The details deciphered: What is the CSRD?
The CSRD aims to address the growing demand for comprehensive ESG information by mandating companies to disclose nonfinancial data alongside their financial reports. By providing investors with additional insights into the sustainability performance of companies, the directive seeks to empower more informed investment decisions and foster long-term value creation.
The reporting goes beyond traditional financial metrics: All ESG aspects of the company’s operations must be documented. By doing so, companies can demonstrate their commitment to sustainability, promote transparency, and build greater trust with stakeholders.
Who is affected?
The implementation of the CSRD will unfold across three waves of application:
• Public interest entities with over 500 employees
• Both public and private large undertakings (more than 250 employees or 50 million in turnover or more than 25 million net asset – 2 out of 2 criteria)
• Listed SMEs (small and medium-sized enterprises)
The directive will be rolled out in phases, with the first wave of reporting expected in 2025 for the Financial Year 2024.
Thanks to the European Sustainability Reporting Standards (ESRS) published last year, companies have access to the guidelines on how to address directive requirements, including the set of information to report based on Double Materiality Assessment. An additional set of standard focusing on sector-specific disclosure obligations will be released during 2025.
A campaign beyond marketing
The CSRD emphasises that sustainability reporting is not merely a marketing or communications ploy, but a crucial step towards standardised ESG accounting and strategic decision. It is closely linked with the European Single Electronic Format (ESEF), which provides a framework for the electronic reporting of annual financial statements.
The directive impacts all staff on the company ladder: From IT to marketing, complying with these requirements depends on a hands-on approach from the entire organisation.
The CSRD emphasises that sustainability reporting is not merely a marketing or communications ploy, but a crucial step towards standardised ESG accounting and strategic decision.
Double materiality assessment
Companies subject to the CSRD are required to conduct a double materiality assessment, considering both the impact of their activities on sustainability factors and the financial risks and opportunities that sustainability factors can have on their business. This involves evaluating the entire value chain, from suppliers to customers, and disclosing relevant information in their reports.
Embracing the CSRD as a strategic opportunity
Even though the CSRD marks a significant shift in the reporting environment for EU companies, it also presents a great chance to enhance transparency, integrate ESG into core business strategies, better manage risks, and clearly define a sustainable business model.
The directive should be viewed as a strategic tool that can drive corporate sustainability forward by bringing business objectives with societal expectations and environmental requirements. By proactively embracing CSRD, companies can not only comply with regulatory standards but also establish themselves as leaders in sustainability, innovation, and responsible business practices.
A deep dive into preparedness
Understanding and adapting to CSRD is a major task. Even those companies that have previously been commended for their sustainability reporting may find that their current disclosure practices fall well short of the new requirements. It requests the full set of company resources and data to help achieve CSRD reporting. This does not only include collecting, analysing, and disclosing extensive data, spanning various timeframes and metrics, but will also require a new mindset. With hundreds of metrics, the volume and breadth of reporting requirements will expand several-fold. Few organisations are set up to manage and track these additional requirements across their entire enterprise. And the ones that will stand out will be those who take a pragmatic and future looking view with sound KIPs and methodologies to use CSRD reporting as an efficient tool.
Luxembourg ecosystem and beyond to be impacted
While the CSRD is due to be transposed into national law, the entire market – banks to commercial companies – needs to start gearing towards crafting a strategy. Attention should be given to the impact on companies’ operations. Whether they are in Luxembourg or elsewhere, unnecessary hurdles into the process must be avoided.
While the CSRD is due to be transposed into national law, the entire market – banks to commercial companies – needs to start gearing towards crafting a strategy.
How we can help
To help address these challenges, KPMG’s experts provide support and pragmatic assistance in implementing ESG frameworks, conducting audits, and ensuring compliance with reporting obligations.
The Corporate Sustainability Reporting Directive represents a significant step towards harmonising sustainability reporting standards across the EU and enhancing transparency in corporate disclosures. By providing investors and stakeholders with comprehensive ESG information, the directive aims to promote sustainable business practices and contribute to the transition towards a more resilient and responsible economy.