Embracing Transparency: The EU’s Corporate Sustainability Reporting Directive Paves the Way for a Greener Future

The Corporate Sustainability Reporting Directive (CSRD) is a significant step in the European Union’s efforts to foster sustainable business practices. Instituted on January 5, 2023, the CSRD is a keystone of the European Green Deal, aiming to modernize and strengthen corporate reporting on social and environmental impacts. This directive expands the scope of the previous Non-Financial Reporting Directive (NFRD) and is grounded in the increasing awareness of sustainability’s vital role in business operations and investment decisions.

Under the CSRD, a broader spectrum of large companies, including listed SMEs (Small and Medium-sized Enterprises), must now report on sustainability. This reporting is critical for various stakeholders, including investors, civil society organizations, consumers, and others, to assess a company’s sustainability performance. It helps them understand the risks and opportunities that arise from environmental and social issues, as well as the impact of corporate activities on people and the environment.

The first application of the CSRD will be for the financial year 2024, with reports published in 2025. Companies under this directive must adhere to the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG), now an independent entity. These standards are designed to align with EU policies and contribute to global standardization efforts. The ESRS were adopted following a public feedback period and consultation process, demonstrating the EU’s commitment to inclusive and comprehensive sustainability reporting.

The CSRD also mandates companies to provide assurance on the sustainability information they report. Additionally, it facilitates a digital taxonomy of sustainability information, enhancing accessibility and transparency. Until the CSRD is fully implemented, the existing rules under the NFRD remain in force. These rules require large public-interest entities with over 500 employees to report on various aspects, including environmental matters, social and employee-related issues, respect for human rights, anti-corruption, bribery, and diversity in company boards.

In summary, the CSRD represents a significant advancement in the EU’s commitment to sustainable business practices, offering a more comprehensive and transparent framework for corporate sustainability reporting. This initiative not only aids in assessing the sustainability performance of companies but also plays a crucial role in guiding investment decisions and shaping a sustainable future.

Relevant Legislation:

Text of the CSRD (2022/2464/EU)

Delegated and implementing acts to the CSRD