The CSRD: A New Era for Sustainability Reporting in Europe

The now planned phased introduction of the reporting obligations is as follows:

•   Reporting obligation in 2025 for the reporting year 2024:

All companies already subject to the NFRD, which was implemented in Austria with the NaDiVeG, must carry out reporting in accordance with the CSRD (or the expected national legal act) on the financial year 2024.

• Reporting obligation in 2026 for the reporting year 2025:

All large companies not previously covered by the scope of the NFRD will be covered by the new reporting obligation for the financial year 2025.

• Reporting requirement in 2027 for reporting year 2026:

Listed small and medium-sized companies (excluding listed micro-entities) as well as non-complex credit institutions and captive insurance undertakings will be required to report starting with the financial year 2026.

• Reporting requirement in 2029 for the 2028 reporting year:

Companies outside the EU with net turnover exceeding EUR 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.

Background and Objectives of the CSRD:

The CSRD was developed to address gaps and weaknesses in the existing NFRD. It is part of the broader EU efforts to promote a more sustainable economy and improve the integration of environmental and social factors into corporate decision-making processes. The main objectives of the CSRD are as follows:

•  Increasing Transparency: The CSRD seeks to ensure that companies disclose more comprehensive information about environmental impacts, social issues, and corporate governance practices. These disclosures will be part of the annual management report and will be submitted in electronic format to ensure they are machine-readable. This will allow stakeholders to better understand a company's overall performance by having all relevant information (financial and non-financial) in one consolidated report.
• Enhancing Comparability: It introduces common reporting standards, the European Sustainability Reporting Standards (ESRS), which were adopted by the Commission for use by all companies subject to the CSRD on a mandatory basis, and all others on a voluntary basis. Thus far, they provide sector-agnostic disclosure requirements regarding environmental, social and governance issues and specific formats to be used for creating the sustainability reports. This will allow investors, credit institutions and broader stakeholders to make better informed decisions on the undertaking disclosing the report. Amendments will be published in the following years containing sector-specific and simplified SME standards.   
• Strengthening Corporate Responsibility: The ESRS ensure companies disclose strategies and governance processes along with controls, and procedures in place to monitor and manage sustainability matters. They mandate impact, risk and opportunity management including providing results and methods of conducting the materiality assessment. Companies will need to identify material topics using double materiality – impact materiality (how company affects people and environment) and financial materiality (how environmental matters affect firm’s performance) approaches. Another obligation is incorporating metrics and targets regarding the material matters.

The CSRD introduces several significant changes to sustainability reporting:

•  Expanded Scope: The CSRD is expected to apply to a larger number of companies than the NFRD, including smaller and medium-sized enterprises. This means that more companies will be involved in sustainability reporting.
  • Specifically, CSRD applies to organizations with over EUR 20 million in total assets, a net turnover of EUR 40 million and/or 250+ employees. 
• Harmonized Reporting Standards: The CSRD promotes the use of internationally recognized standards such as the GRI Standards and the Task Force on Climate-related Financial Disclosures (TCFD) standards to ensure the quality and comparability of reports.
• Audit and Verification: The CSRD is making audit and verification of sustainability reports mandatory to ensure the integrity of reporting. More specifically, under the directive, the Commission must adopt legislation to provide for limited assurance standards (1 October 2026), as well as further legislation to provide for reasonable assurance standards (1 October 2028). The assurance certification must come from an accredited independent auditor or certifier, ensuring that the sustainability information complies with the certification standards that have been adopted by the EU.
• Extended Reporting Frequency: Reporting under CSRD may occur more frequently than before, ensuring more up-to-date information.

In relation to the scope of the CSRD (Corporate Sustainability Reporting Directive), there are special provisions that result in reporting requirements for the companies or their subsidiaries listed below:

•  EU subsidiaries of companies from third countries, as well as third-country companies themselves, that are listed on regulated markets in the EU.
• Non-European companies that generate a net turnover of more than 150 million euros within the EU and have at least one subsidiary or branch within the EU.

An exception to the reporting requirement arises from the group privilege:
subsidiaries are exempt from the reporting requirement under certain conditions if they are included in the consolidated management report of the parent company (consolidated sustainability reporting).

Impact on Companies and Stakeholders

The introduction of the CSRD will have significant implications for companies and their stakeholders. Companies will need to revise their reporting processes to ensure compliance with the new requirements. This may require investments in data collection, management, and auditing systems.

For stakeholders, such as investors, analysts, and non-profit organizations, the CSRD will provide valuable information to better assess the sustainability performance of companies. This can serve as the basis for more sustainable investment decisions and the promotion of responsible entrepreneurship.