CSRD is the EU's proposal for new legislation on non-financial sustainability reporting, a revision of the current NFRD directive. The final legal text has not yet been adopted. But what does CSRD mean, which companies does it apply to and how do you prepare for the new guidelines? You will find the answers here!
What does CSRD stand for?
CSRD (Corporate Sustainability Reporting Directive) is a new directive that will ensure that companies report the impact of their social and environmental activities.
The directive will apply to many companies (large, medium, and small) operating in the EU market. CSRD, unlike NFRD, will affect more companies, and the requirements for what the sustainability report must contain are more clearly specified.
Why do we need CSRD?
CSRD is the new and evolved version of the current framework for sustainability reporting of non-financial activities, NFRD.
The update was required since NFRD was considered too vague and unclear, with CSRD, the EU Commission is now producing clearer and stricter legislation. The objective is to increase comparability and raise the quality of the information that is reported
The goal of CSRD is to make it easier for companies to report on the social and environmental effects of their operations in a reliable way. CSRD also contributes to the EU's green contribution, a sustainable transition, and connects to the Paris Agreement.
3 important preparations for CSRD:
1. Identify deficiencies in the sustainability reporting
Start by identifying any shortcomings in your current sustainability reporting. What is missing for you to be able to live up to the new directive? For example, how are you going to collect the information that CSRD requires?
CSRD comes with a lot of changes, the following are considered some of the biggest:
- Clarifications on the double materiality analysis
- Reporting according to EU standards (will be based on the EU taxonomy, GRI, TCFD, and the GHG protocol)
- Requirements for reporting on climate impact
- Requirements for third-party review
- The report must be part of the management report (not a separate report)
- The report must be presented in a digital format (XHTML) according to common standards in a future European database
2. Gather the sustainability work on a digital platform
New legal requirements are regularly being presented in the sustainability area, and it is not always easy to keep up with the developments. Sustainability work can be made more efficient by collecting the latest updates on all relevant frameworks on an accessible collaboration surface, for example, a digital platform.
Then, the entire organization can quickly get an overview of which frameworks apply and where the company is holding up in terms of compliance.
3. Review your work with goals and KPIs
Make sure that the sustainability report is integrated into the business's overall goals. How the organization handles environmental and social risks will, for example, have a major impact on goal achievement.
Prepare for CSRD by defining relevant key figures for how the effects of the sustainability work should be measured in the long term, and review which sustainability frameworks you follow today.
Which companies are covered by CSRD?
The old directive, NFRD, only applied to listed companies with more than 500 employees, which covered approximately 11,000 companies. CSRD on the other hand has been expanded with even more criteria and is expected to cover close to 50,000 companies. The legislation applies to large companies, listed companies, and medium-sized and small companies.
CSRD applies to large companies that meet two of these three criteria in the last two financial years:
- More than 250 employees
- A net turnover of at least EUR 40 million
- Assets of at least EUR 20 million
Large companies are expected to start reporting according to CSRD from 1 January 2024, for the 2023 financial year.
The directive will also cover small and medium-sized companies (SMEs) that:
- Are listed on EU-regulated markets (European and non-European)
The requirements for small and medium-sized companies are expected to be somewhat less strict than for large companies. For example, SMEs are not required to comply with the CSRD until 2027 for the 2026 financial year.
All companies are encouraged to start reporting as soon as possible to facilitate the transition. Companies that wait to report according to CSRD risk becoming less attractive to investors as comparability with other companies cannot be done.
Here you can read more about how Stratsys' tools for sustainability management help organizations streamline their sustainability reporting and compliance with relevant frameworks.