Practitioner's Guide to CSRD and ESRS
Michelle Horsfield
25 years: Sustainable Finance
In this video, Michelle Horsfield provides an overview of the Corporate Sustainability Reporting Directive (CSRD) and its use of the European Sustainability Reporting Standards (ESRS). Learn who needs to comply, when it comes into force, and what its objectives are.
In this video, Michelle Horsfield provides an overview of the Corporate Sustainability Reporting Directive (CSRD) and its use of the European Sustainability Reporting Standards (ESRS). Learn who needs to comply, when it comes into force, and what its objectives are.
Practitioner's Guide to CSRD and ESRS
9 mins 33 secs
Key learning objectives:
Understand the purpose and objectives of the CSRD
Outline the timelines for implementation and reporting
Identify which companies are subject to the CSRD and its reporting requirements
Understand the concept of materiality in the context of ESRS reporting
Overview:
The CSRD aims to enhance transparency and comparability of sustainability information for financial market participants. It is important for everyone to be aware of the scope of the directive, which companies are affected based on balance sheet totals, net turnover, and employee numbers. Michelle also outlines the phased implementation timeline, starting in 2024 for certain firms, and introduces the concept of materiality, which guides what information must be reported.
Summary
When does the CSRD come into force?
The implementation is phased. Starting 1 January 2024, companies previously regulated by the Non-Financial Reporting Directive (generally those with over 500 employees) must begin collecting information for 2025 reports. Other large companies start collecting data in 2025 for 2026 reports. Listed SMEs and other entities, like non-EU parent companies with EU subsidiaries, begin in 2026 for 2027 reports. All reporting must be in an electronic format, such as XHTML or ESEF.
What are the core objectives of the CSRD?
What is the Corporate Sustainability Reporting Directive (CSRD) and why is it important?
The CSRD is a new EU directive designed to standardise sustainability reporting, making it easier for investors and other financial market participants to assess and compare risks. It aims to provide consistent, downloadable information, similar to the International Financial Reporting Standards (IFRS), ensuring better transparency and informed decision-making.
Who is required to comply with the CSRD?
The directive primarily affects companies falling under the EU's previous non-financial reporting directive, but it extends to many others. Key criteria include a balance sheet total exceeding €25 million, a net turnover over €50 million, and an average of more than 250 employees. Listed SMEs and non-EU parent companies with EU subsidiaries are also included, making the "more than 250 employees" rule a useful indicator of scale.
When does the CSRD come into force?
The implementation is phased. Starting 1 January 2024, companies previously regulated by the Non-Financial Reporting Directive (generally those with over 500 employees) must begin collecting information for 2025 reports. Other large companies start collecting data in 2025 for 2026 reports. Listed SMEs and other entities, like non-EU parent companies with EU subsidiaries, begin in 2026 for 2027 reports. All reporting must be in an electronic format, such as XHTML or ESEF.
What are the core objectives of the CSRD?
The primary goal is disclosure – getting sustainability information into the public domain to help stakeholders make informed decisions. It focuses on reporting rather than setting performance targets, acknowledging that various parties need to understand a company's environmental and social impacts. While familiar to large listed companies and those reporting under the TCFD, it represents a significant step up for smaller and private firms.
What is the concept of materiality in CSRD and ESRS reporting?
Materiality is central to the CSRD. Companies only need to report on information that is deemed material to their business, meaning it significantly impacts their operations or stakeholders. Climate change and workforce information are considered material for all companies and are mandatory. The European Sustainability Reporting Standards (ESRS) provide guidance, including a helpful flowchart for determining materiality.
What are the European Sustainability Reporting Standards (ESRS)?
There are 12 ESRS, applicable across all sectors. Two are cross-cutting: one outlining general requirements and the other introducing the reporting framework. The rest cover environmental, social, and governance topics. Environmental standards include climate, pollution, water and marine resources, biodiversity, and resource use. Social standards cover the company's own workforce, workers in the value chain, affected communities, and consumers. Governance covers business conduct.
Michelle Horsfield
Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.
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