The Corporate Sustainability Reporting Directive (CSRD), adopted by the EU Parliament in November 2022, profoundly changes the scope and nature of corporate sustainability reporting. The Non-Financial Reporting Directive (NFRD), which has been in force since 2014, requires certain public interest entities in the EU to report on their sustainability.

This should make it easier for stakeholders to assess a company's contribution to sustainability. "The CSRD greatly expands both the reporting obligation and the scope of application," says Maren Schmitz. Maren Schmitz is head of management consulting at KPMG, which covers banks, asset managers, real estate and insurance companies.

Very many companies are affected
All companies listed on an EU-regulated market are covered by the new reporting obligation, with the exception of micro-entities. In addition, all non-capital market oriented companies are covered by the CSRD if they fulfil two of the following three criteria:

  • Balance sheet total > 20 million euros
  • Net sales revenue > 40 million euros
  • Number of employees > 250

In addition, companies from third countries that achieve a total group turnover of more than €150 million in the EU in two consecutive years are also subject to the reporting obligation of the CSRD.

It starts in 2024, then staggered schedule
The timetable for the reporting requirements is staggered so that the CSRD will initially apply to those companies that are already subject to the NFRD, starting on 1 January 2024. The group of companies affected will then be successively expanded. According to estimates, around 49,000 companies within the EU will be affected by the reporting obligation.

"The aim of the CSRD is to expand sustainability reporting as a whole and to introduce binding reporting standards at EU level," summarises Maren Schmitz (see photo opposite).

Eine zentrale Neuerung der CSRD ist die sogenannte „doppelte Wesentlichkeit“. Unternehmen werden verpflichtet, über die Auswirkungen von Nachhaltigkeitsaspekten auf das Unternehmen sowie über die Auswirkungen des eigenen Geschäftsbetriebs auf Umwelt und Mensch zu berichten. Bisher musste nur über die Themen berichtet werden, bei denen beide Wesentlichkeitsaspekte zutrafen.

Uniform standards and key figures
With the CSRD, companies are to report not only according to more uniform standards, but also more comprehensively overall. "In addition, more key figures are to be used in order to be able to quantitatively evaluate the reported content," says Schmitz.

For this purpose, the European Financial Reporting Advisory Group (EFRAG) has developed binding EU standards for sustainability reporting, the European Sustainability Reporting Standards (ESRS). These are currently available to the EU Commission for review as final drafts. "The ESRS define the content that must be reported within the framework of the CSRD," explains Schmitz, and lists the composition of the 12 finalised ESRS drafts:

  • 2 Standards on general regulations and representations
  • 5 Standards on environmental aspects
  • 4 Standards on social issues
  • 1 Standard on aspects of governance.

The scope of the reporting requirements can thus be divided into general and topic-specific disclosures:

General disclosures (two standards on general regulations and representations):

  • Business model, strategy and concepts
  • Performance indicators and targets
  • Sustainable corporate governance
  • Dual materiality and due diligence
  • Risk and opportunity management

Theme-specific information:

  • Environment (five standards)
  • Social (four standards)
  • Governance (one standard)
  • Sector-specific standards (in progress)

Responsible for the implementation of the directive and compliance with the binding EU standards are the respective boards of the companies. If a company does not comply with its reporting obligations, there are minimum penalties and certain process requirements, as well as regulatory fines. The amount of the fines can be determined by the individual member states in their transposition laws.

Of the 12 standards, two standards are fully mandatory (one standard on climate change in the area of environment and one standard in the area of general information). In addition, individual indicators on the topic of "own workforce" (area "social affairs") are mandatory to report. Whether further indicators from the other standards have to be reported depends on the result of the materiality analysis explained above.

Issues of equal opportunities and gender equality
The "own workforce" standard requires companies to disclose its material impact on its own workforce and the associated risks and opportunities. Companies have to report on the basis of predefined indicators, among other things, on how the topics of equal opportunities and gender equality are dealt with as well as which measures for improvement have already been taken or are being planned. Maren Schmitz explains what this means: "This includes, for example, information on the breakdown of employees by gender as well as the gender distribution at the top management level".

In addition, depending on the outcome of the materiality analysis, indicators on fair pay and the gender pay gap must be disclosed. Furthermore, depending on materiality, companies may also be required to report on work-life balance indicators, as well as gender disaggregation of the extent to which employees take advantage of training opportunities and performance/career development discussions.

"This expanded reporting and the inevitable need to collect data mean that companies will also increasingly address the issue of gender diversity," says Schmitz.

On 16 December 2022, the EU Directive was published in the Official Journal and must then be transposed into national law by the individual member states within 18 months.

Profilbild von Anke Dembowski

Anke Dembowski

Anke Dembowski is a financial journalist and author of various investment fund-related and other financial books. She is also a co-founder of the "Fondsfrauen" network.

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