability reporting standards that will be used by companies once adopted by the European Commission (expected in June 2023).

About the Corporate Sustainable Reporting Directive (CSRD)

CSRD broadens the scope of companies, currently defined under the Non-Financial Reporting Directive (NFRD), which must produce reporting on sustainability issues. Under CSRD, nearly 50,000 companies in the European Union will have to publish such reporting – an increase from the 11,000 companies that are subject to NFRD requirements.

CSRD amends the reporting rules introduced by NFRD by defining the content of sustainability reporting standards in a sufficiently precise and legally binding way.

CSRD reporting

Sustainability reporting under CSRD must provide information needed to understand:

• How companies in scope undertake actions to ensure that their business models and strategies are compatible with the transition to a sustainable economy, the 1.5 °C limitation of global warming in line with the Paris Agreement and achieving climate neutrality by 2050;
• Companies’ time-bound targets related to sustainability matters they set, including, where appropriate, absolute greenhouse gas emission reduction targets at least for 2030 and 2050, a description of the progress in-scope companies have made towards achieving those targets, and a specification of whether targets related to environmental matters are based on conclusive scientific evidence;
• In-scope companies’ positive contribution or adverse impacts on environmental and social matters;
• How sustainability matters affect in-scope companies’ development, performance and position.

CSRD also requires companies to digitally ‘tag’ reported sustainability information, which will be externally audited, so that it is machine-readable and feeds into the European Single Access Point (ESAP). The ESAP will provide a single point of access to public financial and sustainability-related data about EU enterprises and investment products.

Scope of the Corporate Sustainable Reporting Directive (CSRD)

Companies in scope of CSRD are:

• All large EU companies which meet at least 2 out of the following 3 criteria:
  • Have more than 250 employees
  • Have a turnover that exceeds EUR 40 million
  • Have a balance sheet that exceeds a total of EUR 20 million
• All companies that are listed on EU regulated markets, including Small and Medium Enterprises (SMEs). SMEs will be subject to a lighter set of reporting standards.
• Non-European companies that generate at its consolidate level or, if not applicable, at an individual level a net annual turnover of EUR 150 million in the EU and have at least one subsidiary or branch in the EU which has a net turnover of at least EUR 40 million in the EU.

Industry implications of CSRD

CSRD will significantly help manufacturers of financial products that promote ESG characteristics or invest in sustainable investments to meet the disclosure requirements under the Sustainable Finance Disclosure Regulation (SFDR) by providing access to ESG data, and particularly to Principal Adverse Impact (PAI) indicators on sustainability factors, that will be more reliable, more granular as well as less costly.

Securities Services’ view

In addition to extending the scope of companies that have to publish reporting on how they manage environmental and social sustainability, one of the main contributions of CSRD is the standardisation of the information to be produced. Those standards cover environmental, social and governance issues to be disclosed by in-scope companies as well as sector-specific issues.

Those standards will make it possible to identify the extent to which investee companies perform sustainable economic activities and the extent to which they can be considered sustainable investments as defined under SFDR.

Key dates of the Corporate Sustainable Reporting Directive (CSRD)

• 21 April 2021 – Publication of the European Commission’s proposal on CSRD
• 28 November 2022 – Formal adoption of CSRD
• June 2023 – Expected adoption of the delegated act on the first set of 13 EU sustainability reporting standards covering environmental social and governance issues to be disclosed by in-scope companies
• June 2024 – Expected adoption of the delegated act on sector-specific EU sustainability reporting standards and proportionate EU sustainability reporting standards for listed SMEs

In-scope companies must disclose standardised sustainability reporting from:

• January 2025 (for year 2024) for companies already subject to NFRD
• January 2026 (for year 2025) for non-NFRD companies
• January 2027 (for year 2026) for listed SMEs, small non-complex credit institutions, captive insurance
• January 2030 (for year 2029) for non-EU companies, to be confirmed (with > EUR 150 million turnover in the EU)