The CSRD is the replacement for the EU’s Non-Financial Reporting Directive (NFRD) aiming to address its shortcomings and bring higher importance to sustainability reporting. With the call for more sustainable focused businesses the EU Commission believes that current reporting standards allow reports to omit information that investors and stakeholders deem as important.

With the introduction of the CSRD there are some notable changes. Firstly, 49,000 businesses will need to comply opposed to the 11,700 which came under the scope of the NFRD. Limited assurance will become mandatory with the view to increase the requirement to ‘reasonable’ as the legislation evolves. Unlike the previous legislation which define topic areas broadly, the CSRD lists specific areas in which a business must report against these are:

• Business model and strategy incorporating sustainability matters and the impact of 1.5ºC temperatures in line with Paris Agreements
• Targets and progress made to achieve those targets
• Roles and responsibilities of management
• Company’s sustainability policy including due diligence
• Adverse impacts connected with the value chain
• Description of principal risks related to sustainability matters
• Reporting in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation
• Double Materiality with businesses required to consider the impact sustainability topics have on the company’s value (Financial Materiality), and the business’s impact on the economy, environment, and people (Impact Materiality)

Companies will need report on these areas through the use of:

• Qualitative and quantitative information
• Both forward-looking and retrospective information
• Information that covers short, medium, and long-term time horizons

It will apply to any organisation based in the EU or that has subsidiaries within the EU. Non-EU companies with EU subsidiaries or securities on EU-regulated markets which have a net turnover of over €150m within the EU. UK companies are considered Non-EU but should consider whether the subsidiary requirements apply to them.

The CSRD was first proposed in April 2021 following a call for parliament to review the NFRD in order to sustain progress towards the European Green Deal and the Sustainable Finance Agenda. Since then in November 2022, European Parliament voted to adopt the Corporate Sustainability Reporting Directive with 525 votes in favour. On the 28^th of November the proposal was signed and published in the EU Official Journal with the directive entering into force in mid-December. The rules will be rolled out in stages from 2024 to 2028:

• The first set of standards are set to be released by June 2023
• January 1^st 2024 – Large public interest companies (with over 500 employees) already subject to the NFRD, with reports due in 2025.
• January 1^st 2025 – Large companies that are not presently subject to the NFRD (with over 250 employees and/or €40million turnover and/or €20 million in total assets; with reports due in 2026
• January 1^st 2026 – Listed SMEs and ‘other undertakings’, with reports due in 2027. As SMEs have minimal sustainability requirements currently, they can choose to opt out until 2028 should then require more time to gather the correct information and put data collection systems in place.