What is the European CSRD Directive and its key stages?

The Corporate Sustainability Reporting Directive (CSRD) is a new European Union directive on the reporting and publication of sustainability information by companies. This new directive aims to remedy the shortcomings of existing rules on the publication of non-financial information, the quality of which was insufficient to enable it to be properly taken into account by investors. These shortcomings are hampering the transition to a sustainable economy.

To help you prepare for the new reporting directive, we've put together everything you need to know about the European CSRD directive: 

• Understanding developments between NFRD and CSRD
• Who must comply with the European Directive on SRW?
• What information must be disclosed to comply with the CSRD directive?
• The CSRD calendar
• Why is this directive an opportunity for companies? 
• What are the main stages?
• The disadvantages of the directive
• How can Beavr help you prepare your CSRD reporting?

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Understanding developments between NFRD and CSRD

In 2021, the European Commission (EC) published a proposal for a Corporate Sustainability Reporting Directive (CSRD) to revise, extend and strengthen the current sustainability reporting framework of the Non-Financial Reporting Directive (NFRD).

NFRD's problems

As stated in the proposal, the EC has discovered a gap between the sustainability information that companies publish under the current NFRD framework, and the needs of users (investors, funds, etc.) regarding this information. Beavr explains why.

• In its current form, this framework does not guarantee that the information provided by companies is reliable, comparable and relevant.

• The EC identified that the NFRD framework was problematic for reporting companies, as it lacked clarity on its requirements. In a context where there are a large number of standards, benchmarks and private frameworks, this makes reporting even more difficult for companies, as they don't know exactly what information they need to declare.

• Another difficulty is that these companies often find it difficult to obtain the information they need from their suppliers, customers and other stakeholders.

For example, under the NFRD, you had to report your company's carbon impact, but there were no constraints on this reporting, so one company could report its carbon impact in terms of intensity, while another did so in absolute terms; another could report only its scope 1 and 2, while another reported its scope 3 as well. The CSRD therefore makes it possible to harmonize reporting.

The new CSRD framework

To address these issues, the EU has therefore created a new framework, the CSRD, which aims to ensure that companies publish comparable, relevant and reliable sustainability information, while clearly specifying what information they must disclose.

The CSRD responds to this demand for standardized data, supporting investors to create strategies around sustainable finance: climate risk valuation, pricing of negative and positive externalities, but this is impossible if the data does not exist and is not comparable from one company to another.

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Who must comply with the CSRD directive?

The reporting rules introduced by the NFRD apply only to "public interest entities", i.e. listed companies, banks and insurance companies with more than 500 employees. The new CSRD considerably expands the scope of companies subject to reporting requirements, from 12,000 to 50,000 companies covered, corresponding to 75% of the sales of EU companies.

1. All large companies and all companies listed on regulated markets that meet at least two of the following three conditions:

• 250 employees or more,
• Net sales of EUR 40 million,
• EUR 20 million in assets

2. Small and medium-sized enterprises (SMEs) listed on EU regulated markets from the 2026 financial year. They will be subject to separate standards, less stringent than those applied to large companies, which they will have to declare in 2027 for the 2026 financial year.

3. All companies listed on EU regulated markets. This includes non-EU companies listed on EU regulated markets and European subsidiaries of non-EU companies.

Companies not covered by the CSRD are those with fewer than 10 employees or sales of less than €20 million.

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What information must be disclosed to comply with the CSRD directive?

To comply with the CSRD directive, companies must :

• Publish regular reports on the social and environmental impact of their activities, in line with European sustainability reporting standards.
• The first set of standards will be adopted by October 2022, and will be tailored to EU policies, while supporting and contributing to international standardization initiatives.
• Companies must also ensure that sustainability information is published in their management report alongside their financial information, and that this information is verified by an independent third-party assessor.

Following the NFRD under the current Directive 2014/95/EU, large companies must publish information relating to:

• Environmental protection ;
• Social responsibility and the treatment of employees ;
• Respect for human rights;
• The fight against corruption and bribery;
• Diversity on company boards (age, gender, educational and professional background)

With the adoption of the CSRD, the following additional requirements are added:

• The concept of double materiality: Sustainability risk (including climate change) affecting the company + Impact of companies on society and the environment;
• The selection process for topics of importance to stakeholders;
• More forward-looking information, including targets and progress achieved ;
• Disclose information on intangible assets (social, human and intellectual capital);
• Reports in compliance with the Sustainable Financial Reporting Regulation (SFDR) and the European Taxonomy Regulation.

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The CSRD calendar

The proposal for a directive on corporate sustainability reporting is currently published for consultation until August 8, 2022 - and the first set of drafts should be submitted to the Commission by November 2022. If the draft is approved, here are the dates to remember:

• October 2022: the European Commission adopts the first set of reporting standards.
• December 2022: EU member states must adopt the European directive in their national legislation.
• 2024: Companies report and publish their sustainability information in accordance with the first set of sustainability reporting standards for fiscal 2023.
• 2025: companies report and publish their sustainability information in accordance with the first set of sustainability reporting standards for fiscal 2024.
• 2027: SMEs begin reporting to a separate, proportionate reporting standard for fiscal 2026.

