CSRD, EFRAG and ESRS will be crucial for corporate reporting in the EU: Sustainability reporting will be upgraded and treated as important as financial reporting. Significantly more companies within the EU will be required to report in more detail on environmental, social and governance (ESG) aspects. Some frequently asked questions about CSRD:
1️⃣ Why sustainability reporting needs an upgrade
The EU Green Deal aims to modernize the European economy towards sustainability. Investors and financial markets need to redirect private capital into sustainable assets. However, investors need sustainability data to make investment decisions, which has been inadequate. Only a few companies provided data, which was often incomplete and of limited quality. The EU needs a better corporate sustainability data base to make the EU Green Deal work and enable financial markets to invest in sustainability.
2️⃣ What is CSRD
The European Commission's proposed EU Corporate Sustainability Reporting Directive (CSRD) defines corporate sustainability reporting requirements. The directive extends the existing 2014 NFRD (Non-Financial Reporting Directive), which introduced reporting requirements for publicly traded companies with 500 or more employees.
3️⃣ What is EFRAG and ESRS
The European Financial Reporting Advisory Group (EFRAG) in Brussels is a non-profit multi-stakeholder organization. It is mandated by the EU Commission to develop European Sustainability Reporting Standards (ESRS) that comply with CSRD requirements.
4️⃣ Who must report?
All companies in the EU of all legal forms that meet 2 of 3 criteria:
📌 ≥ 250 employees OR
📌 ≥ 40 million euros total assets on the balance sheet OR
📌 ≥ 20 million euros net sales.
companies can prepare consolidated reporting for majority subsidiaries. It is planned to start reporting for fiscal year 2024 by 2025 for the first cohort of companies already covered by NFRD.
5️⃣ What needs to be reported?
The ESRS DRAFT is now available for consultation and consists of four blocks: General, Environmental, Social and Governance. Each block has DRs (disclosure requirements). The draft provides for 137 DRs.
6️⃣ Who must audit data?
All companies are required to have the report audited by an external auditor with at least limited assurance.
If your company meets the CSRD criteria and is most likely to be reportable, it is important not to wait until 2025. Building reporting and data collection processes takes time. Before CSRD takes full effect for your organization, consider running one or two reporting cycles based on existing standards such as GRI or DNK to establish a robust data collection and reporting process.
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This is our first post on CSRD, EFRAG and ESRS. Be eager to read our next post where we will provide more details.
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