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CSRD and ESRS: New requirements for sustainability reporting
Unsplash/Matthias Marx

CSRD and ESRS: New requirements for sustainability reporting

by Editorial Office

The new EU Corporate Sustainability Reporting Directive (CSRD) obliges significantly more companies to publish a report on their sustainability efforts. In order to standardize the content and make it comparable, the reports are to be prepared according to binding standards in the future. But who is affected by the new CSR directive and what type of information is required? Our latest article on the blog provides an overview of when the CSRD applies, what the changes are, and which companies must publish a report.

CSRD and ESRS: Standardized reports on sustainability

Corporate Social Responsibility (CSR) reporting is a regulation that requires companies above a certain size to report on non-financial aspects such as social, environmental or employee issues. This also includes respect for human rights, diversity and the fight against corruption and bribery. Whereas CSR reporting was previously governed by the EU’s Non-Financial Reporting Directive (NFRD), this is now undergoing a fundamental update with the new CSR Directive (Corporate Sustainability Responsibility Directive = CSRD). The CSRD was published in the Official Journal of the European Union on December 16, 2022, and is significantly altered in both quality and quantity compared to the EU NFRD. The goal: The adopted changes are intended to further the transition to a sustainable and competitive economy in line with the European Green Deal and to increase the transparency of sustainable aspects. To this end, a company’s reporting on sustainability is to stronger resemble a traditional financial reporting and must in future be reported as a separate annex to the management report.

While there was previously no rigid format for sustainability reporting, this is changing with the new CSRD: In the future, the European Sustainabilty Reporting Standards (ESRS) will be mandatory for all reporting companies. They are defined by EFRAG (European Financial Reporting Advisory Group) and regulate what must be stated and in what format. The standardized reports are also intended to benefit investors, consumers and shareholders by enabling them to better compare information from different companies. Another new feature is the verification requirement: While some companies already voluntarily had their reports verified on compliance issues in previous years, the introduction of the new CSR directive under ESRS will make it mandatory to have the report verified by an external institution with regard to compliance with standards and the accuracy of the data. The verification statement is published together with the sustainability report.

CSRD and EU-NFRD: These are the differences:

  • Significantly more companies are affected than in the past.
  • The report places increased demands on the quality and comparability of non-financial information.
  • The sustainability report is now a mandatory part of a company’s management report and may no longer be submitted separately.
  • In the CSRD, there is a new understanding of materiality as well as an anchoring of dual materiality.
  • The report should include both sustainability targets and KPIs.
  • Auditing by an independent, external body is now mandatory.
  • The sustainability report must be submitted in electronic form and with appropriate tagging of the content.
  • Management bears responsibility: The balance sheet oath is to be extended to the sustainability report in the future.

However, the new CSR Directive cannot be viewed in isolation, as the reporting obligation correlates with other regulatory measures that are also intended to drive the transition to a sustainable economy. Sustainable Finance, for example, is intended to create the basis for a sustainable EU-wide financial system: Here, capital market-oriented companies must disclose information on the share of sustainable activities in sales, assets and investments. The German Supply Chain Act, which has been in force since January, also obliges companies to comply with extensive due diligence obligations towards people and the environment in their value chain. It is therefore becoming increasingly important for stakeholders to use digitization strategies to increase transparency in work processes and enable the most seamless data exchange possible with supply chain partners. This enables them to check whether their suppliers and subcontractors comply with the same ethical and sustainable standards as they do.

What, who, when: Information on the new CSR Directive

1. Required content: According to the CSRD, compared to the NFRD, the sustainability report is to go into much more depth in the future. The new directive requires companies to provide information on the business model and the strategic orientation of the company, also taking into account stakeholder interests. In addition, the report is to include sustainability opportunities and risks, the specification of performance data (KPI), an analysis and evaluation of the data, and the recording of new operational and possibly strategic goals. Last but not least, it shall include information on the value chain and set out the role of management in managing sustainability objectives. This also includes a description of due diligence processes and measures to avert negative impacts along the supply chain. ESG criteria such as resource consumption, CO2 emissions, energy use or efforts towards equality play a decisive role in this context. The aim of the report is to make facts and progress made by the company in the area of sustainability clearly visible.

2. Affected companies: In the future, an increasing number of companies will gradually fall under the new CSR reporting obligation. Thus, it is advisable to deal with the contents and requirements at an early stage. So far, around 500 companies in Germany have been affected by the NFRD. Now the number is set to increase thirtyfold to around 15,000. All those who were already obliged to prepare a CSR report must continue to do so. All EU-regulated companies, as well as large companies that are not capital market-oriented and meet two of the following criteria, will now also be required to submit a CSR report:

  • They have more than 250 employees.
  • The balance sheet total amounts to more than 20 million euros.
  • Net sales exceed 40 million euros.

Capital market-oriented SMEs are also no longer exempt from the new CSRD if two of the following criteria apply:

  • They have more than ten employees.
  • The balance sheet total amounts to more than 350,000 euros.
  • Net sales exceed 700,000 euros.

In addition, non-EU companies must also submit a sustainability report if at least one branch or subsidiary is located in the EU and sales in the EU exceed 150 million euros.

3. Implementation deadlines: The introduction of submission deadlines runs in parallel with the gradual expansion of companies obliged to report:

  • 2024: Companies that are already required to submit a sustainability report must comply with the new guidelines for the first time for the 2024 financial year. Reporting for 2024 will then take place in 2025.
  • 2025: Companies that now fall under the reporting obligation due to their number of employees, balance sheet total and/or net sales total must prepare a report for the first time for 2025, with the deadline being 2026.
  • 2026: Affected listed SMEs must prepare a report in accordance with the new CSR Directive for the 2026 financial year, with a deadline of 2027. However, there is a transition period with the option to postpone initial application by two years (“opt-out”). EFRAG is currently working on reporting standards that will apply specifically to SMEs.
  • 2028: Affected non-EU companies are required to publish a sustainability report in accordance with ESRS for fiscal year 2028, deadline is 2029.

In addition, there is to be a transition period until 2028 for indirectly affected companies that are part of the supply chain of obligated companies. The latter will need to submit all required information of the entire value chain and, if applicable, justify why some data is not available and what efforts are being made to supplement it. To avoid time pressure, indirectly affected companies should be prepared to potentially be obliged to provide the relevant information on their sustainability efforts earlier.

Conclusion: CRSD – Transparency along the supply chain

With the new CSRD, as part of their supply chain management, companies must demonstrate how they ensure that ethical and sustainable standards are met along the value chain. Once again, it’s very much about transparency, and this applies to all parties involved: Even SMEs that have not been affected to date will be increasingly asked for sustainability-related data in the future – for example, by banks that increasingly need to pay attention to the aspect of sustainability when granting loans or by partner companies that need a precise overview of their own supply chain. It is therefore worthwhile for everyone to raise awareness of sustainability issues at an early stage and to position themselves by providing the relevant information.


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