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Are you curious about the EU Corporate Sustainability Reporting Directive (CSRD) and its impact on your business? The CSRD is set to transform the way companies report on sustainability, setting mandatory disclosure requirements for tens of thousands of businesses that will continue to take effect over the next several years.
Understanding the CSRD timeline is critical for any business to understand when it may be required to comply
This is an exercise all businesses operating within Europe are well advised to undertake now before many of the deadlines come into effect. The timeline provided below sets forth a general overview of upcoming compliance deadlines. Determining whether these apply to your business will ultimately require a careful review of your corporate structure and accounts with your own legal and accounting professionals.
CSRD deadlines are not optional – planning ahead is essential for aligning your reporting practices
Key Takeaways
- CSRD reporting deadlines are beginning to come into effect already.
- Businesses must plan ahead and assess when they need to comply with the help of their own legal and accounting professionals.
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Overview of CSRD
The EU Corporate Sustainability Reporting Directive (CSRD or Directive) requires covered companies to transparently disclose a wide range of data and analysis regarding their environmental, social, and governance (ESG) practices. The Directive will be adopted and enforced across the EU/EEA as a matter of national law.
Historical Development
The CSRD was proposed as part of the European Green Deal and the European Commission’s Sustainable Finance Action Plan as one of the key mechanisms for improving corporate accountability for sustainability performance and spurring reductions in impacts. It builds on the existing Non-Financial Reporting Directive (NFRD) introduced in 2014. The NFRD required a select group of very large companies to disclose limited non-financial information on environmental and social matters.
By contrast, the CSRD mandates that a significantly larger number of companies, including listed small and medium-sized enterprises (SMEs) and certain non-EU entities, report on their sustainability impacts.
Key Milestones:
- October 2014: Introduction of NFRD
- April 2021: CSRD proposed by the European Commission
- January 2023: CSRD formally enters into force
CSRD Scope
The CSRD defines the framework for mandatory sustainability reporting in the EU and EEA. It applies to thousands of large companies and listed SMEs, requiring them to disclose information on their material environmental and social impacts from a double materiality perspective. That means considering not just the impacts of these matters to the company itself, but the impact of the company on society and the environment.
Key Features of CSRD:
- Mandatory Reporting: Companies that may have previously reported on sustainability topics on a voluntary basis will be legally compelled to.
- Wide Topic Coverage: The CSRD covers a range of environmental, social and governance topics (detailed below)
- European Sustainability Reporting Standards (ESRS): Companies must use detailed standards that have been adopted by the European Commission
Topical Coverage:
- Environmental Impact: Climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy
- Social Impact: Own workforce, workers in the value chain, affected communities, consumers and end-users
- Governance: Business conduct
CSRD Implementation Timelines
Understanding CSRD implementation timelines is key for companies to ensure adequate time to prepare for compliance. What compliance deadlines apply are highly technical and will vary for companies based on their unique circumstances.
Generally, whether and when the CSRD applies to your business depends upon its number of employees, its net turnover, its balance sheet size, the significance of its business in the EU, and whether its stock trades on a regulated EU market or the entity otherwise qualifies as a public interest entity.
The table below sets forth the current timeline and applicability groups. With respect to dates, both the data year on which reporting is based (corresponding to the financial year of the company) along with the reporting year in which reports must be issued are listed. There is a lag between these, similar to financial reporting.
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*A “Micro-Undertaking” is an entity that meets two of the following three criteria: (1) under 10 employees; (ii) balance sheet no more than EUR 450,000; and (iii) net turnover no more than EUR 900,000. This effectively means that all EU-listed companies which do not meet the Micro-Enterprise exclusion must report.
CSRD ESRS Phase-Ins
When the European Commission adopted the ESRS reporting standards in July 2023, it also incorporated a series of specific extensions and temporary exclusions that apply to different aspects of the CSRD for reporting companies. The full list of phased deadlines is set forth in ESRS E1 Appendix C of Delegated Regulation 2023/2772.
Some notable phase-ins include, for firms with 750 or fewer employees on average during the applicable data years, the ability to omit:
- Scope 3 emissions for the first year of applicability for ESRS E1
- All of ESRS E4 (biodiversity and ecosystems) for the first two years of applicability
- All of ESRS S1 (Own workforce) for the first year of applicability
- All of ESRS S2 (Workers in the value chain) for the first two years of applicability
- All of ESRS S3 (Affected communities) for the first two years of applicability
- All of ESRS S4 (Consumers and end-users) for the first two years of applicability
A series of additional phased-in obligations apply, including many relating to the manner of disclosing anticipated financial effects from risks and opportunities.
Sector-Specific and Third-Country Standards
The CSRD envisioned that sector-specific ESRS standards, as well as standards for third-country firms, would be adopted by June 2024. This date has changed.
- Through a recent amendment, the EU has postponed those adoption deadlines to June 2026.
- The absence of these specific standards means affected companies will be required to simply use the existing general ESRS standards alone, which apply across sectors and company types.
Assurance and Audit Requirements
The CSRD introduces mandatory assurance of reported information.
Initially, companies must obtain a limited assurance over their disclosures, which is a less intensive form of review that results in a less definitive opinion from the auditor.
The CSRD envisions shifting to reasonable assurance by 2028 based on the results of an assessment to determine if this level of review is feasible. Reasonable assurance requires a much deeper examination of disclosures, resulting in a more definitive opinion from the auditor that the reported information is free of material misstatements.
Audit requirements ensure credibility and trust in reported sustainability information, holding companies accountable and ensuring report users are able to rely on the reported data.
Disclaimer: This Insight is provided for informational purposes and is not intended to be relied upon or used as specific legal advice.
To get ahead of changing legislation, check out Vaayu's free Legislation Tracker or contact a member of our specialist team today.
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