Corporate Sustainability Reporting Directive: What you need to know

The European Union's Corporate Sustainability Reporting Directive entered into force in 2023. It seeks to embed transparent strategy and reporting in business across the EU by mandating companies to report on their environmental, social and governance (ESG) activities. Companies will no longer be accountable solely for their financial performance and sustainability, but also for their impact on the world around them. The directive is supported by a single reporting system, the European Sustainability Reporting Standard (ESRS), which is a categorical set of indices against which in-scope companies must report.

Timeline

• For large firms already subject to the Non-Financial Reporting Directive, reporting will commence for the financial year commencing on or after 1 January 2024.
• Other large companies and public interest entities with more than 250 employees will be required to report from FY 2025.
• All listed SMEs are required to report from FY 2026, with an opt out possible until 2028.

Key aspects of CSRD

The CSRD mandates reporting for companies in scope of the directive, and also requires reporting on a "double materiality" basis which requires an analysis of downstream impacts caused directly by the company itself and also upstream activities in its supply chain. This aspect of the Directive implies that any entity in the supply chain of a company subject to CSRD is likely to see pressure to disclose certain information from their partner companies as soon as this year.

All reports must be published as part of the annual management reports, digitally tagged to enable public scrutiny through the European Single Access Point and audited by an independent assurer to ensure the accuracy of data reported, measurement methodologies, and compliance with statutory and regulatory requirements. Non-compliance with these requirements can lead to penalties.

What should companies be preparing now?

1. Designate an ESG responsible person in senior management or on the Board of Directors to lead in ensuring the company is ready for its reporting requirements.
2. Engage with expert and experienced ESG advisors, like Crowe's ESG Centre of Excellence, to set out a strategy for preparing reporting systems and strategies.
3. Inform and collaborate with supply chain partners, suppliers, stakeholders and employees.
4. Keep up to date with the latest legislative and regulatory developments on ESG matters in your sector.

Companies embracing ESG strategy and reporting early will be in an advantaged position in the coming years, ready to respond to new obligations which may emerge in this rapidly developing landscape. If you would like to start your ESG journey, please contact [email protected].