What is the Corporate Sustainability Reporting Directive?
In April last year, the European Commission submitted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which is designed to strengthen existing Non-financial Reporting Directive (NFRD) rules. Its primary objective is to enhance access to sustainability information and enforce more consistent and transparent sustainability reporting by businesses.
The NFRD was adopted by the EU in 2014 and applies to listed companies with more than 500 employees. It requires these businesses to publicly report policies relating to environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards.
Who is eligible
CSRD applies to more companies than the NFRD: any organisation with over 250 employees or more than €40m turnover or more than €20m in assets will now be obligated to comply with the new legislation. By the time it’s fully implemented, 49,000 businesses are expected to be impacted by this new reporting requirement; however, subsidiaries will be exempted from the mandates in the proposed directive if their sustainability data is included in the overall consolidated management report of the umbrella organisation.
The CSRD’s scope
The CSRD aims to make the most of the EU’s potential to transform into an entirely sustainable and inclusive economic and financial ecosystem, in line with the European Green Deal and the UN Sustainable Development Goals. It extends the scope of the existing NFRD by increasing the requisite transparency relating to sustainability. The reporting standards are in development and will aim to harmonise sustainability reporting while taking the EU Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR) and existing international frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) into account.
Mandatory assurance
The Directive covers two elements: firstly, the reporting of the required data and then the second step is to have that reviewed and assured by an independent party – like our assessment team.
The introduction of independent mandatory assurance aims to even the odds for everyone so users can be assured of improved access to comparable, applicable and reliable information when it comes to sustainability. Information revealed under CSRD will be subject to mandatory external ‘limited’ assurance, assuming that there will be a transition to a ‘reasonable’ assurance requirement later on. Reasonable assurance gives users a significant level of satisfaction that the data is not materially misstated. Limited assurance, on the other hand, offers less comfort and a narrower scope when it comes to the subject matter itself.
How will the Corporate Sustainability Reporting Directive be enforced
CSRD obliges EU Member States to extend their existing frameworks for enabling public oversight of statutory auditors and audit companies to include assurance of sustainability reporting. It also endorses the establishment of a quality assurance review system and an investigations and sanctions regime for the auditors. Individuals within each company who are submitting an annual report will be required to confirm that it is prepared in line with CSRD standards; otherwise, sanctions and other measures might apply in the case of infringement.
Potential penalties
If a business is guilty of non-compliance with the CSRD, it can expect administrative sanctions and three possible penalties: a public denunciation; an order to change conduct; and financial punishment. Each EU member state will set the penalty and define the limits of the sanctions within their jurisdiction.
Getting ready for CSRD
Businesses should begin getting ready today by bringing internal stakeholders together to produce an actionable roadmap for limited assurance readiness with a longer-term view for reasonable assurance. They should also create a mapping and governance plan with a data management framework and visibility of the required audit documentation. Digital solutions like ours will help streamline data workflows while increasing control, boosting efficiency and improving operational and ESG reporting transparency.
Learn more about how our insights tools can help you to fulfil reporting requirements. Learn more about how we can help with the reporting and the mandatory assessment.
