CSRD is the EU directive which requires businesses to disclose on an annual basis information about sustainability related topics in relation to their business model. The directive is designed to give stakeholders in the business information about the impacts, risks and opportunities and how the businesses plans to adapt its business model to improve. The requirements include a transition plan, aligned to the Paris climate agreement, demonstrating how the business will build resilience to changes in the market as a consequence of climate change. It is an expansive directive which is already challenging many businesses in the first wave of adoption. We’ve brought together our experience in this CSRD FAQ from working with some of the first companies to adopt CSRD and we will continue to update it as the directive is more widely adopted. You can read more about how we approach helping businesses to adopt and integrate CSRD in our series of articles.
FAQ's
Policy
What is CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is an EU directive which was adopted by the EU in 2023. Aligned to the EU Green Deal, CSRD is intended to provide investors and other stakeholders sufficient information about the impacts, risks and opportunities associated with an organisation’s business model.
What are the objectives of CSRD?
The primary policy objective of CSRD is to provide investors and other stakeholders sufficient information about the impacts, risks and opportunities associated with an organisation’s business model. In practical terms, it also includes objectives to mature sustainability reporting to a similar level as financial reporting, to provide standards to allow for comparability between organisations, to include audit assurance and to ensure sustainability is governed effectively across the organisation.
Which companies are in scope for CSRD?
There are an estimated 50,000 businesses that are in scope for CSRD with the first group to report being companies already reporting under the NRFD who will begin reporting their 2024 data in their 2025 annual report. Large companies with over 250 employees and EU 40 million turnover or EU 20 million in assets will begin reporting in their 2026 annual report using 2025 data. Next, listed SME’s can decide to begin to prepare to voluntarily report, with the option to delay reporting until 2029 using 2028 data. What is a listed SME? These are EU and Non EU small to medium sized enterprises that are listed on a EU regulated market. Micro-entities are not subjected to the CSRD.
How does CSRD fit into the the wider context of EU Legislation?
The EU created the European Green Deal as a package of policies designed to stimulate a green transition and create a fairer and more prosperous society. Under this banner, CSRD has been developed to play a role in guiding businesses to become more resilient and contribute to the broader EU objectives. Further regulation in flight from the EU, such as ESPR and CSDDD, will focus on requiring businesses to develop more sustainable products, and to ensure their working practices are managed better to prevent negative impacts. The impacts from these regulations will surface in the information provided through CSRD, allowing stakeholders to have greater transparency about the performance of businesses in the green transtion.
Is CSRD just about creating an annual report?
No. CSRD is intended to increase the governance and management of environmental and social matters within organisations operating inside the EU. In real terms, this means businesses are expected to integrate sustainability into their operating model. CSRD is focused on reporting, but it is one of a number of instruments the EU is developing to achieve the overall objective of making businesses which operate within the bloc contribute to a more sustainable economy.
Double Materiality
What is Double Materiality?
CSRD requires an ‘inside-out, outside-in’ perspective when judging which topics are material to an organisation. This means that the organisation needs to assess the factors which are potential financial impacts, risks or opportunities on its business model from outside sources, such as climate change, and assess the impacts created from the actions of the business on those outside of its business, such as the environment and society.
What is a Double Materiality assessment?
The Double Materiality Assessment is an exercise undertaken across the business to understand the full value chain, the sustainability topics to be considered at each stage and the stakeholders who must be engaged, in order to comprehensively assess the Impacts, Risks and Opportunities.
ESRS Standards
What is ESRS?
The European Sustainable Reporting standards (ESRS) are the standards within CSRD which have been developed by The European Financial Reporting Advisory Group(EFRAG). In line with the CSRD, these common standards will increase the consistency, comparability and completeness of sustainability reporting across a businesses entire value chain.
What does CSRD mean by material topics?
These are sustainability-related topics and areas that are deemed relevant or related to the business model and its value chain and therefore need to be reported on within CSRD. The standards within the directive, ESRS, break down environmental, social and governance into topics, sub-topics and sub-sub-topics. For example, under Environmental standards, Biodiversity and Ecosystems is a topic, this is disaggregated into four sub-topics, one of which is “Direct impact drivers of biodiversity loss” and this is further disaggregated to five sub-sub-topics which includes drivers such as “Pollution”.
