Simple guide: Corporate Sustainability Reporting Directive (CSRD)

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EU's Corporate Sustainability Reporting Directive is here. New sustainability reporting rules will apply from January 2024 under Europe’s Corporate Sustainability Reporting Directive. Here’s how to prepare.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is a new European Union (EU) law that mandates large companies to report on their sustainability performance. Key points include:

Scope: Applies to large EU companies and non-EU companies with significant EU operations.
Purpose: To provide investors and stakeholders with comprehensive, comparable information about companies' sustainability performance.
Reporting areas: Covers environmental, social, and governance (ESG) factors.
Impact: Enables informed investment decisions and holds companies accountable for their sustainability impacts.
Implementation: Phased approach, starting with the largest companies from 2024 (reporting in 2025).

The CSRD significantly expands sustainability reporting requirements in the EU, aiming to increase corporate transparency and drive sustainable business practices.

Who needs to comply with the CSRD?

The CSRD applies to European companies that are listed or meet at least two of the following criteria:

More than €40 million in annual turnover
Over €20 million in assets.
250 or more employees

It also applies to some non-EU companies if they have two consecutive years of net revenue in the EU of over €160 million and a listed EU subsidiary with net turnover above €40 million in the preceding year.

When does CSRD mandatory reporting start?

There is a staggered approach to introducing mandatory CSRD reporting, depending on the size and revenue of a company.

First CSRD reports required	Size of company	Data being reported
1 January 2025	Companies with over 500 employees (i.e. those already subject to the NFRD)	2024 fiscal year data
1 January 2026	Companies with over 250 employees	2025 fiscal year data
1 January 2027	Listed small and medium enterprises	2026 fiscal year data

What needs to be reported under the CSRD?

The CSRD requires companies to report on a range of sustainability issues, including:

Environmental impacts include greenhouse gas emissions, water use, and waste generation.
Social impacts include employee diversity, working conditions, and human rights.
Governance factors include the company’s board structure and risk management policies.

The CSRD also requires companies to report on their efforts to reduce their environmental impacts. This includes measures to improve energy efficiency, reduce waste, and promote sustainable materials.

What does double materiality mean in CSRD reporting?

Double materiality is a key concept underpinning the CSRD. It means a company must consider impact and financial materiality when reporting on sustainability issues.

Impact materiality refers to the environmental and social impacts of the company’s operations and value chain. Companies must identify and report on these impacts and how they will be affected by environmental issues.

Financial materiality refers to how sustainability issues may impact the financial health and operations of the business. Companies must assess how these issues affect revenue, costs, and profitability.

What is the role of life-cycle assessment in CSRD reporting?

The CSRD states that companies must report on the environmental impacts of their products and services throughout their life cycle. Life-cycle assessment (LCA) is a scientific methodology for evaluating the lifetime environmental impacts of products and services. It is governed by internationally recognized standards, ensuring consistent and reliable data.

To further ensure the accuracy and reliability of the reported information, companies must also have their sustainability reports audited by an independent auditor.

What are the benefits of CSRD reporting?

While additional reporting requirements may seem challenging, the CSRD offers significant benefits for companies, investors, and other stakeholders:

Companies: by complying with the requirements of the CSRD, companies will be better able to identify and manage sustainability risks proactively. This will improve their sustainability performance and help them to attract and retain more customers, investors, employees, and suppliers.
Investors: CSRD reporting will provide investors with more comprehensive and comparable information about the sustainability performance of companies. This information can be used to make more informed investment decisions.
Other stakeholders: CSRD reporting will provide other stakeholders, such as employees, suppliers, and NGOs, with more information about the sustainability performance of companies. This information can be used to hold companies accountable for their sustainability impacts.

How does the CSRD fit in with the EU taxonomy?

The EU Sustainable Finance Taxonomy and the CSRD are complementary regulations that aim to promote sustainable investment and business practices in Europe. The EU Taxonomy provides a framework for companies to report on their sustainability performance in a consistent and comparable way. The CSRD requires large companies to report on their sustainability performance, including their alignment with the EU Taxonomy’s six environmental objectives. The EU Taxonomy and the CSRD — together with a third component, the Sustainable Finance Disclosure Regulation (SFDR) — are helping to create a more sustainable financial system in the EU.

How can One Click LCA help with CSRD requirements?

One Click LCA offers Taxonomy solutions that span the built environment. One Click LCA support these Taxonomy-relevant sectors with the following tools: