CSRD – Sustainability & ESG, update 2023 

The Corporate Sustainability Reporting Directive (CSRD) is a new EU legislation that requires all large companies to publish regular reports on their environmental and social impact activities (“ESG”). These reports help investors, consumers, policymakers, and other stakeholders to evaluate large companies’ non-financial performance. Thereby, the regulation encourages these companies to develop more responsible approaches to business. For instance, it radically changes companies’ scope and type of sustainability reporting. With the CSRD, the European Commission, for the first time, defines a common reporting framework for non-financial data. 

CSRD – an introduction

On 28 November 2022, the European Union Council gave its final approval to the corporate sustainability reporting directive (“CSRD”). Following the Council’s approval of the European Parliament’s position, the CSRD legislative act was adopted as an effective regulation within the European Union. As a result, all listed companies and all large companies in Europe will be obliged to include a sustainability report in their directors’ reports. In this context, the EU law makers also developed corporate sustainability reporting standards (European Sustainability Reporting Standards, hereinafter “ESRS”). These standards are now available for your review and your company’s use.  

CSRD – what does it mean?  

The adoption of the new European legislation on corporate sustainability standards leads, in practice, to the following:  

1. All large, listed companies in the EU will be required to publish a corporate sustainability report as of the financial year 2024;  
2. All large companies in the EU will be required to publish a corporate sustainability report as of the financial year 2025; and  
3. From the financial year 2027 all SME listed companies will be required to publish a corporate sustainability report. Other SME’s can publish a corporate sustainability report voluntarily.  

Whether or not a company qualifies as a “large company” shall be determined by using the size criteria included in the EU directive for annual accounts. In the Netherlands, these are the criteria included in Title 9 of the Dutch Civil Code 2. The filing is done digitally via tagging/taxonomy and limited assurance in this respect will be issued by the auditor. Probably after two to three years this will become a reasonable assurance in practice.  

ESG, CSRD and ESRS – what is expected?  

Companies covered by the new rules will have to use the ESRS to disclose how sustainability is embedded across the business and how material ESG impacts, risks, and opportunities are identified and managed. This includes policies, targets, action plans, and performance measurement metrics. More details on what will be required are available in the updated versions of the ESRS across the four areas:

• Cross-cutting:(ESRS 1) General requirements; (ESRS 2) General disclosures. 
• Environment:(ESRS E1) Climate change; (ESRS E2) Pollution; (ESRS E3) Water and marine resources; (ESRS E4) Biodiversity and ecosystems; (ESRS E5) Resource use and circular economy. 
• Social:(ESRS S1) Own workforce; (ESRS S2) Workers in the value chain; (ESRS S3) Affected communities; (ESRS S4) Consumers and end-users. 
• Governance:(ESRS G1) Business conduct. 

  ESRS sector-specific standards are also under development and expected to be adopted by the year 2024.  

 CSRD – Topics to consider to become CSRD-aligned 

Double Materiality

In the draft European Sustainability Reporting Standard, presented by EFRAG in November 2022, it is mentioned that ‘’double materiality’’ will become a highly important corner stone of the sustainability reports under the CSRD. 

Double materiality has two dimensions, namely impact and financial materiality. In general, the starting point is the assessment of impacts. A sustainability matter is material from an impact perspective when it pertains to the company’s actual or potential positive or negative impacts on the people or environment over the short-, medium- and long-term horizons. 

It also includes that the company must not only consider its own impact on the environment and people. The company shall consider how it is affected by its dependence on the availability of natural and social resources at appropriate prices and quality, independently of its potential impact on those resources. In the previous sustainability report, the company included a materiality assessment and expressed its intention to engage with a larger pool of stakeholder groups on an annual basis. This was done to further develop its materiality assessment.  

Value Chain 

The information about the reporting undertaking, provided in the sustainability statement, needs to be extended. This needs to be done by including information on material aspects, risks, and opportunities connected to the undertaking through its direct and indirect business relationships in the upstream and/or downstream value chain. 

It should be noted that the extension, to include value chain information, does not require information on every entity in the value chain. It only needs to contain the inclusion of material value chain information. However, this does mean that for some topics a company must look beyond its own boundaries and dive deeper into its value chain. This is to fully understand and report on its impact on the environment and the people. 

The ESRS’s provide in a transitional period of the first three years of the sustainability reporting under ESRS, if some of the necessary information regarding the value chain is not available. 

CSRD and ESRS – how we can help you  

In order to comply with the new sustainability requirements, larger chain partners can ask for sustainability information from other companies within the chain/set requirements for companies within the chain that they need to fulfil. This means that banks, investors and even government agencies in tender procedures are also interested in the sustainability performance of SME organizations.  

Taking the above into account, CSRD and ESRS reporting needs to be taken seriously. Should your company require specialized assistance with (preparing for) ESG reporting, Crowe Peak’s professionals are here to help. Reach out to our team now.