Interoperability
How does CSRD relate to other sustainability disclosure requirements?
The standards embedded within the directive, ESRS, have been designed by an organisation within the EU called EFRAG. They have worked with other standard setters, such as the ISSB and GRI, to ensure interoperability between the standards. That means, if an organisation reports against CSRD, they are deemed to satisfy other disclosure requirements. In real terms this means you only need to generate a single report if you align your disclosure to CSRD.
What is the difference between CSRD and NFRD?
The NFRD was originally introduced in 2014 and aimed to provide additional non financial information for stakeholders and investors to understand the organisations ability to both create value and mitigate risks. It also aimed to encourage and monitor social responsibility. In comparison to the NFRD, the CSRD has a wider scope with 50,000 businesses being subjected to the directive compared to the 11,000 in scope for the NFRD. Whilst the NFRD included key topics of human rights, social responsibility and environmental protection, the CSRD requires information from across each value chain stage. The 12 European Sustainable Reporting Standards will allow for an in-depth view across all business activities.
Approach
Where should companies report?
The information required to comply with CSRD is expected to be published by the company as part of the integrated annual report.
Where do I start on CSRD?
There is a lot of work to do to get any organisation into a position where they are ready to report against the directive. You can read a full guide on how we approach CSRD in our series of articles.
There are a few things which we advocate are needed to guide an organisation in the right direction to start to integrate CSRD into their model:
- Ownership: It is important to identify early who is empowered to own and drive the integration of CSRD throughout the business. The executive team needs to agree and support the owner so they can deliver what’s required in terms of business wide change.
- Map the business and its stakeholders: At the heart of CSRD is the assumption that you can articulate your business model and the stakeholders who are involved up and down your value chain. It’s surprising how few businesses can do this and without it, CSRD is an even harder task to approach. Documenting your business model, the value chain you operate in and stakeholder map is fundamental.
- Assess: Double Materiality Assessments are designed to help you identify and prioritise material topics to your business. This is one of the first things to do, but it’s a considerable task. Ideally, you engage a broad range of stakeholders to understand their perspectives and from this, determine which topics you ought to report on. Once this is complete, a gap analysis is required.
- Gap Analysis: With material topics identified, it’s time to do a stock take of what information you have and what gaps you need therefore need to fill. Using ESRS as a guide provides the structure required to assess what strategy, policies, processes and information is in place across the business and how consumable, accurate and consistent it is. This provides a basis for a workplan to reach a compliant position on CSRD.
- Implementation Program: Now it’s time for the work to begin. The level of operational integration of sustainability related information across the whole business needs a dedicated programme of work to align the business. This is likely to focus on implementing policies, processes and information systems, to bring the management of sustainability up to similar levels of focus and fidelity as financial management is given across the business.
We’ve worked with many of the first wave of businesses who are adopting CSRD and have gained a huge amount of experience in what it takes to implement CSRD successfully. Contact us if you need help with your integration of CSRD, our comprehensive program takes you from initial assessment through to integration of CSRD into your operating model.
Where can I go for help on CSRD?
There are a growing number of places where authoritative guidance can be found related to CSRD. EFRAG, the EU body responsible for developing the standards have developed implementation guidance for double materiality, value chains and data points to help organisations to interpret the directive consistently. EFRAG are also operating a public ESRS Q&A platform where specific questions can be posed to be addressed by subject matter experts from EFRAG. If you need help and support in implementing CSRD in your organisation, our CSRD experts from Jordisk can give you everything you need to integrate CSRD into your business. We specialise in CSRD and have been recognised by our existing clients as cutting through the noise of CSRD and approaching it with a pragmatic and comprehensice capability.
Updates
This list of CSRD FAQ’s is frequently updated. As the directive comes into force and experience grows, we will continue to answer questions we are coming across in the work we do with our clients. If you have any questions you’d like us to answer, drop us a mail to hello@jordisk.com and we will add them to the list.
