What you need to know about CSRD, EFRAG & ESRS
CSRD, EFRAG, and ESRS will be game changers for corporate reporting in the EU: Sustainability Reporting is upgraded and will be treated equally important as financial reporting. Substantially more companies within the EU will have to report on Environment, Social, and Governance (ESG) aspects in more detail. Some frequently asked questions on 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 require sustainability data for investment decisions, which has been insufficient. Few companies provided data, often incomplete and of limited quality. The EU needs a better company sustainability data basis to make the EU Green Deal work and enable financial markets to invest in sustainability.
2️⃣ What is CSRD
The EU Corporate Sustainability Reporting Directive (CSRD) proposed by the European Commission defines sustainability reporting requirements for companies. The directive expands the existing NFRD (Non-Financial Reporting Directive) from 2014, which introduced reporting requirements for capital-market-oriented companies starting at 500 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 elaborate European Sustainability Reporting Standards (ESRS) meeting the CSRD requirements.
4️⃣ Who needs to report
All companies in the EU of all legal forms who meet 2 of 3 criteria:
📌 ≥ 250 Employees OR
📌 ≥ 40 Mio. Euro Total Assets in the Balance Sheet OR
📌 ≥ 20 Mio. Euro Net Revenues.
Corporations can do consolidated reporting for majority subsidiaries. Reporting is planned to start by 2025 for the business year 2024 for the first cohort of companies that have already fallen under NFRD.
5️⃣ What has to be reported
The ESRS DRAFT is now available for consultation composed of four blocks: General, Environmental, Social, and Governance. Each block has DR (disclosure requirements). The draft foresees 137 DRs.
6️⃣ Who has to audit data
All companies are required to audit the report by a 3rd party auditor with at least limited assurance.
If your company meets the CSRD criteria and is most likely required to report, it is important not to wait until 2025. Building up reporting and data gathering processes takes time. Before CSRD is fully effective for your business, consider running 1 or 2 reporting cycles based on existing standards like GRI or DNK in order to establish a stable data gathering and reporting process.
This is our first post on the CSRD, EFRAG, and ESRS. Stay tuned for our next post, where we continue to elaborate on specifics.