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Corporate Sustainability Reporting Directive: Increasing demands

Written by Uwe Eisinger | Aug 16, 2023

The call for more sustainability in the business world is getting louder and louder. Companies are increasingly required to present the impact of their activities on the environment and society in a transparent and comprehensible manner. The European Union’s Corporate Sustainability Reporting Directive (CSRD) will significantly increase the requirements for sustainability reporting in the future. The directive applies to a large number of companies and represents a significant step towards sustainable reporting.

 

 

Guide: Four steps to embed ESG and sustainability in your HR strategy

 

 

Objective of the Corporate Sustainability Reporting Directive

The CSRD is part of the European Green Deal, with which the 27 EU member states aim to become climate-neutral by 2050. The aim of the CSRD is to improve corporate reporting with a view to sustainability and to ensure that information relating to environmental, social and governance (ESG) aspects is adequately reflected in financial reports. The guideline aims to increase transparency in reporting, provide investors with an objective basis for decision-making, and improve companies’ sustainability performance.

 

Who is subject to reporting requirements?

The CSRD establishes a reporting obligation for the following companies:

  • Capital market-oriented large companies that are already subject to the non-financial reporting requirement must report in accordance with the CSRD requirements for fiscal years starting January 1, 2024.

  • Large companies are subject to reporting requirements for fiscal years starting January 1, 2025, regardless of capital market orientation. Companies are considered large if they meet at least two of the following criteria:

    • More than 250 employees on average over the year

    • More than 40 million euros in revenue

    • More than 20 million euros in total assets

  • Capital market-oriented small and medium-sized companies must report on fiscal years starting January 1, 2026 – if they meet at least two of the following criteria:

    • More than 10 employees on an annual average

    • More than 700,000 euros in revenue

    • More than 350,000 euros in total assets

In Germany alone, the number of companies subject to reporting requirements will increase from 500 to around 15,000 compared to the previously applicable Non-Financial Reporting Directive (NFRD).

 

What does the CSRD include?

The CSRD comprises a number of measures that require companies to disclose certain sustainability information. These include:

  • Expanded reporting requirements
    Companies affected by the directive are required to prepare a comprehensive sustainability report. In future, annual reports are to include not only financial data but also non-financial content, for example on environmental and social indicators.

  • Standardized reporting

    The CSRD stipulates that companies must prepare their sustainability reports in accordance with internationally recognized standards. This promotes comparability and enables better assessment of sustainability performance.

  • Auditing of reports

    The directive requires that independent auditors review sustainability reports to confirm their reliability and accuracy.

 

Effects of the CSRD

The introduction of the CSRD will have far-reaching effects. First, companies will be required to monitor, evaluate and report their sustainability performance more closely. This could result in increased integration of sustainability aspects into corporate strategy and practice. The increased transparency strengthens the confidence of investors and other stakeholders in the respective company.

 

In addition, the CSRD improves comparability between companies, as in the future they will all report according to the same standards. Investors will have a reliable starting point for making informed investment decisions. Furthermore, the disclosure of ESG information can help companies to better assess risks and identify opportunities associated with sustainable activities.

 

Conclusion: Sustainability as a benchmark for corporate success

The Corporate Sustainability Reporting Directive marks an important milestone on the road to a more sustainable business world by putting non-financial and financial reporting on an equal footing. The obligation to disclose sustainability information encourages companies to consistently meet their responsibilities towards the environment and society. The CSRD will lead to greater transparency, encourage companies to implement sustainable activities, and provide investors with a reliable basis for decision-making. With the directive, sustainability will become a key benchmark for corporate success.