Risk & Economy » What is the EU Corporate Sustainability Reporting Directive (CSRD)?

What is the EU Corporate Sustainability Reporting Directive (CSRD)?

The proposed EU Corporate Sustainability Reporting Directive (CSRD) would expand reporting requirements and have significant implications for businesses and auditors

The European Union (EU) recently announced a proposal for a new Corporate Sustainability Reporting Directive (CSRD), which aims to strengthen sustainability reporting requirements for companies operating in the EU. The proposed directive is a key part of the EU’s efforts to transition to a more sustainable economy and address the urgent need for action on climate change.

Understanding the CSRD

The proposed CSRD would replace the existing Non-Financial Reporting Directive (NFRD), which was introduced in 2014 and requires certain large companies to report on their environmental and social impact. The CSRD would expand the scope of reporting requirements, applying to all large companies (regardless of their legal form) that are listed on EU regulated markets or have more than 500 employees. This is a significant expansion compared to the NFRD, which only applied to certain large public-interest entities.

The CSRD proposes that companies report on a range of sustainability-related topics, including environmental, social, and governance (ESG) issues. The reporting requirements are expected to be more detailed and prescriptive than those under the NFRD, with a particular focus on climate-related risks and opportunities. The CSRD will also require companies to report on their adherence to international sustainability frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).

Potential impact on businesses

The CSRD is expected to have a significant impact on businesses, particularly those that are not currently subject to sustainability reporting requirements. The increased reporting requirements are likely to be a significant burden for companies, particularly those that do not already have systems in place to collect and report sustainability-related data.

However, the CSRD is also likely to have a number of potential benefits for businesses. By requiring companies to report on a wider range of sustainability-related issues, the CSRD is expected to improve transparency and enable investors and other stakeholders to make more informed decisions. The increased focus on climate-related risks and opportunities is also likely to encourage companies to take more ambitious action to reduce their environmental impact and transition to a more sustainable business model.

Substantial changes for auditors and accountants

The CSRD is also likely to have significant implications for auditors and accountants, who will need to ensure that they have the necessary expertise to provide assurance on sustainability-related information. The proposed directive calls for sustainability information to be subject to independent verification, which is likely to require additional expertise and resources from auditors.

In addition, the CSRD is likely to result in increased demand for sustainability-related services from accountants and auditors. As companies seek to comply with the new reporting requirements, they are likely to require advice and support from professionals with expertise in sustainability reporting and assurance.

In conclusion, the proposed CSRD is a significant development in the EU’s efforts to transition to a more sustainable economy. The increased reporting requirements are likely to be a burden for businesses, particularly those that are not currently subject to sustainability reporting requirements. However, the CSRD is also likely to have a number of potential benefits for businesses, including improved transparency and a greater focus on climate-related risks and opportunities.

The CSRD is also likely to have significant implications for auditors and accountants, who will need to ensure that they have the necessary expertise to provide assurance on sustainability-related information. The proposed directive is still subject to further negotiations and approval by the European Parliament and Council, but if it is approved, it is expected to come into force in 2023. Businesses operating in the EU should therefore be preparing for the potential impact of the new reporting requirements and seeking advice and support from professionals with expertise in sustainability reporting and assurance.

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