The Corporate Sustainability Reporting Directive (CSRD) final text was finally adopted by the European Parliament and the European Council. This was the result of a long period of political negotiations with the Member States and the European Parliament after the first proposal was published by the European Commission in April 2021. The Directive is expected to be published in the Official Journal of the European Union in the first quarter of 2023.
With the CSRD, the existing sustainability matters of ESG (environmental, social and governance) reporting will be expanded and standardised.
A major contributing factor is the clarification of the principle of double materiality. This requires that the companies report information necessary to understand:
Through the CSRD, mandatory European Sustainability Reporting Standards (ESRS) are introduced, based on the European Financial Reporting Advisory Group’s (EFRAG) recommendations. EFRAG agreed on 15 November, 2022, on the first set of 12 draft ESRS submitted to the European Commission and to be adopted by Delegated Acts (planned to be in June 2023). The submitted drafts provide a comprehensive coverage of ESG matters and a solid basis for the sustainability reporting and the double materiality notion. For their future applicability, their interoperability with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) is essential.
The revised standards further contribute to:
Compared with the existing Non-Financial Reporting Directive (NFRD), CSRD will significantly expand the scope of sustainability reporting at both the individual entity and group level.
The scope of application also includes companies outside the EU. For example, a multinational company would be required to provide reporting for the global consolidated entity if the parent company has debt or equity securities listed on an EU-regulated market.
Current Regulation NFRD
|Listed and large public interest companies with more than 500 employees.||
*Listed SMEs have the possibility to postpone the first-time application by two years.
There is a possibility that there could be changes to the exemption options for subsidiaries by inclusion in the consolidated sustainability report of a parent undertaking. Listed subsidiaries may no longer benefit from this exemption option. In addition, certain disclosures and metrics have to be broken down at the subsidiary level in the parent undertaking’s report, possibly under the condition that the subsidiary has a different risk profile than the group as a whole.
The CSRD will be applicable at 4 different dates depending on the undertaking status:
CSRD requires that the only permissible reporting format for the sustainability information will be within the management report, in a separated section.
Additionally, the companies must prepare their management report in XHTML format and digitally tag certain of the sustainability information.
The CSRD includes a mandatory external assurance obligation for the reported sustainability information and the requirements begin with limited assurance and expand to reasonable assurance at a later date.The statutory auditor of the financial statements will be allowed to perform these assurance engagements.
Next steps after the EU adoption
The final formal approval by the European Parliament and European Council should be followed by the transposition of the directive into the national law of the Member States in a period of maximum 18 months.
Sustainability Partner, PwC Luxembourg
Tel: +352 49 48 48 5287
Sustainability Director, PwC Luxembourg
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Sustainable Finance & Sustainability Leader, Partner, PwC Luxembourg
Tel: +352 49 48 48 4173