What is CSRD?
The CSRD (Corporate Sustainability Reporting Directive) represents a major change in the European regulatory landscape. Succeeding the NFRD (Non Financial Reporting Directive) in January 2024, this directive aims to establish a more coherent and synthetic framework for corporate non-financial reporting. On December 6, 2023, France became the first European Union country to transpose the new European CSRD Directive into national law. By incorporating more precise and exhaustive standards, the directive asserts itself as a key tool for strengthening corporate transparency and facilitating the assessment of their sustainability performance. This regulatory instrument, at the heart of CSRissues, represents a concrete response to the growing expectations of stakeholders in terms of responsible corporate governance, and contributes to the establishment ofEuropean Sustainability Reporting Standards (ESRS).
CSRD: what are companies' obligations?
The CSRD requires companies to publish a non-financial report on the social and environmental issues related to their activities. This directive sets more comprehensive and far-reaching standards and obligations than the NFRD, in order to encourage companies to make a more concrete commitment to a strategy that includes sustainable development. The CSRD therefore improves the availability and quality of data published by companies, and harmonizes reporting criteria across Europe.
The implementation of the directive also implies a gradual adaptation of companies to these new requirements. From now on, they will have to accurately identify the impact of their activities on society and the environment. This requires a thorough review of the processes for collecting and verifying non-financial information, as well as careful integration into management and sustainability reports.
See also our article on CSR labels and certifications.
What information must be published in the non-financial report?
In order to analyze companies' sustainable development sustainable developmentthe CSRD directive bases its assessment on the European Sustainability Reporting Standards (ESRS ). These cover ESG (Environmental, Social and Governance) criteria, and set out the new reporting method that all companies are obliged to follow, depending on their size, sector of activity and legal status.
By integrating ESRS into the CSRD implementation process, companies are better equipped to meet stakeholder expectations in terms of transparency and sustainability. It also makes it easier for investors and other stakeholders to assess companies' ESG performance and make informed decisions. In this way, ESRS helps maximize the positive impact of CSRD on corporate governance and sustainability.
These criteria encompass a wide range of aspects of CSR (Corporate Social Responsibility). CO2 emissions, waste management, the subcontracting chain, the quality of social dialogue, anti-corruption measures and diversity on company boards are just some of the subjects to be included in extra-financial reporting.
It should be noted that ESG indicators will all be subject to a double materiality analysis, a major concept set out in the CSRD. Despite its barbaric name, double materiality simply refers to the study of the influence of a company's environment on its activity, and of the influence of this company's activity on its environment. It systematically takes into account :
- Financial materiality: encompasses the positive and negative effects of economic, social and environmental issues on a company's financial performance.
- Impact materiality: encompasses the positive and negative effects of the company on the economic, social and environmental context in which it operates.
Dual materiality is the starting point for CSRD reporting, as it comprises the two key pillars for understanding a company's overall added value . By adopting this methodology, the CSRD aims to integrate a more holistic view of companies' activities, enabling investors, management bodies and other stakeholders to assess sustainability risks and opportunities more comprehensively. Companies must not only provide statements on their extra-financial performance, but also demonstrate how they manage environmental impacts.
The importance of double materiality in the context of CSRD lies in its ability to guide corporate practices in a way that makes them more responsible and sustainable, while at the same time boosting public and investor confidence. The introduction of this standard also makes it possible to standardize reporting practices, facilitating the comparison and analysis of data at European level. In addition, dual materiality contributes to achieving the objectives of the Green Pact for Europe, aimed at a greener, more inclusive economy.
Also read: everything you need to know about greenwashing and socialwashing
Who is affected by the CSRD directive?
The CSRD now applies to all companies that were previously subject to the NFRD. But this directive goes further, and will be progressively applied to various economic players over the next 4 years .
It will first be extended to companies with more than 250 employees from January 1, 2025, provided they exceed at least one of the following two thresholds: a balance sheet in excess of €20 million and/or sales in excess of €40 million.
From January 1, 2026, the CSRD will also apply to small and medium-sized enterprises (SMEs) listed on a regulated market, with the exception of micro-businesses (fewer than 10 employees).
Finally, on January 1, 2028, foreign companies with a subsidiary in the European Union and annual sales in excess of 150 million euros on the European market will have to comply with this new legislation. The subsidiaries of these groups will therefore have to report on the CSR approach of their head office.
What are the limits of CSRD?
The CSRD represents a significant step forward in terms of transparency and sustainability for companies. However, it also poses a number of challenges. Its complexity can be an obstacle for the small and medium-sized enterprises (SMEs) concerned, who may find it difficult to mobilize the necessary resources. Furthermore, although it aims to harmonize reporting practices, the CSRD may not take full account of sectoral specificities and local contexts, thus compromising the relevance of reports. In addition, compliance control and monitoring constraints could be significant, due to the diversity of players and limited supervisory capacities.
According to data from the European Commission, the annual cost of publishing an ESRS-compliant sustainability report varies between 40,000 and 320,000 euros, depending on the size of the company, plus auditing costs ranging from 67,000 to 540,000 euros per year. Companies must therefore anticipate these requirements and gradually comply with the new obligations to avoid the penalties associated with non-compliance with the application of the directive.
How can you prepare your company for CSRD?
Is your company affected by this directive? Don't worry! First of all, please note that the European Financial Reporting Advisory Group ( EFRAG ) will be publishing specific recommendations in the autumn to guide companies through the double-materiality exercise.
In addition, for this first year, companies already subject to the NFRD, i.e. the first to publish their reporting under the CSRD, must carry out a gap analysis between what they published in 2023 and the new requirements. It is therefore not necessary to publish a perfect and complete report immediately. This first exercise enables them to define an action plan to close the gaps between CSRD expectations and their current situation. There are a number of actions that can help companies achieve their objectives, such as recruiting a CSR manager, organizing employee training or carrying out a carbon audit. The key to a successful transition is data analysis and the involvement of all internal teams.
💡 Also read: 6 examples of committed companies
In any case, if this new legislation applies to your company, it's advisable to start your internal analysis at the beginning of 2024! You can call on external organizations such as Greenly or Zei to advise and support you in this process.
So, if you're planning to set up a community involvement program our teams can help you develop your project. Wenabi integrates a reporting system into its social commitment platform. This reporting enables you to measure the social impact of your employees' involvement with associations. Don't hesitate to ask our teams for a demo to find out more about our solutions!
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