8 questions and answers about the CSRD (Corporate Sustainability Reporting Directive) after the Omnibus Package

The European Union published a new regulation on December 2022, requiring companies to regularly report on the impact of their activities on people and the environment. Here, we provide answers to its key aspects:

The CSRD (Corporate Sustainability Reporting Directive) is the Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022., amending Regulation (EU) 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU.

What is its objective?

To bring sustainability reporting in line with financial reporting, in response to the exponential increase in demand for sustainability information that has occurred in recent years (especially from the investment industry), allowing access to reliable and comparable data.

What changes does the CSRD bring?

These are the main changes it introduces:

1. It amends Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) 537/2014, as regards corporate sustainability reporting.
2. It introduces more detailed obligations on the environmental, human rights and social impacts of companies, based on common criteria in line with EU climate objectives.
3. It represents a significant step towards the establishment of global sustainability standards.
4. Digital access to sustainability information is ensured.
5. To ensure that companies provide reliable information to the market and that investors have comparable data, companies will be subject to independent audits and certification processes.

Which companies will have to comply with this legislation (scope of application)?

The approval of the EU's Omnibus package significantly reduces the scope of the CSRD: it will only apply to companies with more than 1,000 employees and either a turnover exceeding 50 million euros or a balance sheet total above 25 million euros.

How does the CSRD affect large companies?

This new rule on corporate reporting on sustainability will force large companies to report regularly on the impact of their activities on the environment, human rights and the social sphere.

It aims to end the greenwashing of some companies, strengthen the social market economy in the EU and lay the groundwork for global sustainability standards.

In addition, this new directive will eventually bring sustainability reporting in line with financial reporting, giving the public access to reliable and comparable data.

When did the CSRD come into force?

The Council approved the text on 28th November, and it came into force on 5th January 2023. With the approval of the EU's Omnibus package, the entry into force of reporting requirements for large companies that have not yet started implementing the CSRD and for listed SMEs is postponed by two years, allowing time for co-legislators to reach an agreement on the proposed changes.

How to ensure that companies provide reliable information?

They will be subject to independent audits and certification processes. In addition, digital access to sustainability information is guaranteed.

What are the ESRS or NEIS?

The ESRS (European Sustainability Reporting Standards) are a set of standards developed under the Corporate Sustainability Reporting Directive (CSRD).

Created by the European Financial Reporting Advisory Group (EFRAG), these standards define the information that companies must disclose regarding their impacts in environmental, social, and governance (ESG) areas. They cover dimensions such as climate change, circular economy, and governance standards.

Their aim is to ensure transparency, comparability, and relevance in sustainability reporting, thus facilitating informed decision-making by investors and other stakeholders.

What does double materiality in the CSRD entail?

Double materiality in the context of the CSRD means that companies must analyse and report information from two key perspectives:

Financial Materiality: This focuses on how environmental, social, and governance (ESG) factors can impact the company’s financial situation, economic performance, and long-term viability. In other words, it evaluates the risks and opportunities arising from sustainability issues that can directly affect the value and profitability of the business.

Impact Materiality (or Environmental/Social): This examines how the company’s activities affect the external environment, specifically society and the planet. This approach requires companies to assess and disclose the impact of their operations, products, and services on aspects such as climate change, biodiversity, public health, and social cohesion, among others.

By adopting this double materiality approach, the CSRD aims to provide a comprehensive and balanced view: on one hand, how sustainability risks and opportunities affect the company, and on the other, how the company’s actions impact the world around it. This allows investors, regulators, and other stakeholders to access more complete and relevant information to make informed decisions.

The CSRD Made Easy

‍At TEIMAS, we aim to help companies understand their new obligations in response to the so-called "regulatory tsunami" from the EU. That's why we've organised a series of workshops to explain key regulations on sustainability and the circular economy. Explore all the videos of the Surfing the Tsunami of Sustainability Compliance series here.