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csr CSRD esg regulation

Definition

On April 21st, 2021, the European Commission issued a draft Corporate Sustainability Reporting Directive (CSRD) proposal, which amends the current Non-Financial Reporting Directive (NFRD).

The Corporate Sustainability Reporting Directive (CSRD) requires large businesses and SMEs to produce annual reports on their environmental and social impacts.

It enables investors, customers, legislators, and other stakeholders to assess the non-financial performance of major organisations.

As a result, it aims at pushing these enterprises to adopt more responsible business practices.

Timeline

While the Directive has been subjected to several delays and modifications, and further clarification is required for its future dates, the following are the major milestones, including gradual implementation over several years, for CSRD:

  • April 21st, 2021 – Proposal of the CSRD by the European Commission
  • April 2022 - The EFRAG issued its first set of EU sustainability reporting standards (ESRS) open for public consultation until August 2022
  • By October 2022 - The EFRAG will release the final set of ESRS
  • From January 1st, 2024 - Entry into force of the new CSRD reporting requirements for companies already subject to a non-financial reporting obligation under the NFRD (large listed companies with over 500 employees)
  • From January 1, 2025 - Reporting requirements for all large companies meeting 2 of the following 3 criteria: 250 employees, €40 million in revenues, or €20 million in balance sheet
  • From January 1, 2026 - Reporting requirements for listed SMEs (10 to 250 employees), with the possibility of deferring their reporting obligation for 3 years with a lighter standard.
  • From January 1, 2028 - Reporting requirements for European subsidiaries of non-European parent companies with a turnover of more than €150m in Europe.

CSRD Today

While most actors supported the CSRD proposal, some expressed their concerns around the potential for exacerbating the scope and time mismatch between some reporting requirements that financial institutions may be expected to comply with and the reporting obligations placed on the SME borrowers and investee enterprises of financial institutions.

Moving forward, sustainability should be a top priority for major corporations’ boards of directors. The challenge ahead of businesses in fulfilling this commitment should not be underestimated and requires prompt and cautious attention.

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