The Corporate Sustainability Reporting Directive (CSRD) represents a critical milestone in the domain of sustainability reporting, especially within the European Union (EU). It is a regulatory initiative that aims to significantly reshape the way companies report their sustainability-related information. 

The CSRD extends sustainability reporting requirements to a broader set of companies. While the existing Non-Financial Reporting Directive (NFRD) primarily applied to large, publicly listed companies, the CSRD expands these obligations to include more companies, thus increasing transparency and accountability across a wider corporate landscape.

One of the central goals of the CSRD is to harmonise and standardise sustainability reporting practices across the EU. By establishing a common framework and set of standards, the CSRD aims to enhance the comparability of sustainability data among companies, making it easier for stakeholders to assess and compare performance.

The CSRD responds to the increasing demand from investors, customers, employees, and other stakeholders for transparent and comprehensive sustainability information. It provides these stakeholders with the data needed to make informed decisions, allocate resources, and hold companies accountable.

The CSRD requires companies to identify and report on material sustainability topics. This means focusing on issues that have a significant impact on the business and are of particular interest to stakeholders. This helps companies prioritize and communicate the most relevant information.

The CSRD outlines enforcement mechanisms and penalties for non-compliance, emphasizing the importance of accurate and timely reporting. This reinforces the regulatory aspect of sustainability reporting.

The CSRD is designed to align with global sustainability reporting standards, enhancing the EU’s role in the international ESG reporting landscape and making it easier for companies operating globally to comply with EU requirements.

The CSRD is part of a broader framework of sustainability-related regulations in the EU, including the EU Taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), and others. These initiatives collectively aim to drive sustainable finance and investment practices.

The CSRD has the potential to bring about lasting changes in how companies perceive, manage, and report on sustainability issues. It is expected to encourage greater consideration of ESG factors in corporate decision-making and strategy.

The Corporate Sustainability Reporting Directive (CSRD) applies to a wide range of companies operating within the European Union (EU). The directive extends sustainability reporting obligations to a broader set of entities compared to its predecessor, the Non-Financial Reporting Directive (NFRD). 

Public Interest Entities (PIEs): The CSRD primarily applies to Public Interest Entities, which include:

•  Listed Companies: Companies whose shares are traded on EU-regulated markets.
• Credit Institutions: Financial institutions, such as banks, which are authorised to operate within the EU.
•  Insurance Undertakings: Insurance companies and organisations operating in the EU.

Large Companies: In addition to PIEs, the CSRD extends reporting requirements to large companies, irrespective of their status as PIEs. A company is considered “large” if it meets two or more of the following criteria for two consecutive financial years:

•  Balance Sheet Total: A total balance sheet of more than €20 million.
•  Net Turnover: A net turnover of more than €40 million.
•  Average Number of Employees: An average number of employees during the financial year exceeding 250.

Parent and Subsidiary Companies: The CSRD also applies to parent companies that are considered PIEs or large companies. Subsidiary companies that are not themselves PIEs or large companies are exempted from direct reporting if the parent company reports on a consolidated basis.

It is important to note that the CSRD aims to enhance transparency and sustainability reporting practices by expanding the scope of companies covered. This expansion aligns with the EU’s commitment to promoting sustainable business practices and ensuring that a broader range of entities report on their environmental, social, and governance (ESG) performance. The directive intends to make sustainability reporting more comprehensive, consistent, and standardized across a diverse set of companies within the EU.