As part of the EU’s push for robust environmental action, they’ve replaced their legacy ESG reporting programme, NFRD, with the Corporate Sustainability Reporting Directive, CSRD. This switch is expected to roughly quadruple the number of covered organisations to over 50,000 companies—many of which will be required to report their full carbon emissions for the first time.
Though the first filing dates won’t be any earlier than 2025 (on 2024 data), investors are likely to begin asking for much of this data in 2023 to satisfy their own new reporting obligations. CSRD significantly raises the bar for robustness in ESG reporting, making it crucial that companies prepare by setting clear climate goals and building out audit-ready reporting infrastructure. This post covers the main points that filers need to know: which organisations CSRD applies to, what it asks for, and how and where to file the required disclosures.
Covered organisations
CSRD will apply to all EU-based non-microcap public companies, alongside all EU-based private organisations considered to be “large”—ie. that have two or more of (1) 250+ employees, (2) €40m+ annual revenues, (3) €20m+ balance sheet.
If a non-EU parent has €150m+ in annual EU revenues, with at least one branch or subsidiary where: (1) the branch has €40m+ in annual EU revenues, (2) the subsidiary is either EU-listed or meets the large criteria above, then the firm will need to file a CSRD report as part of their wider EU reporting.
What CSRD asks for
While CSRD is built atop the TCFD framework, it covers additional sustainability categories beyond just climate impact—like pollution, water, and biodiversity. It also gets far more specific. Filers must start with a “double materiality” assessment that identifies both how its operations are impacting these categories and how a less sustainable world might impact its operations. This assessment must then be expanded to include detailed commentary on:
- The organisation’s physical and transition climate risks—over 1-year, 1-5 year, and 5+ year time horizons—as well as the potential financial effects of these risks.
- The organisation’s exposure to activities related to the use of coal, oil, and gas.
- Absolute carbon / greenhouse gas reduction targets for 2030 and 2050.
- Any use of compensation schemes to drive increased sustainability.
- Any actions undertaken to “prevent, mitigate, remediate, or bring an end to” actual or potential negative sustainability impacts—all the way down through the value chain.
This commentary must also be paired with nine metric-based disclosures, including:
- Energy consumption and greenhouse gas emissions totals (actuals and forecasts), including Scope 3 emissions from suppliers.
- Intensity ratios (ie. relativising absolute emission and consumption totals by comparing them against metrics like revenue).
- The amount of funding provided for mitigation projects (ie. carbon credits purchased).
Here again, what’s unique to CSRD are the levels of detail and assurance required. For example, filers will be required to include a statement outlining how their targets are based on “conclusive scientific evidence”. They’ll also need to describe the relevant expertise of the managers, boards, and partners leading their sustainability efforts.
Timeline
The rules are now substantially final. The EU Parliament and EU Council have both signed off on the programme, and CSRD became law on 5 January 2023. More detailed reporting standards, along with sector-specific requirements for the most “high-impact” (ie. carbon-intensive) sectors, will be consulted on and finalised over the course of 2023.
How and when to report
CSRD disclosures will require auditing, and the formatting needs to be machine-readable so that submissions can be aggregated into a single EU-wide database. While some specifics are still being ironed out, each filing will be a clearly identifiable section within a larger existing annual report that combines financial and non-financial information.
Organisations already reporting under NFRD will need to submit their first CSRD filing in 2025, covering 2024 data. Newly eligible companies that didn’t have a prior NFRD obligation can file in 2026, or in 2028 if they’re a publicly-listed SME. Non-EU firms caught in scope must report in 2029. Crucially though, investors and other stakeholders are likely to ask for many of these inputs far in advance of those dates to satisfy their own enhanced disclosure obligations under related programmes.
How Watershed helps
Watershed helps leading European companies like Spotify, Dataiku, and Klarna measure, manage, and report their emissions. If we can help with measurement or any other compliance reporting, please get in touch.
