Finance Glossary
CSRD (Corporate Sustainability Reporting Directive)
What is the CSRD directive?
The CSRD (Corporate Sustainability Reporting Directive) is a directive, a regulatory act initiated by the European Commission in April 2021 concerning corporate sustainability reporting; it replaces the former directive, the NFRD (Non-Financial Reporting Directive).
This directive addresses the carbon neutrality objective that Europe has set for itself by 2050.
This new obligation regulates companies' ESG extra-financial reporting, that is to say the monitoring of non-monetary information with a particular focus on impacts and dependencies on the environment, society, human beings, and the entire ecosystem of the company.
This directive came into effect on January 1, 2024, with the first reports due in 2025.
What is the objective of the CSRD directive?
The objective of this directive is to encourage financial actors to adopt a sustainable development approach but also to help all stakeholders recognize companies that perform well in this area. It is primarily a step forward in terms of transparency and comparability of European companies.
To achieve this, the CSRD directive has created reporting standards at the European level, the ESRS (European Sustainability Reporting Standards). These are 12 universal standards, divided into 3 main themes (Environment, Social, and Governance), which apply independently across sectors, specifying the methodology and information required for sustainability reporting.
It should be noted that companies will be required to report on the issues they consider most material for their sector of activity.
Who is affected by the CSRD directive?
The companies concerned by this directive must meet two of the following three criteria:
- Have a balance sheet total of 20 million euros,
- Generate 40 million euros in turnover,
- Employ at least 250 employees.
This concerns more than 50,000 companies in Europe (compared to 11,000 with the NFRD directive). For other companies, the directive is optional but they may also choose to comply.
The directive also provides for sanctions for companies that do not comply with this obligation. The sanctions could be:
A public statement indicating the nature of the infringement and the person involved,
A cessation order,
or financial penalties.