CSR Directive: What Becomes Important With The New Directive
The CSR Directive brings new reporting obligations on sustainability and affects more companies. This is what you have to pay attention to.
In April 2021, the European Commission published its proposal for the new CSR Directive (CSRD) which intends to make new sustainability reporting mandatory from 2023. Here, we take a look at the most important revelations.
The new CSR Directive is to replace the previously applicable Non-Financial Reporting Directive (NFRD) and introduce new reporting obligations for companies. With the directive, the Commission is giving sustainability reporting a similarly important status to financial reporting. In future, sustainability reporting should no longer be carried out separately, but should be part of the management report of companies.
When do the changes apply?
The timetable of the European Commission plans for the proposal to be adopted by June 2022 and implemented into national law by the end of the year. The reporting obligation would apply from 01 January 2024 and therefore already includes reports for the 2023 financial year.
Why is the CSR Directive being introduced?
The aim of the new CSR Directive above all is comparability: in future, there are to be uniform standards for sustainability reporting in order to make it more comparable and verifiable. Investors and stakeholders are increasingly asking for sustainability standards, which led to the European Commission raising a transparent, uniform level throughout Europe with its directive. The standards for the new reporting are to be developed by the European Financial Reporting Advisory Group (EFRAG). They will then go through an extensive consultation process with expert groups from the EU member states and numerous EU authorities.
Who is affected?
In its currently envisaged form, the CSRD affects more companies than before. Under the predecessor directive NFRD, reporting obligations were only foreseen for “public interest entities” with more than 500 employees. The new CSRD affects all large companies with 250 or more employees, regardless of their stock exchange listing. In addition, a balance sheet total of 20 million euros or a turnover of 40 million euros need to be exceeded in order to comply with the obligation. From 1 January 2026, all reporting obligations are to be extended to all listed small and medium-sized enterprises (SMEs). However, the directive provides for simplified reporting obligations for listed SMEs in order to minimise their burden. Only the smallest organisations are to be exempt from the reporting obligation in the future.
What is required by the sustainability report?
According to the European Commission’s conception, the sustainability report should provide concrete information on the understanding of the business development, the business result, the situation of the company as well as containing the effects of its activities on people and the environment. This consideration of internal and external impacts relevant to sustainability is also referred to as the principle of dual materiality. Companies must also provide information on intangible assets such as human and intellectual capital. Also new is the requirement to provide retrospective and forward-looking disclosures on governance factors such as reporting on targets and progress.
One of the biggest innovations is that in the future, management will also be liable for sustainability reporting. Therefore, the European Commission also foresees a duty to audit the content of the report. As there are relatively few service providers for such audits, it should be carried out with “limited assurance” for the time being.
How does it have to be reported?
In the future, sustainability reporting should no longer appear in a separate report, but form part of the annual report. The Commission’s proposal provides for the information to be digitally labelled so that it is machine-readable. It will be provided electronically in accordance with the requirements of the ESEF Regulation. This is to ensure that the report can feed into the European Single Access Point (ESAP) platform foreseen in the Capital Markets Union Action.
As soon as there is news about the CSR Directive, we will report on it here on the blog.
How to effectively create, implement and communicate compliance policies and measure the success of your policy program – for everyone who is responsible for Compliance policies in their organization