Audit, Compliance and Risk Blog

Beginning in 2024, the European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD) will expand EU rules for corporate reporting of social and environmental information. The CSRD was adopted in November 2022 and took effect in January 2023. It provides new reporting requirements that will be phased in during 2025-2029, superseding the existing EU Non-Financial Reporting Directive (NFRD; which I discussed HERE). It also lowers the threshold for reporting to reach large numbers of somewhat smaller companies. The EU estimates the new rules will apply to approximately50,000 companies (up from 11,700), mostly EU-based but also including non-European companies with sufficient sales in the EU and/or with sufficiently significant EU-based subsidiaries. The Wall Street Journal has estimated that 10,000 additional non-EU companies will also be covered. The remainder of this note summarizes these new requirements, which are still being refined by the EU-sponsored EFRAG organization.

Which organizations will be subject to CSRD reporting requirements?

CSRD reporting requirements are being phased in over several years, with initial compliance deadlines varying for specified categories of companies (defined by reference to the EU Audit Directive). In each case below, reports are due on January 1 reporting data from the previous calendar year (so pre-reporting compliance activities should begin one year earlier):

• 1/1/25 (2024 data) – Companies that are already subject to NFRD requirements, defined in NFRD as:
  • “large undertakings which are public-interest entities”, which requires both of the following:
    • “large entities” are those with more than 500 employees
    • “public-interest entities” are defined by reference to the EU Accounting Directive as companies with securities listed in EU regulated markets, banks (whether listed or not), insurance companies (whether listed or not) and any other companies designated by a Member States
  • “public-interest entities that are parent companies of a large group” (i.e., with an average number of employees in excess of 500 on a consolidated basis)
• 1/1/26 (2025 data) – additional “large companies” not presently subject to NFRD, which meet at least two of the following criteria:
  • more than 250 employees
  • annual turnover of over €40 million; or
  • over €20m total assets
• 1/1/27 (2026 data) - Listed small and medium enterprises (SMEs), except listed “micro-undertakings”
  • Medium-sized undertaking meets at least 2 of the following: balance sheet total €20 million; net turnover €8 million; or average 250 employees during the financial year
  • Small-sized undertaking meets at least 2 of the following: balance sheet total €4 million; net turnover €40 million; or average 50 employees during the financial year
  • Micro-undertaking no greater than at least 2 of the following: balance sheet total €350,000; net turnover €700,000; or average 10 employees during the financial year
• 1/1/29 (2028 data) –
  • Non-EU companies (“third country undertakings”) with a net annual turnover of €150 million in the EU, and with at least one subsidiary or branch within the EU that is listed or large (over €40 million annual net turnover)
  • Listed micro-undertakings

Large and EU-listed subsidiaries are not subject to separate reporting if the parent company reports their data.

What will be the CSRD reporting requirements?

CSRD reports will be made in accordance with European Sustainability Reporting Standards (ESRS), which are still under development by the EFRAG (formerly known as the European Financial Reporting Advisory Group). The Directive specifies topics and information to be covered:

• Environmental matters – including science-based targets, EU Taxonomy and climate risk-related reporting.
• Social matters and treatment of employees.
• Respect for human rights.
• Anti-corruption and bribery.
• Diversity on company boards (in terms of age, gender, educational and professional background).

Companies must publish their information in a dedicated section of their company management reports, usually included in their annual report. Reported information is to be:

• Qualitative and quantitative.
• Forward-looking and retrospective.
• Based in the short, medium and long-term.

How does CSRD expand NFRD requirements?

The new CSRD will expand NFRD requirements in several ways:

• More companies – NFRD applies to 11,700 companies in the EU, which CSRD will expand to 50,000 EU-based companies plus thousands of non-EU-based companies with sufficient EU business
• More detailed reports, based on the standards being developed by EFRAG

Now What?

Companies in the EU and around the world should be assessing how the EU will categorize them for CSRD purposes, and if they will become subject to CSRD reporting they should be preparing to comply with these requirements. Once EFRAG publishes its reporting standards, the scope of these requirements will become clearer – all that we really know now is that the EU intends that CSRD reports will be more detailed and more consistent than existing NFRD reports.

Self-Assessment Checklist

Is the organization a company, subsidiary of a company, or part of a company or subsidiary subject to the EU’s Non-Financial Reporting Directive?

• If so, does the organization prepare reports consistent with NRFD guidelines (or collect data or prepare portions of such reports) to support reporting by the organization’s general management or parent?

If the organization prepares its own non-financial reporting, does it use NFRD guidelines as a basis for the design and organization of its reports (even if not required to do so)?

Does the organization review NFRD reports as part of its own ongoing activities?

Has the organization reviewed the new EU Corporate Sustainability Reporting Directive (CSRD) to evaluate whether it will be subject to CSRD reporting requirements?

• Is the organization listed on EU exchanges, or a portion or subsidiary of a company that is listed?
• Does the organization or its parent/group qualify as a large, medium, small or micro undertaking as used in CSRD?

Where Do I Go For More Information?

Information available via the Internet includes:

• European Commission Corporate Sustainability reporting webpage 
• EU, CSRD Directive (Directive 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting) (12/14/22)
• EFRAG website 
• Sustainability Reporting Standards Interim Draft webpage 

About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com