Adopted in November 2022 and entering into force in January 2023, CSRD is one of the cornerstones of the European Green Deal and the sustainable finance agenda. The CSRD aims to address the shortcomings of the NFRD, which laid the foundation for mandatory EU sustainability reporting, and introduce more detailed reporting requirements on companies' social and environmental impacts. In addition, CSRD greatly expands the number of companies that have to comply with the legislation - from around 11 700 that were covered by the NFRD to almost 50 000.

The implementation phases of the CSRD

As mentioned, the CSRD reporting requirements started to apply to financial years starting on or after January 1, 2024, but this is only the first phase of the CSRD timeline. Different groups of companies will be gradually covered by the legislation in four stages:

1. Sustainability report with data from 2024 to be published in 2025

Companies already covered by the NFRD, i.e. large listed companies, large banks and large insurance companies in the EU if they all have more than 500 employees, and non-EU companies with securities listed on regulated markets in the EU and more than 500 employees.

2. Sustainability report with data from 2025 to be published in 2026

Other EU companies and non-EU companies with securities listed on regulated markets in the EU that meet at least two of the three criteria of the Accounting Directive* for large companies: a) net turnover more than €50 million; b) balance sheet more than €25 million; c) average number of employees more than 250.

3. Sustainability report with data from 2026 to be published in 2027

However - these companies can choose to delay reporting for another two years so the last possible year to publish the first report should be 2029 with data from 2028

SMEs both from within and outside the EU with securities listed on regulated markets in the EU; the Accounting Directive* defines SMEs as companies that do not exceed at least two criteria for large companies and that exceed at least two criteria for micro companies: a) net turnover more than €900,000; b) balance sheet more than €450,000; c) average number of employees more than 10.

4. Sustainability report with data from 2028 to be published in 2029 and reporting at group level 

Non-EU companies with an annual turnover of more than €150 million in the EU and which have either a branch in the EU with a turnover of more than €40 million or a subsidiary that is a large company or a listed SME according to the Accounting Directive*.

*adjusted for 25% inflation according to the recently adopted delegated directive

ESRS

All reporting requirements under CSRD are gathered in sustainability reporting standards called ESRS (European Sustainability Reporting Standards), developed by EFRAG (European Financial Reporting Advisory Group), a private association set up with the support of the European Commission.

The ESRS are divided into the following categories

All horizontal standards and subject-specific standards were adopted in July 2023 while sectoral standards were planned to be adopted by the end of June 2024. However, according to a new proposal published together with the Commission Work Programme for 2024, the European Commission aims to postpone the adoption of sectoral ESRS by two years to ensure that EFRAG has time to develop effective sectoral standards.

In terms of overarching standards, ESRS 1 provides an understanding of the structure of ESRSs, the basic concepts used in standards and the general requirements for preparing and presenting sustainability information. ESRS 2, in turn, sets out disclosure requirements for the information to be provided by the company on all material sustainability issues.

As ESRS 1 does not contain any disclosure requirements, ESRS 2 is the only mandatory standard. In contrast, all subject-specific standards are not voluntary, but subject to a materiality analysis that is supposed to be the starting point for reporting under ESRS. This means that companies only need to report information that is deemed material to their business.

Double materiality

A sustainability issue is material when it meets the criteria of one or both dimensions of dual materiality, i.e. impact materiality and financial materiality. Impact materiality refers to the company's actual or potential impacts, both negative and positive, on people or the environment in its own operations and in the value chain. On the other hand, financial materiality includes risks or opportunities that have or can be expected to have a material impact on the company's performance and its financial results.

If an entity concludes that one of the sustainability topics is not material and therefore omits all disclosure requirements related to that topic, the entity will be required to provide a brief explanation of the conclusions of its materiality analysis for that topic. This applies to all topic-specific standards except ESRS E1 Climate Change. For this standard, entities will need to provide a detailed explanation of the conclusions of the materiality analysis, including a forward-looking analysis of the conditions that could lead the entity to conclude that climate change is material in the future. Climate change is thus prioritized as a sustainability topic due to its widespread and systemic impacts across the economy.

CSRD reporting in Our Impacts

Our Impacts, the sustainability platform offered by ZeroMission to its clients since 2011, is specifically designed to calculate company emissions as required by ESRS E1 but can also handle other sustainability factors. Moreover, as the platform is built to be verified by third parties, it fulfills the CSRD's third-party verification requirements.

Please contact us directly if you want to know more about climate calculations with Our Impacts.

Learn more about CSRD in Our Impacts with our seminar.

Or see an introduction to how ZeroMission's digital platform can be used together with Knowit.