A Guide to Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is a European Union (EU) regulation to standardise how companies conform to non-financial reporting, helping them to disclose risks and the impacts that their activities have on people and the environment.
Although it does not apply to the UK at first glance, it can under certain circumstances, and is still worth knowing about.
CSRD Explained
The CSRD is a new EU directive designed to enhance consistency of data provided by large companies, by introducing sustainability-related reporting requirements, in the hopes of strengthening the accuracy of non-financial reports. Created in 2021, the directive came into force in January 2024.
Non-Financial Reporting Directive (NFRD)
The NFRD was a scheme that helped consumers, investors and stakeholders to evaluate companies, and has now been replaced with the CSRD. The NFRD was a simpler version of the CSRD which now provides more in-depth information to ensure that all companies can be comparative in their sustainability reporting.
Why the CSRD?
The new directive has been introduced to establish a European standard for sustainable development, setting out clear indicators for environmental performance, to allow companies to identify the effects their activity has on the climate and environment, and how their impact can be minimised.
The directive will therefore offer a way for investors and stakeholders to effectively compare companies together. This also helps to improve both the quality and reliability of data being reported.
It is hoped that the directive will help companies to meet the European Green Deal by achieving carbon neutrality by 2050 and to increase awareness of ESG factors.
Who Does CSRD Affect?
The CSRD directive targets financial and non-financial companies, and it is estimated to affect 50,000 companies, including 1,000 UK companies that meet the threshold criteria. Micro-enterprises and smaller SMEs are not required to publish or adhere to the new directive.
It is being rolled out from this year, with the first companies – including European and non-European companies (that adhere to NFRD reporting) – needing to report in January 2025 for the 2024 fiscal year, with more being rolled out yearly until 2028.
Although the CSRD only currently affects EU regulated markets, meaning it may not have a global impact, it could set the tone and encourage other nations to demand similar sustainability reporting.
UK Companies
- Those that have a turnover of $150 million in the EU
- EU companies and those that have a presence in the EU, including those with a UK parent
What’s more, the UK plans to introduce the Sustainability Disclosure Standards (SDS) this year. If you are not one of the 1,000 companies that are affected by CSRD, you may be affected by SDS in the future.
Reporting
Companies will have to report:
- Specific details and data about their business strategy, referencing sustainability-related opportunities
- Sustainability targets and how these are controlled
- Greenhouse gas emission reduction goals
- Plans to support limiting global warming to 1.5 °C
- Actions taken to prevent any identified impacts on the environment
Compliance
If you do not comply, there may be penalties:
- Companies required to make a public statement of the infringement, including naming person concerned
- Cessation order for area of infringement
- Financial penalties proportional to the profits of the company
Action Required
Firstly, you need to determine whether your business is in scope, and whether you’ll need to comply with the CSRD scheme. You’ll need to follow the steps above and organise your sustainable development policy.
2EA is an energy management consultancy who offers advice and guidance. If you need support with ESOS or CHPQA Management, please contact us.
