Starting from January 1, 2024, some 50,000 companies in Europe will have to comply with the CSRD directive. This European directive, which has just been transposed by France, is a major component in the construction of the European Green Deal. We invite you to discover what will change for companies in 5 questions.
The CSRD (Corporate Sustainability Reporting Directive) is a European directive on sustainability. Its purpose is to frame the extra-financial reporting of companies at the European level, that is, how companies report their consideration of environmental, social, and governance issues.
This directive was adopted at the end of 2022 and was transposed by France on December 6, 2023. With the transposition of this text into French law, a sustainability report will replace the DPEF (non-financial performance declaration) starting January 1, 2024.
The European Union adopted the CSRD directive because the non-binding regulations implemented in 2017 and 2019 proved to be insufficient, especially in terms of decarbonization challenges.
This text is part of the desired developments by the EU to meet the ambitions of the European Green Deal. The goal is to respect the Paris Agreement by reducing greenhouse gas emissions by 55% by 2030, in order to achieve carbon neutrality by 2050.
Concretely, the CSRD aims to strengthen corporate action for the climate by harmonizing reporting practices and developing more sustainable finance. As civil society and investors become increasingly attentive to corporate commitments to the climate and biodiversity, this European directive should also allow for more transparency. It requires more accurate and comprehensive data based on standardized indicators.
With the entry into force of the CSRD directive next year, more companies will be subject to non-financial reporting. This directive mandates sustainability reporting for more than 50,000 European companies, up from only 12,000 previously.
All large companies are affected but also non-listed companies that exceed two of the following three thresholds:
• 250 employees.
• 40 million euros in net turnover.
• 20 million euros in total balance sheet.
Note: Companies that were already subject to the NFRD (Non-Financial Reporting Directive) will have to publish their first sustainability report starting January 1, 2025. Others will have until early 2026 to comply with this new requirement.
Listed SMEs are also affected by this directive if they meet two of the following three criteria:
• employ between 10 and 250 employees.
• achieve a net turnover between 700,000 € and 40 million euros.
• present a total balance sheet between 350,000 € and 20 million euros.
For these listed SMEs, the application of the directive will be more gradual. They will have to submit their first sustainability report at the beginning of 2027.
Finally, non-European companies that have at least one branch or subsidiary within the EU and have a net turnover of at least 150 million euros will have to publish their first report at the beginning of 2028.
The entry into force of the CSRD directive from January 1, 2024, will represent a major turning point for certain companies in Europe. It is indeed a new constraint but also a golden opportunity to conduct strategic reflection on the actions to be taken within the company.
For the first time, companies will have to carry out a double materiality analysis. This means they will have to assess both:
• financial materiality, i.e., the impact of economic, social, and environmental issues on the sustainability of the company's activities.
• impact materiality, i.e., the impact of the company's activity on the environment and on people.
They will have to use standardized indicators that have been established by EFRAG in accordance with European standards. This harmonization of indicators will allow for the comparison of the impact of different companies in terms of environmental, social, and governance factors.
As the CRDS also imposes the accessibility and reliability of this information, it will now be easier to evaluate a company based on its commitment to combating climate change and pollution and in favor of the circular economy, biodiversity, and workers.
The sustainability report that some companies will need to publish to comply with the CSRD directive must cover the three ESG themes. Each affected company will have to provide qualitative and quantitative information. It will select the information it considers most relevant based on its situation, without having to justify its choice, except for climate change.
To determine the information it must publish, the company will need to perform a double materiality analysis and measure:
• its positive and negative impacts on the environment and people.
• the risks and opportunities that ESG issues pose to the sustainability of its activities.
Companies already subject to the NFRD will be the first to publish their report at the beginning of 2025. For them, this will involve conducting a gap analysis between the information they publish today and the new European requirements. The purpose of this exercise is to enable them to establish an action plan to close these gaps.
More than CSR reports, the European Union hopes to get concrete actions in favor of climate, biodiversity, and human rights from companies. Ultimately, the EU wants sustainability information to reach the same level as financial information and encourage companies to change their business model.
Author Audrey on 12 August 2022
Trade and Society : Services
Author Audrey on 08 March 2022
Trade and Society : Services