CSRD: the new European directives for sustainability reporting

Sustainability has become a central theme for companies and governments around the world. To ensure that businesses operate responsibly and transparently, the European Union has introduced the Corporate Sustainability Reporting Directive (CSRD). This regulation sets new standards for sustainability reporting, with an emphasis on transparency, comparability and corporate accountability.

What is CSRD Reporting?

CSRD Reporting is a reporting system introduced by the European Union to ensure greater transparency and accountability on companies' sustainability practices. Through common standards and precise obligations, the Directive aims to provide reliable information on the environmental, social and governance (ESG) impacts of enterprises, promoting a transition to a more sustainable economy.

The foundations of the Corporate Sustainability Reporting Directive (CSRD)

CSRD is a decisive step towards greater transparency and accountability of companies with respect to environmental, social and governance (ESG) impacts. The directive is part of the European Green Deal, which aims to make Europe the first climate-neutral continent by 2050.

This directive is not a simple update of the previous Non-Financial Reporting Directive (NFRD); it introduces mandatory reporting criteria, broadening the scope and including new types of companies, such as listed SMEs. The aim is to provide clear, comparable and reliable information to investors and stakeholders, thus facilitating a fair and sustainable transition.

Who is involved in CSRD?

One of the main novelties of CSRD is the extension of the scope of application. Not only large listed companies, but also a significant portion of small and medium-sized enterprises (SMEs) will be involved, significantly expanding the pool of companies required to report on sustainability. In particular:

• Large enterprises: those which meet at least two of the following criteria

1. Total assets exceeding 20 million euros;

   
   

2. Net revenues exceeding 40 million euros;

   
   

3. More than 250 employees.

• Listed SMEs: Starting in 2026, these companies will also have to begin complying, albeit with slightly simplified obligations.

  
  

• Non-European companies: If they operate in the European market with a net turnover of more than EUR 150 million and at least one significant subsidiary or branch in the EU, they will be required to comply.

Novità introdotte dalla CSRD

The CSRD introduces a number of key changes compared to the previous regulation. Among the main innovations:

Common standards and mandatory certification

Companies will need to adopt common reporting standards developed by the European Financial Reporting Advisory Group (EFRAG). These standards will ensure that information is comparable and relevant.

In addition, reporting will need to be audited by external auditors, adding a level of control and credibility to company statements.

Expanded reporting areas

Businesses will be asked to provide detailed information on three fundamental pillars of sustainability:

• Environmental impacts: Companies will be required to report data on greenhouse gas emissions (including Scope 1, 2, and, if applicable, Scope 3), energy and natural resource consumption, and measures taken to reduce the ecological footprint. This also includes initiatives for climate change adaptation and waste management.

  
  

• Social issues: Social reporting includes aspects such as the protection of human rights along the supply chain, policies to ensure safe and equitable working conditions, and initiatives to promote diversity and inclusion.

  
  

• Governance aspects: Companies must provide transparency about the composition and functioning of their governing bodies, including anti-corruption policies, risk management, and regulatory compliance. The focus will also be on measures to ensure responsible and stakeholder-oriented decision-making.
  

These areas aim to offer a holistic view of business activities, enabling stakeholders to assess companies' sustainability commitment and performance.

Digitalization of reporting

CSRD requires companies to adopt standardized digital formats for reporting, such as the XBRL (eXtensible Business Reporting Language) format, which allows for a uniform and accessible presentation of information. This approach facilitates automated analysis by stakeholders, including investors and regulators, and increases the transparency of ESG reporting.

Businesses must implement software platforms that can integrate data from various business functions, ensuring accuracy and compliance. Digitalization also enables real-time monitoring of sustainability performance, offering useful insights for improving business strategies. Furthermore, the adoption of digital tools helps reduce human error and simplifies audit processes, making ESG reporting a key element of corporate strategy.

CSRD deadlines

Compliance deadlines are differentiated by company type, responding to the need for a smooth transition. Below is a detailed overview:

• 2024: First reports for large companies already subject to the NFRD (reports for the 2023 financial year).

• 2025: obligation extended to large companies not previously covered.

• 2026: Inclusion of listed SMEs, with a possible exemption until 2028 for those who choose to delay the application.

How to adapt to CSRD

Assessing your current position

Companies must begin by analyzing their current status in relation to CSRD requirements. This phase, called gap analysis, allows them to identify gaps in data collection processes, information management systems, and internal expertise. For example, enterprises may find that tools for tracking ESG metrics are lacking or that the data currently collected is not sufficiently detailed. This evaluation serves as a basis for developing a focused action plan.

