• Targets large undertakings, listed SMEs, and certain third-country entities.
• Reporting starts from 2024 for large public-interest entities.
• Mandatory limited assurance for sustainability reports.

The European Commission has released detailed guidelines on the implementation of the EU Corporate Sustainability Reporting Directive (CSRD). The CSRD, introduced through Directive (EU) 2022/2464, aims to enhance transparency and accountability by mandating new sustainability reporting requirements for certain companies.

Scope and Applicability

The CSRD applies to:

• Large undertakings.
• SMEs (excluding micro-undertakings) with transferable securities admitted to trading on EU regulated markets.
• Parent companies of large groups.
• Certain third-country entities that have significant business operations within the EU.

These entities must prepare sustainability information following the European Sustainability Reporting Standards (ESRS) and ensure compliance with digital taxonomy requirements. This information must be included in the company’s management report and subjected to limited assurance by statutory auditors or Independent Assurance Services Providers (IASPs).

Phased Implementation

The implementation of the CSRD is phased to allow companies adequate time to comply:

• 2024: Large public-interest entities with over 500 employees.
• 2025: Other large undertakings.
• 2026: SMEs with transferable securities, small and non-complex institutions, and certain insurance entities.

The CSRD ensures that sustainability information is robust and reliable, stated the EU Commission.

Assurance and Publication Requirements

To guarantee the credibility of the sustainability reports, the CSRD requires that:

• The sustainability information must be included in the management report.
• It must comply with ESRS and be digitally formatted according to a specified taxonomy.
• The reports must undergo limited assurance by statutory auditors or IASPs, and the assurance opinion must be published alongside the reports.

Third-Country Requirements

For third-country companies with substantial EU business activities, the CSRD mandates:

• Subsidiaries or branches in the EU generating significant turnover must publish sustainability reports.
• These reports should adhere to ESRS for third-country undertakings, ensuring consistency with EU standards.

Exemptions

Certain exemptions are available under the CSRD:

• Companies may be exempt from individual sustainability reporting if their parent company includes them in a consolidated sustainability report.
• SMEs can opt out of the reporting requirements until 2028, provided they explain the reasons in their management report.

“Assurance on sustainability reporting enhances trust and transparency,” said an EU official.

Related Article: EFRAG and BCG Report Highlights Early ESRS Implementation Practices and Challenges Among 28 Large EU Companies, Ahead of CSRD Compliance

Assurance Standards and Educational Requirements

The EU Commission is set to adopt sustainability assurance standards by 2026. Until these are in place, Member States may apply their national standards. Additionally, statutory auditors and IASPs must meet specific educational and training requirements to provide sustainability assurance.

The implementation of the CSRD marks a significant step towards improved corporate transparency and accountability in sustainability practices across the European Union. The directive aims to ensure that companies provide reliable and comprehensive sustainability information, enhancing stakeholders’ trust and contributing to sustainable development goals.

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