What does the new CSRD reporting directive mean for you?
The European rules for reporting non-financial information (NFRD) will be overhauled. In April, the European Commission presented its proposal for a new directive for corporate social responsibility (CSR) reporting; the Corporate Sustainability Reporting Directive (CSRD). This new guideline is a revision of the NFRD. As the precise requirements and standards are being developed, it is important already to consider the upcoming changes and what they will mean for your company.
Why do we need a revision?
Since 2014, approximately 12,000 companies in Europe are required to publish non-financial information. To that end. many Dutch companies publish a CSR report, or add a non-financial chapter in an integrated management report. The report or chapter contains information about, for example, sustainability, human rights and the proper treatment of employees. With the regulation, the EU wanted to stimulate corporate social responsibility and investment in responsible business. However, the disclosed information is not always complete and sometimes even unreliable. Because there is no fixed format for the CSR report, companies are often difficult to compare. To boost responsible business and green investments, the European Commission now wants to revise the NFRD.
To which companies will the directive be applicable?
The old directive applies to almost 12,000 European companies with more than 500 employees and public interest entities. CSRD will significantly increase that number. The rules apply to your company if it is listed or meets two of the following three criteria:
- A balance sheet total of 20 million.
- A net revenue of 40 million.
- More than 250 employees on average.
This means that the new directive will apply to 50,000 European companies. In the Netherlands, the number of companies is growing to approximately 1,700.
Take a look at our infographic on the new CSR reporting directive
Where should companies report?
It will be mandatory to include the non-financial information in the management report or annual financial report. This integrated report has already been on the rise in the Netherlands for several years. Now it will also be a commonplace in Europe. This definitively puts an end to the separate CSR report.
The report must be uploaded digitally (XHTML) and must comply with the ESEF standards. This allows for the report to be read by a computer.
What are reporting requirements?
The principle of 'Double Materiality' will play a central role. This means that both the impact of climate change on the company and the company's impact on climate and society must be reported. The managements role on corporate sustainability and the progress towards achieving sustainability goals should also be discussed in the report. Finally, intangible assets and the resilience of the business model for the future must be disclosed. The exact standards are still being worked out by EFRAG, the European advisory group for reporting.
In order to ensure that the report contains the above information and that the information is correct, the non-financial part of the annual report will also be audited and assured by a 3rd party accountant.
When will the directive be applicable?
If the European Parliament approves the Commission's plans, member states have until December 2022 to implement the directive nationally. A number of standards (e.g. GRI) will then already be known. These standards must be met in the annual report for the 2023 financial year. Additional standards will apply for financial year 2024. Listed SMEs get three extra years to comply to the CSRD.