CSRD directive

The CSRD directive: The future of sustainability reporting 

After a few years of waiting, on January 5th 2023 the Corporate Sustainability Reporting Directive – CSRD entered into force. The new rules will need to be implemented by all member states in 18 months, by transposing it into the national legislation. The application of the new directive will be phased, depending on the type of company, starting from 2025 for the information related to 2024. 

 CSRD directive replaces EU Directive 95/2014 on non-financial reporting. 

At the same time, this will modify the following normative acts:​ 

  • EU Directive 34/2013 on annual financial statements, consolidated financial statements and related reports of certain types of enterprises, also known as the Accounting Directive.​ 
  • EC Directive 109/2004 on the harmonization of transparency obligations regarding information on issuers whose securities are admitted to trading on a regulated market​ 
  • EC Directive 43/2006 on the legal audit of annual accounts and consolidated accounts 
  • Regulation (EU) no. 537/2014 (Audit Regulation). 


The need for this directive is closely related to several aspects, but the main one is related to climate change. After several analyzes carried out at the European level, especially those aimed at the implementation of the first directive on non-financial reporting, it was concluded that the creation of a new improved normative act along with other sustainability legislation could help to fulfill the objectives of the Paris Agreement and European Green Deal. Thus, it is expected that the directive will facilitate keeping global warming well below 2°C compared to pre-industrial levels or, in the most optimistic scenario to limit it to 1.5°C and the Europe to reach carbon neutrality until 2050.  

Based on the CSRD Directive, the companies will have to provide better data about the sustainability risks they are exposed to and their impact on people and the environment​, but also about the way there are managing it. 

 This normative act, together with the Due Diligence Directive (in the process of elaboration), will oblige companies to pay much closer attention to the negative impacts they have on the environment and on people, both through the activities they carry out and through the products or services they offer and through their business relationships. In this way, the need of certain categories of stakeholders – investors, banks, creditors, etc. – for sustainability information will be satisfied, allowing capital flows to be directed to those more responsible companies. For this reason, the directive further clarifies a poorly understood aspect of the non-financial reporting directive, namely the concept of double materiality: the impact of the company on the environment and people and the impact of sustainability on the company’s financial performance. 

CSRD directive

 In order to achieve this ambitious scope, the directive introduces several new elements. First, the application domain has expanded to include all large companies (over 250 employees, > net turnover: 40,000,000 euros, > total assets: 20,000,000 euros)​, all listed companies (except listed micro-companies) and the non-EU companies with branches or subsidiaries in the EU, above certain thresholds. 

 Another novelty element refers to the use of mandatory European Standards (ESRS) that are developed by EFRAG – an independent European body – and which will be adopted by the European Commission as delegated acts.​ And last but not least, the obligation to audit the sustainability information, initially with a limited assurance, later (from financial year 2028) with a reasonable assurance based on a specific audit standard (under development).​ 

Unlike the currently applicable legislation regarding non-financial reporting, in conformity with the new directive, sustainability information must be clearly identifiable in the administrators’ report, through a dedicated section within it, and not allowed to publish it in a separate sustainability report. This will imply the alignment of the two reports – financial and non-financial – which currently have different deadlines and the creation of an INTEGRATED REPORT that correlates the information required by IFRS standards with those required by the new ESRS standards. 

 Another new requirement is regarding the implementation actions and related financial and investment plans that must be included in the reporting demonstrating the company plan to reach the objective of climate neutrality for the year 2050 and of the Paris Agreement (1.5°C). Also, in the report will be included information about the company’s exposure to activities related to coal, oil and gas, and absolute greenhouse gas emission reduction targets for at least 2030 and 2050. 

 In addition to all these changes, the Directive also clarifies the process that the company must carry out to identify, track, prevent, mitigate, remedy and stop the main actual and potential negative effects related to its activities. 

 We don’t know now how effective this new directive will be, but one thing is certain. In order to respond to all the provisions of the CSRD directive, companies will need to follow a thorough preparation process that should be started as soon as possible and not be influenced by the fact that the application deadline will be only a few years away. The complexity of the requirements will imply significant human and financial resources, and in some cases important transformations of internal processes and procedures. 



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