CSRD and ESRS: An introduction to the new sustainability reporting guidelines
The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are the new standard for sustainability reporting within the EU. But what exactly do these guidelines mean? Why were they introduced, and which companies are subject to the CSRD requirement? This article gives you a complete overview of the CSRD and ESRS, including the most important obligations and benefits.
What is CSRD? Explanation of the Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) is a European directive that requires companies to report more transparently about their impact on the environment, society and governance (ESG factors).
CSRD replaces NFRD
The CSRD replaces the Non-Financial Reporting Directive (NFRD) and sets stricter requirements for how companies report. Where the NFRD concerned only a limited number of large companies, the CSRD applies to a much wider group of companies.
Purpose of the CSRD
The directive is part of the European Green Deal, which aims to make Europe climate neutral by 2050. By requiring companies to provide comprehensive sustainability reports, investors, consumers and other stakeholders can make better-informed decisions.
Why was the CSRD directive introduced and what does it mean for companies?
The introduction of the CSRD aims to:
- More transparency: Companies must report both their positive and negative impact on people and the environment.
- Better comparability: Standardised reporting makes it easier for stakeholders to compare companies.
- Sustainability incentive: Mandatory disclosure urges companies to address sustainability risks and set ESG goals
The main goals of the CSRD: Transparency, Dual Materials and Harmonization.
Increased transparency
Companies must provide detailed information about their environmental and social impacts, as well as governance processes.
Dual materiality
The CSRD introduces the concept of dual materiality, which means that companies must both report on:
- Impact materiality: How does the company influence people and the environment?
- Financial materiality: How do sustainability factors influence the company's financial performance?
Harmonization
Harmonization means that all EU companies report according to the same ESRS standards, definitions and data points. This makes CSRD reports comparable, auditable and digitally searchable across the EU.
CSRD legislation: What does the new EU Sustainability Reporting Directive mean?
The CSRD legislation is set out in Directive (EU) 2022/2464, which was adopted in December 2022. This legislation:
- Extend the existing NFRD with stricter reporting requirements.
- Obligate companies to follow ESRS standards when reporting on sustainability.
- Determines the size criteria of companies covered by the CSRD
What are the ESRS? — European Sustainability Reporting Standards Explained
The European Sustainability Reporting Standards (ESRS) form the basis for CSRD reporting. These standards are divided into three main themes:
General Requirements
- ESRS 1 — General Principles
- ESRS 2 — General Disclosures
Environment (E)
- E1 — Climate Change
- E2 — Pollution
- E3 — Water and Marine Resources
- E4 — Biodiversity and Ecosystems
- E5 — Resource Use and Circular Economy
Social (S)
- S1 — Own employees
- S2 — Workers in the value chain
- S3 — Affected communities
- S4 — Consumers and End Users
Governance (G)
- G1 — Business Conduct and Transparency
What does disclosure mean in CSRD reporting?
A disclosure within the CSRD refers to the mandatory disclosure of ESG information. This must include both qualitative and quantitative data and is structured according to ESRS guidelines. Minimum Disclosure Requirements (MDR) determine which core information is mandatory, regardless of the materiality analysis.
The role of stakeholders in CSRD: Influence of investors, governments and consumers
Various stakeholders play a role in the CSRD implementation:
- Investors — Use ESG information for risk analysis and investment decisions.
- Governments & supervisors — Monitoring compliance (e.g. AFM in the Netherlands).
- Consumers — Expect transparency and sustainability responsibility.
- Employees & suppliers — Contribute to making the value chain more sustainable.
- NGOs & social organizations — Monitor sustainability goals and accountability.
What are the benefits of CSRD for companies? —Risk Management, Financing and Reputation
Complying with the CSRD offers companies:
- Improved risk management - Prevents ESG-related risks.
- Access to capital — Transparency makes companies more attractive to investors.
- Stronger reputation — Open communication about sustainability reinforces the image.
- Operational efficiency — Sustainability data helps with cost savings and innovation.
The CSRD and ESRS ensure a more transparent and sustainable business world. Companies that prepare well benefit from strategic benefits and compliance with EU legislation.
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