The EU Corporate Sustainability Reporting Directive (CSRD) in a nutshell

The EU’s Corporate Sustainability Reporting Directive ("CSRD") has recently come into force. It will require in-scope entities to make extensive sustainability disclosures in their annual reports.

What does the CSRD require?

The CSRD revises and extends requirements under the Non-Financial Reporting Directive ("NFRD") for undertakings to disclose non-financial information. Under the CSRD, in-scope entities will have to report information on a wide range of environmental, social and governance (“ESG”) issues.

What are the European Sustainable Reporting Standards (“ESRS”)?

In-scope undertakings will need to report against the ESRS developed by the European Financial Reporting Advisory Group (“EFRAG”). The ESRS can be categorised as: cross-cutting; topical standards (sector agnostic), and sector-specific standards.

Drafts of 12 ESRS were released on 22 November 2022. These are expected to be adopted by the European Commission in June 2023. EFRAG will now work on preparing disclosure standards for SMEs and sector-specific reporting standards.

When will the CSRD apply from?

Application of the CSRD will be phased in from 2025 (for financial years starting on or after 1 January 2024) to 2029 (for financial years starting on or after 1 January 2028). The application tests are complex and should be worked through on an entity by entity basis. Non-EU companies with equity or debt listed on an EU regulated market may be in-scope sooner than would otherwise be the case.

Some key points to know about CSRD requirements

Double materiality: The CSRD is underpinned by the concept of “double materiality”. An assessment must be undertaken to determine which sustainability matters are “material”, and therefore reportable, comprising of an impact materiality assessment and a financial materiality assessment.

Value chain: The materiality assessment must identify material impacts, risks and opportunities connected to the group through its direct and indirect business relationships in the upstream and/or downstream value chain.

Assurance: The CSRD requires “limited assurance” of compliance with reporting obligations under the CSRD (and ESRS) as well as EU Taxonomy Regulation disclosures.

What’s next?

We will be publishing more specific information on the CSRD in due course. For more information on the background to the CSRD and the ESRS, see our previous blog posts (for example, here, here and here).