The developments around the CSRD are going fast. On June 21, 2022, MEPs (members of the European Parliament) and EU governments reached a preliminary agreement on new non-financial reporting rules for large companies. The CSRD (corporate sustainability reporting directive) is ought to lay the foundation for sustainability reporting and tackle greenwashing.
What are we dealing with?
Despite the recent developments, much is still unclear for companies. A recent study performed by KPMG showed that 72% of Dutch business are not familiar with the new reporting requirements prescribed by the CSRD. More than half of the companies surveyed stressed the importance of sustainability. However, when it comes to implementing CSRD practices into their business, companies indicate there’s a lot of uncertainty.
KPMG’s study reveals that the main challenges regarding CSRD are the lack of knowledge and capacity. As with most regulations, it can be quite a daunting task to read through it and completely comprehend. Besides fully understanding the new regulations, implementing the new rules is also considered a challenge. The CSRD demands quite a bit of effort in setting targets, reported information, strategies and adjusting processes for the purpose of sustainability.
Since the CSRD will affect 75% of Dutch business alone, the urgency to get clarity on its requirements is key.
Who needs to comply
The current forerunner of the CSRD - the NFRD (non financial reporting directive) only covered large 500+ employee companies. The CSRD will broaden this scope drastically. This scope will focus on all companies that have at least two of the three:
- More than 250 employees
- A turnover that exceeds €40 million
- A balance sheet that exceeds €20 million
But also outside Europe, companies will have to deal with the CSRD. Since Europe isn’t an isolated market, non-EU companies need to somehow also comply.
Therefore, MEPs successfully insisted that non-EU companies with activities in the European market will need to follow similar reporting rules. This encompasses companies with a 150 million euros annual turnover in the EU. With the help of the Commission, Member States will monitor their compliance.
SMEs and CSRD
Besides larger companies, the reporting requirements will also apply to smaller companies. For small and medium enterprises (SMEs) a lighter version of the CSRD will apply. This version entails lighter reporting standards.
The proposal for SMEs is still under construction, but for SMEs with securities listed on regulated markets a lighter and simpler reporting standard will apply. However, the majority of SMEs are non-listed. These SMEs can choose to use them on a voluntary basis.
Like large companies, SMEs are also seeing increasing requests for sustainability information. These are mainly large customers that they supply, or banks and investors. Collecting and sharing sustainability related data and information is becoming the norm for all companies in a sustainable economy.
For this reason, the European Commission also proposes the development of separate, proportionate standards for SMEs. Separate standards will be published for this group, expected in October 2023.
Micro-undertakings or small undertakings do not have to comply with the CSRD. According to the CSRD, you are a small undertaking when you do not exceed the limits of at least two of the three following criteria:
- More than 50 employees
- A net turnover of €8 million
- A balance sheet total of €4 million
When do you need to comply
In the spring of 2022, both EFRAG (European financial reporting advisory group) and the International Sustainability Standards Board (ISSB) presented their first proposals for the CSRD reporting standards. These proposals can now be reviewed, the consultation period will run until 8 August 2022.
For different organisations the starting years are as follows, considering financial years.
- 1 January 2024 – for companies in scope of NFRD (report in 2025)
- 1 January 2025 – for companies that are not presently subject to the NFRD, but meet at least 2 out of three criteria named above (report in 2026)
- 1 January 2026 – for listed small and medium-sized enterprises (SMEs) (report in 2027)