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What is the CSRD (Corporate Sustainability Reporting Directive)?
La CSRD It is the directive on sustainability reporting which replaces the previous one NFRD (Not Financial Reporting Directive). Its purpose is to expand the number of companies subject to the obligation to report and define more stringent requirements on the information to be reported.
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Which companies are subject to CSRD and since when?
With the CSRD, the number of companies affected by the reporting obligation reaches almost 50,000 (compared to 11,000 previously subject to the NFRD). Let's see below how this perimeter changes.
- Dal January 1, 2024 listed companies that have at least 500 employees and at least one of the following characteristics (i.e. the same companies already subject to the NFRD) will be subject to the directive:
- capital assets exceeding 20 mln €;
- net revenues exceeding €40 million.
- Dal January 1, 2025 the reporting obligation will also be extended to large, unlisted companies that meet at least two of the following criteria:
- capital assets exceeding 20 mln €;
- net revenues exceeding €40 million.
- average number of employees greater than or equal to 250;
- Dal January 1, 2026 Listed SMEs that meet at least two of the following criteria will also be subject:
- capital assets between 350,000 and 20 million €;
- net revenues between 700,000 and 40 million €;
- average number of employees between 10 and 250.
- Dal January 1, 2028 Subsidiaries and branches with non-EU parent companies, which have generated net revenues in the EU of more than 150 million € for each of the last two consecutive years, and which have at least one of these characteristics will also be subject:
- a subsidiary company meets CSRD size requirements;
- a branch generated net revenues of more than 40 million € in the previous year.
Some clarifications on the reporting year
It should be noted that the financial statements must refer to the last fiscal year for which the final data are available. For example, a company that has the obligation to report starting in 2024, in 2025 will have to draw up the financial statements referring to the data and activities of 2024.
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What new features does the CSRD directive introduce?
In addition to the extension of the scope of application, which involves many more companies than the previous NFRD (50,000 against about 11,000), with the new directive the methods of implementation sustainability reports.
The main changes introduced by the CSRD directive are 5:
- double materiality analysis;
- document location in the Management Report;
- Assurance obligation extended to the European perimeter;
- document format, which must be written in a unique electronic format (XHTML), to be made public and accessible to stakeholders;
- integration of the value chain within the reporting.
In addition, the reporting standards to refer to are the new European Sustainability Reporting Standards (ESRS): through these standards, theEFRAG (European Financial Reporting Advisory Group) introduces the criteria for the analysis and communication of ESG data.
In this way, companies must ensure consistency and comparability with other realities: the CSRD In fact, it places a constraint on the choice of the framework for drafting sustainability reports, requiring all companies to adapt to the new European guidelines.
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What does the dual materiality analysis involve?
THEmateriality analysis It is a fundamental analysis present in all sustainability reports, which aims to identify what the themes are”materials” (then Relevant) to describe the impact of a company on the planet and on society.
The CSRD directive requires that sustainability reporting be based on a 'double materiality': as stated by EFRAG, an issue of sustainability can be material both from an impact perspective and from a financial perspective (or from both).
La double materiality it therefore includes both materialities:
- The materiality of the impact, which concerns material information on the company's impacts on people or the environment related to a sustainability issue;
- The financial materiality, which concerns material information on risks and opportunities related to a sustainability issue that could have a material influence on the company's development, financial position, financial performance, cash flows, access to finance or capital costs in the short, medium or long term.
In practice, companies will have to carry out assessments of relevance to both dimensions: they will be obliged to provide both information related to the way in which sustainability issues affect their results, their situation and their performance (perspective Outside-In), and information concerning their impact on people and the environment (perspective Inside-Out).
This analysis must be carried out according to EFRAG guidelines that guarantee homogeneity in processing methods.
Dual materiality analysis: a practical example
To clarify the concept, let's look at the example of a large manufacturing company.
Financial impact assessment: the company analyzes how its environmental practices can financially influence operations and profitability. For example, investing in clean technologies could reduce energy costs in the long term.
Environmental and social impact assessment: in parallel, the company evaluates how its operations affect the environment and society. This includes the analysis of greenhouse gas emissions, the consumption of natural resources and the impact on local communities.
These two 'materiality' they influence each other: a reduced environmental impact can improve the company's reputation and, consequently, its financial position.
In parallel, financially sustainable practices can allow greater investment in sustainable technologies and practices.
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How to draw up a sustainability report in line with the CSRD directive
Depending on the model on which you set the ESRS, the reporting will be developed according to 12 thematic areas, divided into 4 macro-themes:
In the image above, “general requirements” refers to the requirements to be met during the reporting phase, while “general information” specifies the information to be included, regardless of the material topics considered.
To these are added the thematic standards, which require the company to report according to the results of its dual materiality analysis processes: companies will be able to prioritize the information to be reported based on their material issues. However, solid verification is expected on the issues excluded from the reporting.
The speech is different on the subject climate change: if, for example, a company establishes that climate change is not a material issue for its reality, it is obliged to support this decision with a detailed reason.
With the new directive, details are therefore requested on a wide range of information. In addition, counting the extension of the reporting perimeter to value chain, drafting the sustainability report may require a Really high effort, both in terms of time and resources.
