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.
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.
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:
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.
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.
The concept of double materiality emphasizes the dual approach companies should take to report on:
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.
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.
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.
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