Corporate Sustainability Reporting Directive (CSRD)

Description of Characteristics:

EU Legislation: The CSRD is a European Union directive that mandates sustainability reporting for certain large and listed companies, as well as certain small and medium-sized enterprises (SMEs).
Double Materiality: CSRD requires companies to disclose information on both their impact on people and the planet (impact materiality) and how sustainability issues affect their financial performance (financial materiality).
Comprehensive: The directive covers a broad range of environmental, social, and governance (ESG) topics, including climate change, biodiversity, human rights, and diversity.
Mandatory: The CSRD is mandatory for all large companies and listed SMEs in the EU, with certain exemptions for micro-enterprises.
Assurance Requirement: Sustainability reporting under the CSRD will be subject to mandatory external assurance, enhancing the credibility and reliability of the information.

Targeted Audience:

Large Companies and Listed SMEs in the EU: The CSRD is mandatory for these companies, requiring them to include sustainability disclosures in their management report.
Investors and Stakeholders: The CSRD aims to enhance transparency and provide stakeholders with reliable and comparable sustainability information to inform their decision-making.

Specific Criteria:

Scope:
- Large companies (meeting two of the following three criteria):
  - More than 250 employees
  - €40 million+ in net turnover
  - €20 million+ in total assets
- Listed SMEs (except micro-enterprises)
- Non-EU companies with significant operations in the EU (net turnover of €150 million+ in the EU and at least one subsidiary or branch in the EU)
Reporting Requirements:
- Sustainability information must be included in the management report.
- Disclosures must be made in accordance with the ESRS, covering a wide range of ESG topics.
- Double materiality assessment is required.
- External assurance is mandatory.

Reporting Process:

Determine Applicability: Companies must assess whether they fall under the scope of the CSRD.
Conduct Double Materiality Assessment: Identify and assess material sustainability matters, considering both impact and financial materiality.
Collect and Analyze Data: Gather data related to the identified material sustainability matters.
Prepare Disclosures: Prepare sustainability disclosures in accordance with the ESRS.
Obtain External Assurance: Seek external assurance for the sustainability disclosures.
Include in Management Report: Include the sustainability disclosures in the management report.
Digitally Tag Information: Tag the sustainability information using ESEF.
Publish and Communicate: Publish the management report, including the sustainability disclosures, and communicate them to stakeholders.

Connections to Other Frameworks:

Challenges:

Complexity and Implementation: The CSRD and ESRS are detailed and prescriptive, which can be challenging for companies, particularly those new to sustainability reporting.
Data Collection: Gathering the required data, especially for impact materiality assessments, can be time-consuming and resource-intensive.
Assurance: Obtaining external assurance can be costly and complex.
Timeline: Companies need to ensure they are ready to comply with the CSRD’s phased implementation timeline.

Compliance Guidance:

CSRD Directive: The official legal text of the CSRD.
ESRS Delegated Act: The final ESRS are published in the form of a Delegated Act by the European Commission.
EFRAG Guidance: The European Financial Reporting Advisory Group (EFRAG) provides guidance on the implementation of the ESRS.

Usability Evaluation:

Level of Global Adoption: Adoption is mandatory for in-scope companies in the EU. However, its influence is expected to extend beyond the EU due to its potential impact on global supply chains and investor expectations.
Ease of Use: Can be challenging due to its detailed and prescriptive nature, requiring dedicated resources and expertise.
Focus Areas: Comprehensive coverage of environmental, social, and governance topics, with a strong emphasis on double materiality.
Data Availability: Data availability can vary depending on the company’s existing ESG data management practices and the maturity of its impact measurement processes.

SyncFrame Compatibility:

Strong Alignment: SyncFrame’s focus on impact measurement, double materiality, and stakeholder engagement aligns well with the CSRD and ESRS.
Data Integration: SyncFrame can facilitate data collection and analysis for CSRD reporting, streamlining the process and reducing the reporting burden.
Expert Guidance: SyncFrame advisors can provide support on conducting double materiality assessments and implementing CSRD requirements.

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