The EU Corporate Sustainability Reporting Directive (CSRD), replacing the Non-Financial Reporting Directive (NFRD), broadens reporting requirements for sustainability, targeting global companies meeting specific thresholds. It mandates digital disclosure of sustainability information within management reports, with penalties for non-compliance. Around 50,000 companies are expected to report with varying compliance deadlines. CSRD requires reporting on environmental, social, and governance (ESG) metrics following European standards, including GHG emission time-bound reduction targets and scope 3 emissions disclosure, with mandatory limited assurance.
Overview of CSRD
From the start of 2024, the EU Corporate Sustainability Reporting Directive (CSRD) is being introduced in phases based on the characteristics of undertakings (applicable companies). Although the scheme will be replacing the Non-Financial Reporting Directive (NFRD), the scope of the CSRD is much broader and will extend to non-EU undertakings if certain thresholds are met. The aim of the CSRD is to improve sustainability reporting, as well as increase transparency by creating a comprehensive and uniform reporting directive. It will facilitate the understanding of sustainable investment required to reach the goals outlined in the European Green Deal;
- Reaching climate neutrality by 2050.
- Protecting and restoring ecosystems.
- Transitioning into a circular economy.
It will become mandatory to disclose sustainability information within company management reports, in a dedicated section, which shall be digitally tagged in accordance with a digital taxonomy. Failure to comply with the directive will result in significant fines.
Who is Required to Report?
Due to the CSRD, it is expected that approximately 50,000 companies worldwide will be required to disclose their sustainability/carbon reporting performance. The different characteristics of undertakings which will fall under the CSRD are:
- Large EU public-interest companies with over 500 employees that are already subject to the NFRD.
- Large EU companies (listed or not listed on EU-regulated markets) and non-EU companies (listed on EU-regulated markets) that meet two out of the three criteria below:
- Have a net turnover of more than €40 million.
- Have balance sheet assets greater than €20 million.
- Have more than 250 employees.
- EU and non-EU SMEs listed on EU-regulated markets, small and non-complex credit institutions and captive insurance undertakings.
- Non-EU parent undertakings, not listed on an EU-regulated market, with a net turnover above €150 million in the EU in each of the last two financial years, either at group level or individual level, and:
- Have at least one EU subsidiary, or
- Have an EU branch with more than €40 million net turnover.
Timeframes for Compliance
Reporting financial year starting 1 January 2024: Large EU public interest entities already subject to the NFRD.
Reporting financial year starting 1 January 2025: Large EU and non-EU undertakings not presently subject to the NFRD.
Reporting financial year starting 1 January 2026: EU and non-EU SMEs listed on EU-regulated markets.
Reporting financial year starting 1 January 2028: Non-EU parent undertakings not listed on an EU-regulated market.
Companies will need to report on a variety of environmental, social and governance (ESG) metrics. The information is to follow European Sustainability Reporting Standards (ESRS), where the mandatory information will cover sustainability impacts, opportunities, and risks based on a "double materiality" approach. The list of sustainability information required to be reported is extensive – see the broader scope here. Some key requirements are highlighted:
- GHG Targets
A description of time-bound targets for the reduction of GHG emissions for 2030 and 2050, along with a progress update and a statement regarding if the targets are based on conclusive scientific evidence, such as aligning with a 1.5ºC trajectory (i.e., aligning with the requirements of the Science Based Targets initiative (SBTi).
- Scope 3 Emissions
Sustainability information regarding the undertaking’s own emissions and its value chain emissions, including its products and services, its business relationships and its supply chain. The emissions from an undertaking’s value chain are accounted for as part of scope 3 emissions reporting under the GHG Protocol. For further details on scope 3 emissions please click here.
Furthermore, the information provided will be subject to mandatory limited assurance, where a statutory or financial auditor will be required to evaluate the sustainability report. The assurance report provided by the auditor must be publicly disclosed with the annual financial report.
How NUS Can Help
NUS has a dedicated Energy and Sustainability Services (ESS) team that can prepare and support you through the CSRD scheme. The team has expertise and knowledge in supporting industrial and commercial clients around the world with scope 3 GHG emissions data collection, calculation, and quantification to develop tailored GHG targets in line with the Science Based Targets initiative (SBTi) and leading international standards.
Get in touch today to develop a plan for meeting the requirements of the CSRD.
More: Energy Market Commentary, EU Corporate Sustainability Reporting Directive (CSRD), Scope 3 Emissions