CSRD - Europe and sustainability on the balance sheet

Dec 13, 2022 | written by:

Large companies in the EU will be obliged to publicly share data on their impact on the environment, people, the planet and the sustainability risks they face. We look at the new European Transparency Directive.

Called the CSRD, which stands for Corporate Sustainability Reporting Directive, it replaces the current Non-Financial Reporting Directive (NFRD).

The CSRD was introduced to define a common standard for corporate sustainability reporting across the EU, in much the same way as for financial reporting. The new directive, which will be implemented at national level, will cover a broader range of companies than the legislation it replaces. While today the NFRD covers just over 11,500 companies, the new legislation will cover almost 50,000.

The most interesting point is the provision of a shared standard for data presentation. This will make it easier - for anyone interested, from sustainability experts and information professionals to associations and private citizens - to compare the performance of companies and corporations. If those who care about sustainability make use of this tool, its usefulness could undoubtedly prove to be greater than the bureaucratic language suggests.

The companies concerned are those that meet 2 of the following 3 criteria:

. more than 250 employees
. more than 20 million euros in assets
. a turnover of more than 40 million euros

Companies listed on a regulated market within the EU with more than 10 employees or a turnover of more than EUR 20 million will also be required to comply with the CSRD criteria.

The directive will also cover non-European companies that generate a net turnover of 150 million euro in the EU and have at least one subsidiary or branch in the EU. These companies are required to provide a report on their ESG impacts, as defined in the directive.

Preparing for the new obligations: timing

Companies that were already subject to the old Non-Financial Reporting Directive (NFRD) will have to comply with the new CSRD from 1 January 2024, while those that were not subject to it will start from 2025. Small and medium-sized enterprises (SMEs) listed on the stock exchange, small and non-complex credit institutions and captive insurance companies will start on 1 January 2026.

For companies preparing to comply with the new obligations, the first requirement is data retrieval. This will have to be reported in a shared standard format and certified by an accredited independent auditor or certifier. Failure to comply with the new rules could result in fines in excess of EUR 100,000, but it will be up to each country to determine its own level of fines.

The environment and more

CSRD requires companies to provide data in relation to six environmental objectives in the EU taxonomy:

Climate change mitigation
Climate change adaptation
Sustainable use and protection of water and marine resources
Transition to a circular economy
Pollution prevention and control
Protection and restoration of biodiversity and ecosystems

But the Protection of the Environment heading is only one of those covered by the reporting required in the new directive, and is flanked by:

Human rights
Social responsibility and treatment of employees
Criteria for representation in corporate bodies

The CSRD will also require disclosure of information on equal opportunities, fundamental freedoms, the roles of governing bodies, including in relation to sustainability, political affiliations and lobbying, transparency in business dealings, internal controls and risk management.

During the debate of the directive in the European Parliament, MEP Pascal Durand said: "Europe is showing the world that it is indeed possible to ensure that finance, in the strict sense of the word, does not rule the entire global economy. We will see if this is really the case or if the statement sins of over-optimism."

What is certain is that Treedom can be an excellent corporate partner for improving environmental performance through concrete actions, such as planting trees.

Cover photo: https://pixabay.com/it/users/db_oblikovanje-15664139 

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