What is the Corporate Sustainability Reporting Directive (CSRD)?
The Corporate Sustainability Reporting Directive (CSRD) is a directive that requires companies to report their sustainability performance according to certain standards. This directive enables companies to transparently share their non-financial performance and report their activities in the field of sustainability to their stakeholders.
The European Union updated the Non-Financial Reporting Directive (NFRD) published in 2014 and published the Corporate Sustainability Reporting Directive (CSRD) at the end of 2022.
In this article, we will share what you need to know about CSRD.
What is the Non-Financial Reporting Directive (NFRD)?
NFRD was created to cover certain large companies and groups with more than 500 employees. This directive; required them to disclose relevant non-financial information to provide investors and other stakeholders with a more complete picture of their development, performance and position, and the impact of their activities.
Companies had to report in accordance with the directive for the first time in 2018, covering the 2017 financial year. The fact that the directive is only implemented by large companies and groups and that it is not mandatory to check the accuracy of the shared information by third parties has led to the NFRD being perceived as “inadequate and unsafe”.
Who does CSRD cover?
Large EU companies must comply with the CSRD, regardless of whether they are public or private entities. These companies are defined when they meet at least one of the following criteria:
- Companies with more than 250 employees
- Companies with a net turnover of over 40 million euros
- Companies with a balance sheet total of more than 20 million euros
Companies whose securities are traded on a regulated market in the EU but do not meet the above definition are also subject to the CSRD. These companies are defined when they meet at least one of the following criteria:
- Companies with a balance sheet total over 350,000 Euros
- Companies with a net turnover of over 700,000 euros
- Companies with 10 or more employees.
What are the obligations imposed by CSRD?
Within the framework of CSRD, companies will be asked to share a lot of information. Some of these are as follows:
- A brief summary of the business model, strategy and sustainability risks and opportunities should be presented.
- Environmental, social and corporate governance targets, known as Net ESG (Environmental, Social and Governance), should be determined and the process of achieving these targets should be published annually. Additionally, transition plans, if any, should be presented in detail.
- Information should be given about compliance with the EU Taxonomy.
- Sustainability elements need to be integrated into the long-term vision and strategy.
- Plans to become stakeholders of a sustainable economic model should be created.
- Measures to be taken to comply with the Paris Agreement targets and achieve climate neutrality by 2050 should be determined.
- A road map should be created to stop coal, oil and natural gas-intensive activities.
- The company’s impact on sustainability issues and the sustainability issues it is affected by should be explained. This perspective is called double materiality.
- Greenhouse gas emission targets should be determined.
- The company’s sustainability-related policies, including incentive programs, should be explained in detail.
- Due diligence processes should be implemented for current and potential negative impacts of company operations and value chain.
When will CSRD be implemented?
The regulation is planned to be implemented in four stages in the 2024-2028 period:
- It will be effective as of January 1, 2024 for large companies subject to the existing NFRD and will submit their 2024 fiscal year reporting in 2025.
- It will be effective January 1, 2025 for large companies that are not currently subject to NFRD and will submit their 2025 fiscal year reporting in 2026.
- It will be effective from January 1, 2026 for listed SMEs, excluding microenterprises, and will submit their 2026 financial year reporting in 2027.
- It will be valid as of January 1, 2028 for third country companies that meet certain conditions for the EU, and they will submit their 2028 fiscal year reporting in 2029.
Who will ensure the quality of reporting?
The reporting process must be approved by an accredited independent auditor or certifier. To ensure companies comply with reporting rules, an independent auditor or certifier must verify that sustainability information complies with certification standards recognized by the EU.
For companies outside Europe, their reporting must be certified either by a European auditor or by an auditor operating in a third country.
In our article, where we sought answers to the questions of what the Corporate Sustainability Reporting Directive (CSRD) is, who it covers and when it will be implemented, we touched upon the details of this directive that requires companies to report their sustainability performance. This directive will enable companies to be more transparent in the field of sustainability and to communicate their activities more clearly to their stakeholders.