Why Is Having a CSRD Plan Important?
The Corporate Sustainability Reporting Directive (CSRD) will impact over 50,000 companies globally, requiring them to disclose their Environmental, Social, and Governance (ESG) efforts. Starting early is crucial to ensure your company’s annual reporting process runs smoothly and is not at risk later. Discover the data you’ll need, begin your preparations for data collection and strategic planning in 2024—aiming to produce your reporting in early 2025—and learn about our solutions available to help you achieve your goals.
What Is CSRD?
From 2025, the European Union will mandate that privately held medium, large, and enterprise companies as well as all publicly traded companies report on ESG risks and opportunities, particularly their impact on society and the environment. CSRD is an update and expansion of the EU’s previous ESG reporting framework, the Non-Financial Reporting Directive (NFRD).
The now legally required reporting encompasses a wider range of sustainability topics including carbon emissions, pollution, water use, waste management, and biodiversity. Detailed guidelines under CSRD, called the European Sustainability Reporting Standards (ESRS), specify disclosure requirements and methodologies. These disclosures must be included in annual reports alongside financial statements and will require third-party audit verification.
Are There Penalties for Non-Compliance?
Each EU Member State has the authority to set and enforce penalties for not following CSRD guidelines. The consequences for non-compliance could range from administrative to criminal penalties, varying by country.
Administrative sanctions and penalties include :
- Public denunciation
- Order to change conduct
- Financial penalties
- Prison sentences for executives and directors
For example, in early 2024, France introduced a fine of up to $81,400 and jail time of up to five years for CSRD non-compliance. (Source: GreenBiz). Severe penalties like these underscore the value placed on honest ESG reporting and aim to motivate companies to enhance their sustainability practices. As CSRD becomes part of Member States’ national laws, we might see broader or even stricter penalties for failing to meet EU sustainability reporting standards.
What Countries and Types of Companies Does CSRD Requirements Affect?
CSRD is designed to improve and standardize the requirements for sustainability reporting among medium and enterprise-sized companies headquartered in the EU. It also affects US, UK, and other global organizations that do significant business in Europe.
Companies affected include:
- Publicly listed companies, banks, and insurance firms already subject to NFRD
- Companies with listed securities such as stocks or bonds on a regulated market in the EU, including listed SMEs
- Large private European companies that meet the following annual revenue thresholds:
- Companies with an annual EU revenue of more than €150 million
- And/or an EU branch with a net revenue of more than €40 million
- Companies with an EU subsidiary that meets at least two of these three criteria:
- More than 250 EU-based employees
- A balance sheet above €20 million
- Local revenue of more than €40 million
What Is ESRS and How Does It Relate to CSRD Reporting?
The European Sustainability Reporting Standards (ESRS) were developed to guide companies in the EU on how to report sustainability performance under CSRD. Managed by the European Financial Reporting Advisory Group (EFRAG), these standards aim to bring rigor and comparability to ESG reporting, ensuring sustainability disclosures are as reliable as financial ones. The ESRS covers a wide range of sustainability topics from climate impact to social rights and governance, facilitating a detailed overview of a company’s societal and environmental impact.
CSRD Reporting: What Type of Data is Required?
The CSRD mandates that organizations reveal extensive information concerning their environmental, social, and governance efforts, in line with the ESRS technical standards published in July 2023.
The Timeline for CSRD
CSRD will roll out in stages based on company size and other factors.
As EU member states prepare for implementation, some deadlines and criteria may shift. Sign up for our CSRD alerts.
CSRD Requirements: “Double Materiality”, The First Step in CSRD Reporting
The concept of double materiality emphasizes the dual approach companies should take to report on:
- How sustainability issues affect their business
- How their business operations impact the environment and society
This dual focus aims to provide a more comprehensive view of a company’s performance and its broader contributions or detractions from sustainable development goals. CSRD rules mandate this approach, requiring companies to report on both types of materiality. This makes it crucial for organizations to identify their sustainability reporting scope, ensure efficient resource allocation for CSRD compliance, and use the results of their double materiality study and report to guide strategic company decisions.
CSRD Requirements: How Will Data Be Reported and What Is “Machine-Readable" Data?
As well as producing a public-facing report (similar to how companies report their financial metrics), companies will be required to digitally tag their reports to ensure the information is machine-readable for the European Single Access Point (ESAP). This aligns with the EU’s digital finance strategy to enhance the accessibility and usability of financial data. The tagging guidelines are outlined in the European Single Electronic Format (ESEF) regulation, which is expected to be finalized by the end of 2024, to provide more detailed instructions on the granularity of information tagging and additional technical guidance.
The Benefits of Tagging and Machine-Readable Data
To implement machine readable tagging, companies will be required to use XBRL (eXtensible Business Reporting Language) format. XBRL is an open international standard for digital business reporting. It is used to deliver financial statements in a machine-readable, structured data format. Furthermore, the machine-readable format means the data is accessible by AI and unlocks significant potential for companies to uncover new environmental impacts and opportunities for improvement.
How Benchmark Gensuite Can Help
A Simplified CSRD Compliance Program, Powered by Benchmark Gensuite
Achieve your goals with Benchmark Gensuite’s CSRD-ready solution. Designed for effortless sustainability and ESG data capture aligned with the ESRS framework, our tool ensures your data is instantly machine-readable. With just a click, generate reports that are ready for both corporate use and audits, giving you peace of mind.
A Team of Experts, Uniquely Qualified to Support You
Our qualified team includes experts in Sustainability Management, ESG Reporting, Data Management, specialist SMEs, and technology. Partner with us to gain clear insights into your program’s performance and identify areas for improvement in your sustainability and ESG initiatives.
A CSRD Readiness Assessment
Our proprietary CSRD Readiness Assessment will highlight your organization’s strengths and gaps in getting ready for CSRD. Through our technology and support, we’ll guide you and empower you to be ready for 2025 and beyond.
Take the CSRD Readiness Assessment today. Then, schedule a call with us so we can help build a readiness plan for your company and guide you on what to do next.
