Global Impact of EU's CSRD: The Essential Three-Step Action Plan
The forthcoming European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) is poised to transform corporate sustainability reporting. This directive seeks to enhance the transparency of companies' impacts on society and the environment. Here, we present three crucial actions to help you navigate and meet the requirements under this directive.
Action #1: Determine If and When Your Company Must Report
The first step is to identify whether your company falls under the scope of the CSRD and to understand when you need to start reporting. The CSRD applies to 50,000 companies, including those listed on an EU-regulated market and non-EU companies with significant activity in the EU.
CSRD's Global Reach: Not Just an EU Concern
Source: Refinitiv
It's vital to understand that the CSRD isn't merely an EU-focused directive. It's set to have significant impacts on companies outside the European Union. These include businesses that have listed securities on EU-regulated markets, those with an annual EU revenue exceeding €150 million, an EU branch netting more than €40 million, and companies with an EU large subsidiary. The expansive reach of the CSRD is demonstrated by Refinitiv data (see table above), which estimates around 10,400 foreign companies with EU stock listings and over 100 companies with €150 million or more in local EU revenue.
To help determine when you must report, refer to the timeline below:
CSRD Reporting Timeline
Action #2: Understand What and How Your Company Must Report
Once you've determined your reporting obligations, the following action involves understanding what information you must report and how to present it. The CSRD requires companies to disclose sustainability-related impacts, risks, and opportunities as per the European Sustainability Reporting Standards (ESRS). This includes environmental, social, and governance matters and data on the company's strategy, governance, materiality assessment, and performance metrics. It's also important to note that the CSRD requires a “double materiality” perspective, which considers both the impacts on the company and the impacts of the company.
The CSRD also specifies where these disclosures should be made – in a dedicated section within the management report. Disclosures must also be digitally tagged to help users quickly find the necessary information.
Start implementing data processes and controls according to the following timeline:
CSRD Implementation Timeline
Action #3: Prepare for Independent Assurance
The third action involves preparing for independent assurance of your sustainability information. From the first year of including CSRD disclosures, companies must obtain limited assurance of compliance with the sustainability reporting standards and specific reported indicators. Moreover, a statutory or financial auditor must provide an assurance opinion over the sustainability report.
Planning and executing these three actions are essential to comply with the CSRD and supporting ESRS reporting requirements. By understanding and anticipating these changes, your company can ensure a smooth transition towards more transparent, consistent, and comprehensive sustainability reporting.
