New reporting standard – CSRD
The Corporate Sustainability Reporting Directive, or CSRD in short, is designed to change the approach to responsibility and increase the obligations of companies by requiring regular disclosure of information about their climate, environmental and social impacts along the entire value chain. The new directive is also intended to strengthen the EU’s social market economy, prevent greenwashing, set global reporting standards, and contribute to economic transformation in line with the European Union’s climate goals. The European Commission also recommends that companies disclose data on actual carbon emissions and their intensity.
The CSRD is expected to ensure greater data accuracy in reporting at the financial and non-financial levels. It should also provide investors and institutions with insight into comparable and reliable information on risks related to the climate crisis’s influence on the company, climate change mitigation, resilience, and sustainability issues. The raised quality of reporting will also make it easier for consumers to access information; they have the right to know what impact companies have on people and the environment. Therefore, CSRD will help us identify companies worth voting for with our wallets.
Non-financial reports obligatory for many companies in the EU
The Sustainable Financing Reporting Directive (SFRD), introduced in 2014, was the last document in force. However, with the changing conditions, some requirements needed amending, and the CSRD was crafted based on the belief that the non-financial reporting required by the SFRD was no longer sufficient in the context of implementing the findings of the European Green Deal, the Sustainable Financing Agenda, and the UN Sustainable Development Goals.
The CSRD, among other things, expands the number of companies covered by the reporting requirement, introduces an obligation for independent auditing of information, expands the scope of disclosures, and makes it mandatory to present data in an easy-to-read format. The directive is complemented by ESRS (European Sustainability Reporting Standards), which EFRAG (European Financial Reporting Advisory Group) commissioned to develop. The European Sustainability Reporting Standards require that the report is a separate section within the entire management report, which should better highlight the links between the financial and non-financial areas of the business.
The CSRD also introduces due diligence into reporting. The European Commission has defined the term as the process that companies carry out to identify, prevent, mitigate, and correct actual and potential impacts related to their operations. Due diligence should also support determining and avoiding or minimizing those impacts.
The data quality in companies’ carbon footprint reporting is also expected to be increased. The directive emphasizes that information on companies’ GHG emissions reports should be as transparent and reliable as possible. From now on, they cannot be based on benchmarks, i.e., averages or examples. The statements must be supported by actual data from carbon calculations across the company’s value chain.
50,000 companies in the EU covered by the CSRD directive
The new reporting requirements will apply to all companies – not just those listed on the stock exchange. Non-EU companies operating in the EU with a turnover of more than €150 million will also have to follow suit. Small and medium-sized listed companies will be covered by the directive a year or two later, depending on their size. Currently, under the NFRD, 11,700 companies in the European Union are required to prepare non-financial reporting. After the CSRD comes into force, this number will increase to about 50,000 companies.
The rules of the CSRD will take effect between 2024 and 2028, more precisely:
- from January 1, 2024: effective for large companies with more than 500 employees, previously covered by the SFRD (reports will have to be submitted by 2025),
- from January 1, 2025: effective for large companies (with more than 250 full-time employees and an annual turnover of more than €50 million or an annual balance sheet total of more than €43 million) that were not previously subject to non-financial reporting under the SFRD,
- from January 1, 2026: effective for small and medium-sized enterprises (and others) listed on a regulated market (listed companies). Reports, in this case, will have to be submitted by 2028.
In addition, as mentioned above, all companies covered by the CSRD will be required to have their reports checked by auditors or independent certifiers. This is a significant change from the NFRD, which does not require companies to verify the data they submit.
From the moment the CSRD entered the Official Journal of the EU on December 14, 2022, EU member states have 18 months to implement it into national legislation.
How to prepare for the new regulations?
The substantive scope resulting from the new reporting standard introduced by the CSRD is vast. Hence, it is worthwhile to start preparations today to meet the new regulatory requirements in time and implement ESG (Environmental, Social, Governance) standards in your company. There are penalties and sanctions for failure to comply with the reporting obligation. The exact extent of these penalties will not be known until the directive’s provisions are incorporated into Polish law. Nevertheless, it’s better to prepare than act at the last minute.
If you do not know how to prepare for the upcoming changes in the law, how CSRD will affect your organization, or have the plan to implement the directive – we’ve got you covered. Our offer covers comprehensive solutions for calculating, reducing, and offsetting your company’s carbon footprint. The entire data entry and evaluation process is simple, thanks to our carbon accounting software: Tergoscope. With Tergoscope, you will quickly generate a CSRD-compliant report, see the carbon hotspots within your value chain, and learn how to reduce your negative environmental impact effectively. With TerGo, it pays to go green.