The Corporate Sustainability Reporting Directive

What is the Scope of the Corporate Sustainability Reporting Directive?

The CSRD applies to the following categories of companies. [1] Staggered commencement dates apply for the reporting obligations of each category as set out below.

What are the key features of the Corporate Sustainability Reporting Directive?

1. European Sustainability Reporting Standards

A new set of common reporting standards known as the European Sustainability Reporting Standards (ESRSs) specify, in prescriptive detail, the information required to be reported in order to comply with the CSRD.

To date, 12 separate ESRSs have been adopted by the European Commission, with additional standards to follow in due course. Those 12 ESRSs include general disclosure requirements and specific disclosure requirements on environment, social and governance topics as follows:

Each ESRS contains a large number of disclosure requirements and individual data points. The highly-prescriptive nature of the ESRSs aims to ensure that the type of sustainability information which is reported is consistent and relevant and that such information is comparable across and within market sectors.

The ESRSs will, in many cases, require in-scope companies to report on not only their own operations but on the operations of their value chains, including products and services, business relationships and supply chains.

2. Double Materiality

General disclosure requirements under the cross-cutting ESRSs are mandatory for all in-scope companies. However, any requirement to make disclosures under the topical ESRSs will depend on the outcome of a company’s double materiality analysis.

The concept of “double materiality” is a central tenet of the CSRD. It requires companies to consider the materiality of each topic from two perspectives as follows:

• Financial materiality: Does the topic trigger a material financial effect on the undertaking by generating risks or opportunities that have or could reasonably be expected to have a material influence on its development, financial position, financial performance, cash flow, access to finance or cost of capital in the short, medium or long-term?
• Impact Materality: Does the topic pertain to the undertaking’s potential impacts, whether positive or negative, on people or the environment over the short, medium or long-term?

Any topic which is material in either respect, or both respects, will need to be considered in more detail from a reporting perspective. Further double materiality analysis may be required to identify the applicable disclosure requirements and data points within any such topic.

3. Reporting Frequency and Format

Sustainability information must be reported on an annual basis in a dedicated sustainability statement within the company’s management report. The sustainability statement must be prepared in a prescribed digital format to ensure it is machine-readable and searchable.

4. Independent Assurance

One of the CSRD’s aims is to ultimately place sustainability information on a level footing with financial information in terms of its status and its reliability. The CSRD therefore introduces a requirement for sustainability reports to be audited, initially to a “limited assurance” standard with a “reasonable assurance” standard to be introduced in due course if feasible. The audit of sustainability information will be carried out by statutory auditors or accredited independent assurance service providers.

When will the Corporate Sustainability Reporting Directive come into force?

The CSRD came into force on 5 January 2023. EU Member States have a period of 18 months (ie until 5 July 2024) within which to transpose the CSRD into their national laws. The Irish transposing legislation has not yet been published or commenced.

Impact of the Corporate Sustainability Reporting Directive

The impact of the CSRD, and the challenge ahead from a compliance perspective, should not be underestimated by companies within its scope. This is particularly the case for in-scope companies which, to date, have no existing sustainability reporting practices or have reporting practices which are still relatively immature.

Companies need to ensure, sooner rather than later, that they know (a) whether they, or any companies within their groups, are subject to the CSRD and (b) if so, when their reporting obligations commence. They will also need to identify their precise disclosure requirements in line with the double materiality principles in the CSRD. They will need to ensure that they have robust systems and practices in place to collect all relevant data in good time before their first report is due, including any information required from relevant value chain partners.

Stakeholder demand for reliable sustainability information from all companies, regardless of size, will also increase as CSRD-standard reporting becomes more widespread. This will apply particularly to companies within the value chains of larger businesses which are subject to the CSRD. It is therefore important for any company, whether inside or outside the scope of the CSRD, to review its sustainability priorities, reporting strategies and data collection systems and practices to ensure it is able to respond to such demand.

We are working with many of our clients to assist them in identifying their obligations under the CSRD and developing a roadmap towards compliance. Please contact a member of our Corporate Governance team to discuss how we can help to prepare for the CSRD.

The content of this page is provided for information purposes only and does not constitute legal or other advice.

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[1] New EU legislation came into force in December 2023 to introduce changes to the monetary criteria by which company and group sizes are defined in the EU to address the impact of inflation. The changes reduce the number of companies which are subject to the CSRD. Read our article on the changes to size criteria here.

[2] Micro-undertakings are undertakings which do not exceed the limits of at least two of the following criteria:

• balance sheet total: €450,000
• net turnover: €900,000
• average number of employees: 10