Create a dedicated team

The creation of an interdisciplinary team is critical to the success of the compliance project. The team should include experts in finance, sustainability, human resources, and IT, as well as area managers who can represent the specific needs of business departments. This group must set clear goals, monitor progress, and ensure that each department meets its deadlines. Team leadership is essential to maintain focus on the project and to foster collaboration between different functions. Small and medium-sized businesses could also be supported by intercompany teams, dedicated but shared between multiple companies in the sector, optimizing the necessary investments.

Adopt digital tools

Using advanced technologies is crucial for collecting, managing, and analyzing ESG data. Companies can implement specialized software that automates the reporting process, integrating data from different business functions. These tools can also provide predictive analytics, helping businesses identify areas for improvement and monitor progress towards sustainability goals. Furthermore, the adoption of digital standards, such as the XBRL format required by CSRD, ensures that information is easily accessible to stakeholders.

Training and awareness-raising

Staff training is essential to ensure that all employees, particularly those directly involved in ESG reporting, understand the requirements of CSRD and know how to comply with them. Companies can organize workshops, online training sessions, and mentoring programs to transfer specific skills. At the same time, it is important to create a sustainability-oriented corporate culture, involving all levels of the organization and clearly communicating the importance of compliance as a competitive advantage.

Collaborate with auditors

Interaction with external auditors early in the process is crucial to ensure that reporting meets regulatory requirements. Reviewers can provide an unbiased assessment of the reporting system and identify any gaps before the process is finalized. Additionally, working with external experts helps companies maintain a high level of credibility and obtain certifications that strengthen stakeholder trust. Partnership with auditors must include regular audits and reviews of the data collected.

Impacts on SMEs

SMEs face a rapidly changing environment with the introduction of CSRD. Even though obligations are simplified compared to large companies, these companies face several challenges. The need to develop specific in-house expertise for ESG data management and the implementation of digital tools represents a significant commitment in terms of financial and human resources. However, adapting to CSRD is not only a regulatory obligation, but a strategic opportunity. Improving corporate transparency and reputation can attract new investors sensitive to ESG criteria and open access to more sustainable financing markets. Furthermore, CSRD compliance enables SMEs to position themselves as reliable and competitive partners in global supply chains that are increasingly concerned with sustainability.

Differences between CSRD and other ESG regulations

The CSRD represents a departure from other ESG regulations due to its binding and detailed approach. Unlike voluntary standards such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), CSRD imposes clear regulatory requirements that apply to a wide range of companies, including listed SMEs. This obliges enterprises to comply with strict criteria for ESG data collection and analysis, making the European framework one of the most stringent globally. Furthermore, CSRD places particular emphasis on the comparability and verifiability of information, ensuring that the data provided is useful and reliable for stakeholders, from investors to regulators. This clearly distinguishes it from previous standards, which often left considerable room for interpretation. This makes the European framework one of the most stringent globally.

Benefits and challenges of CSRD

Adapting to CSRD offers multiple benefits. First, it helps improve corporate transparency and reputation, generating greater trust among stakeholders. Companies that comply with CSRD have an advantageous position in accessing financial markets, thanks to their enhanced credibility. Furthermore, implementing common standards improves ESG risk management, making data analysis and risk forecasting easier and more accurate.

Despite these advantages, significant challenges exist. Initial adjustment requires significant investments, especially to implement state-of-the-art data collection and analysis systems. Gathering comprehensive and accurate information from various business functions can be complex, especially for less structured companies. Finally, training staff in the required standards and equipping them with appropriate tools is a further commitment in terms of time and resources. However, these difficulties can be overcome with strategic planning and careful change management.

Conclusion

The Corporate Sustainability Reporting Directive marks a paradigm shift in corporate sustainability management and reporting. While it brings significant challenges, it also represents a unique opportunity for companies to demonstrate their commitment to responsible and sustainable growth. Adjusting in time is crucial in order not to lose competitiveness and to actively contribute to the transition to a more sustainable future.

The AR9 team is ready to support you every step of the way through the CSRD compliance process. We offer strategic advice and customized training programs to ensure your company meets all regulatory requirements and makes the most of the opportunities offered by sustainability. Contact us to find out how we can help you integrate ESG principles into your business strategy and turn them into concrete competitive advantages.