On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force as part of the European Union (EU)’s wider commitment towards the European Green Deal. The CSRD will be rolled out in stages and is set to come into full effect in the financial year 2028. Given the scope of the CSRD, most firms operating within the EU are expected to be impacted. To find out how your company may be impacted by the CSRD, please refer to the summary of the directive in the table on the left.
Affected companies will be required to publish a sustainability report alongside their management report that must be done in accordance with the European Sustainability Reporting Standards (ESRS). This includes information pertaining to the company’s impact on sustainability matters and information required to understand how these matters affect the company’s performance, position, and development. Do note that as of this moment of writing, CSRD is sector agnostic, which implies that all companies irrespective of industries are required to adhere to the CSRD and to the same reporting standards.
The burden of reporting is set to further increase with the Corporate Sustainability Due Diligence Directive (CSDDD) that is currently in the works.
The legislature was first proposed by the European Commission in Feb 2022 and seeks to bring legal certainty and an equal playing field for firms operating within the single market via an EU-level legislation. In the absence of the CSDDD, firms conducting businesses in more than one country in the EU are currently subjected to different legal frameworks covering the due diligence process.
The CSDDD was recently adopted by the European Parliament on the 1st June 2023. The adoption by the EP has set the stage for interinstitutional negotiation to begin. Firms operating within the EU are encouraged to take note of the CSDDD due to its proposed proximity and its complementary nature to the CSRD. Both directives serve to reinforce one another with the aim for CSDDD in fostering sustainable and responsible corporate behaviour and governance. This is achieved by having the focus of the CSDDD on the due diligence process of firms (e.g., adverse environmental impact, human rights impact, and chain of activities) while the CSRD focuses on the reporting aspect that arises from said process. The CSDDD will be similar in scope to the CSRD. This means that companies expecting to be affected by the CSRD will likely be subjected to the CSDDD as well. Affected companies are expected to bear the cost of establishing such due diligence practices and any additional cost that results from companies’ transition to adhere to the new rules.