Everything you need to know about mandatory sustainability reporting in 2024
February 2024 - In 2024, the European Union's Corporate Sustainability Reporting (CSRD) directive will come into force, a set of laws and decrees marking a new standard around sustainability reporting. Over 50,000 large and small companies will be impacted.
On 5 January 2023, the Corporate Sustainability Reporting (CSRD) directive came into force. From then on, a broad group of small, medium-sized and large companies will be required to report on sustainability. The stricter rules should increase transparency about companies' impact on people and the environment.
CSRD vs NFRD
The CSRD builds on the Non-Financial Reporting Directive (NFRD) adopted by the EU in 2014. The NFRD generally applies to large public-interest companies operating in Europe with more than 500 employees (about 11,000 companies). The scope of the CSRD greatly expands that of the NFRD. First, by expanding the number of companies required to report - from 11,000 to more than 50,000. Second, the amount of non-financial information that companies have to report under CSRD has potentially increased.
CSRD requires companies to report using a set of sustainability criteria, the European Sustainability Reporting Standards (ESRS), drawn up by the European Financial Reporting Advisory Group (EFRAG).
What should be reported on?
The ESRS are divided into 12 different cross-cutting and thematic standards, including:
· Cross-cutting: general requirements and disclosure
· Environmental: climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy
· Social: workers (direct and supply chain), local communities, consumers and end-users
· Governance: business conduct
In addition to the horizontal and thematic standards, the following additional standards also apply:
· Sector-specific: Applicable to certain sectors, including: (i) mining, quarrying and coal mining, (ii) oil and gas, (iii) road transport, and (iv) agriculture, livestock and fisheries.
· SME standards: Applicable to SMEs reporting in January 2027. These standards will be approved by the European Commission by June 2024.
· Non-EU standards: Applicable to in-scope entities not headquartered in the EU.
Phased introduction of CSRD
The European Commission has provided for a phased introduction of certain disclosure requirements. For example, most companies are allowed to defer reporting on financial impacts arising from sustainability risks and opportunities for the first one to three reporting years. In addition, companies or groups of companies with 750 or fewer employees are allowed to omit disclosures related to greenhouse gas emissions, biodiversity and social issues for the first 1-2 reporting years.
