New EU Corporate Sustainability Reporting Directive to Impact 50,000 Companies

The Corporate Sustainability Reporting Directive (CSRD) strengthens and modernizes reporting rules on social and environmental risks, impacting large companies and listed SMEs in the European Union.

Early this year, the European Union implemented the Corporate Sustainability Reporting Directive (CSRD), which aims to modernize and strengthen rules regarding social and environmental information that companies must report. The new directive will affect a broader set of large companies, as well as listed SMEs, with approximately 50,000 companies being subject to the CSRD.

The CSRD is a part of the European Green Deal, ensuring that investors, civil society organizations, consumers, and other stakeholders can evaluate the sustainability performance of companies. By harmonizing the information to be provided, the directive aims to reduce reporting costs for companies over the medium to long term.

Companies will have to apply the new rules for the first time in the 2024 financial year, with reports being published in 2025. These organizations will be required to report according to European Sustainability Reporting Standards (ESRS), which are being developed by the EFRAG, formerly known as the European Financial Reporting Advisory Group. The standards will be tailored to EU policies, while also contributing to international standardization initiatives. The first set of standards is expected to be adopted by the Commission by mid-2023, based on the draft standards published by EFRAG in November 2022.

The CSRD also mandates that companies must have their sustainability information audited and provides for the digitalization of this information. Until the new CSRD rules are applied, the rules introduced by the Non-Financial Reporting Directive (NFRD) will remain in force. Under the NFRD, large public-interest companies with over 500 employees, including listed companies, banks, insurance companies, and other companies designated as public-interest entities, are required to publish information related to environmental matters, social matters and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards. The NFRD currently covers approximately 11,700 large companies and groups across the EU.

By implementing the CSRD, the European Union aims to create a culture of transparency about the impact of companies on people and the environment, helping stakeholders assess investment risks arising from climate change and other sustainability issues.