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Why is CSRD an opportunity for SMEs?

Extra-financial performance is becoming increasingly important to investors, and by failing to disclose ESG information, SMEs risk being excluded from investment portfolios. With the CSRD, they too must now comply.

Although SMEs are not yet required to comply with the CSRD, starting to report under the new directive can only help your organization prepare better and facilitate the process. What's more, SMEs that fail to report ESG information risk being excluded from investment portfolios, especially as ESG is becoming increasingly important to investors.

Bruno le Maire, former Minister of the Economy, Finance and Industrial and Digital Sovereignty said:

"This agreement is excellent news for all European consumers. They will now be better informed about the impact of companies on human rights and the environment. This means greater transparency for citizens, consumers and investors. It also means greater clarity and simplicity in the information provided by companies. They must play their full role in society. No more greenwashing. With this text, Europe is positioning itself at the head of the international standards race, by setting high standards in line with our environmental and social ambitions."

What are the main stages in the CSRD process? 

In preparation for the Corporate Sustainability Reporting Directive (CSRD), companies must follow a structured approach to meet new sustainability reporting obligations. This directive aims to increase transparency on sustainability practices by requiring companies to publish regular information on their environmental, social and governance impacts.

Here are the steps to follow to prepare for the CSRD:

1. Understanding sustainability requirements

The CSRD requires companies to provide detailed information on their ESG (Environment, Social, Governance) impacts.

To fully understand the requirements, familiarize yourself with the European Sustainability Reporting Standards (ESRS), which specify the criteria to be met for sustainability reporting.

2. Assess whether your company is affected

Assess whether the CSRD applies to your company and, if so, when your company will be required to publish its CSRD-compliant sustainability report.

Please note that the CSRD will apply to all large EU companies, and gradually to certain SMEs. Check whether your company meets the directive's criteria (employees, sales, balance sheet).

We have a tool to help you find out if your company is concerned by CSRD.

3. Set up an ESG data collection system

Identify the information needed for sustainability reporting. This includes environmental indicators (CO₂ emissions, resource use), social indicators (working conditions, diversity), and governance indicators (transparency, anti-corruption), etc.

Centralize this data to ensure reliable collection and ongoing monitoring, using tools such as Beavr.

4. Adopt ESRS standards

CSRD obligations are based on the ESRS, which structure sustainability reporting. Make sure your company is able to meet these standards by adapting your internal processes. Each year, you will have to publish a report that follows these standards.

5. Preparing for an external audit

The CSRD requires that published information be verified by an independent third party. Prepare your company for this requirement by working with specialized auditors.

The aim is to guarantee the reliability and transparency of the information provided as part of the reporting process.

6. Train your teams and adapt your strategy

Involve your teams so that they understand the challenges of sustainability and the importance of these new obligations. It is essential that your employees are trained to collect and monitor ESG data.

Adjust the company's overall strategy to align your actions with CSRD expectations and ensure that you can provide the information required.

7. Plan the publication of the sustainability report

Prepare your company for the first mandatory publication of its sustainability report by following the timetable defined by the CSRD (the first large companies will have to publish in 2025 for the 2024 financial year).

Make sure your report is clear, ESRS-compliant, and includes all the information required to meet sustainability reporting criteria.

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The disadvantages of CSRD

Implementing the Corporate Sustainability Reporting Directive (CSRD) has its drawbacks for companies, particularly in terms of sustainability, reporting and disclosure. Although this directive aims to improve transparency and accountability, several challenges need to be addressed.

1. Increased administrative burden

One of the main drawbacks of CSRD is the increased administrative burden involved in collecting, analyzing and publishing sustainability information. Companies will have to mobilize additional resources to meet reporting requirements, including external auditing and ESRS compliance.

This can be particularly burdensome for smaller companies, even if they benefit from additional lead times, as they do not always have the internal resources to manage this new obligation.

That's why you can enlist the help of external consultants, or keep the skills in-house and use a tool.

2. Additional costs

Compliance with CSRD reporting obligations, including the adoption of ESRS standards, entails significant financial costs for companies. These may include setting up new data management systems, training staff, or hiring consultants to ensure compliance.

The external audit of extra-financial information, required by the CSRD, also represents an additional cost for companies, especially if they have to correct gaps or errors in their sustainability report.

3. Complexity of ESRS standards

Companies have to comply with ESRS standards that are complex and cover a wide range of sustainability topics (climate, biodiversity, equality, etc.). Understanding and implementing these standards can be difficult, especially for companies that are not yet familiar with extra-financial reporting criteria.

4. Time pressure

Companies may feel pressure to comply quickly with CSRD obligations. The time between adoption of the directive and the first deadlines (2024 for some companies) is relatively short, leaving little time to adjust systems and prepare for reporting.

Managing this time pressure, while maintaining day-to-day operations, can create an imbalance in business priorities.

Preparing your CSRD reporting - How can Beavr help?

Beavr can help your organization :

• Identify the indicators needed for CSRD
• Help you identify the right people in-house and onboard them to use the solution
• Define a collection schedule with you
• Helping you get organized for data collection
• Support you in justifying these data

Is your organization looking for a solution? Contact us for a demo call on the platform and to find out how Beavr can help your business.