The Corporate Sustainability Reporting Directive (CSRD) is an EU ESG (environmental social governance) standard released by the European Commission in April, 2021 designed to make corporate sustainability reporting more common, consistent, and standardized like financial accounting and reporting. The CSRD will apply to all companies with:
Any EU company that meets that criteria is required to file an annual report using the CSRD's forthcoming sustainability taxonomy on how sustainability influences their business, as well as the company's impact on people and the environment. A first draft of the initial environmental reporting requirements, the EU Sustainability Reporting Standards (ESRS), was released in draft form for public comment on May 3, 2022 by the European Financial Reporting Advisory Group (EFRAG).
The CSRD updates and replaces the existing Non-Financial Reporting Directive (NFRD), and goes into effect throughout the European Union (EU) in 2023. It's estimated 50,000+ companies who do business in Europe will need to report and comply with ESRS.
A big goal of CSRD is to standardize and simplify sustainability reporting for companies . Many companies are currently under pressure to use a wide range of different sustainability reporting standards and frameworks. The EU CSRD aims to consolidate this into one ESG report that meets the needs of EU regulators, investors, and other stakeholders. The first version of CSRD standards are being drafted in collaboration with EFRAG.
To comply with CSRD, organization's will need to take the following annual compliance steps, starting in 2023:
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As of today, the CSRD is still a European Commission proposal that has not yet been passed into law. The European Parliament and the European Council still have to integrate EFRAG's recommendations, agree on a final version, and pass the bill. These steps are expected to happen over the course of 2022, although it's possible other pressing EU issues like Russia's invasion of Ukraine may delay or modify this process. Right now, the timeline for the CSRD coming into effect is:
This means companies need to prepare to plan and implement their CSRD compliance approach by 2023 in order to be ready for the 2024 reporting cycle and stay compliant. It's not yet know exactly how the EU Commission or specific member states might penalize businesses who fail to comply with the CSRD, but according to the Commissions’ requirements within the Directive, non-compliant eligible organizations will be forced to pay a meaningful fine.
For the latest updates, please refer to our EU Sustainability Reporting Standards (ESRS) guide.
For organizations in the early stages of their sustainability reporting journey, we have a few general recommendations, additional reading, and suggested next steps:
Materiality assessment - Before collecting data or thinking about preparing your first report, you need to conduct a “Materiality Assessment” to help determine what your sustainability goals, targets, KPIs, and reporting topics should be under CSRD. A materiality assessment is a project which determines and ranks the most material themes for your business based on market data, stakeholder interviews, and surveys. For example, a healthcare company might focus on healthcare access, affordability, innovation, and its supply chain. A technology company could focus on data privacy, security, and STEM education access. A bank might designate financial inclusion as its most material theme. Pick and rank the right sustainability themes depending on your organization’s mission, sector, model, and ESG maturity.
Sustainability data systems and process - While this might go without saying, in order to report your organization's sustainability performance, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main sustainability themes you may need to focus on and collect data around. Is employee travel a big source of your organization's carbon footprint? Facilities? Manufacturing sites? Where does that data exist today, and how will you access or collect it? Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies. If you're an organization with a medium-to-large or complex environmental footprint, you likely need dedicated sustainability reporting and data management software, like the kind we design here at Brightest to help organizations stay ESG compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be reporting every year.
Further reading - Our free guides to sustainability measurement and ESG reporting provide additional, detailed guidance and insights on how to measure and report your sustainability performance.
