What is the Corporate Sustainability Reporting Directive (CSRD)?
The European Union (EU) published the CSRD (EU 2022/2464) in January of 2023 as part of a broader effort to mandate transparent reporting of environmental and societal impacts of the private sector. Disclosure requirements intend to help stakeholders evaluate a company's sustainability performance and understand impacts and risks. The CSRD will start in earnest in 2024, with the first reports to be published in 20251. CSRD’s predecessor is the Non-Financial Reporting Directive (NFRD), and it expands the scope of subjects required in reporting, as well as businesses impacted (it is estimated to be 50,000 companies)2. Furthermore, the CSRD requires third party auditing as part of a standalone report in a specific electronic format.
While the CSRD’s scope is more wide-ranging than previous regulations, it is designed to strongly align with the European Sustainability Reporting Standard (ESRS), International Sustainability Standards Board (ISSB), and Global Reporting Initiative (GRI) guidelines.
Like its antecedents, the CSRD uses the concept of double materiality (see Climate Tech Propel's blog post on the subject) to quantify impacts and risks of business activity up and down the value chain.
The CSRD will have an extraterritorial reach, as it will require non-EU companies with significant activities in the EU marketplace to disclose in the coming years as well. Therefore, all businesses with substantial interest in the EU market are also tied to these standards2.
Which entities will be impacted?
The CSRD will be rolled out in phases, with the requirement that all large, medium and small organizations (both those in the EU and third country organizations) that reach a certain threshold report (see Fig. 1)3. Small and medium enterprises are meant to publish their first sustainability statements in 2027 (from the 2026 financial year), but are able to postpone reporting until 2029 (from the 2028 financial year)3.
As for non compliance, member states in the EU are responsible for creating their own investigative and compliance entity, with penalties to include a public statement about the breach, an order to change conduct, and/or financial sanctions.
What about those organizations not yet mandated to report?
Presently, and into the future, ‘micro undertakings’ are not mandated to report.
Micro undertakings are organizations with no greater than 450,000€ balance sheet, 900,000€ net turnover, and no greater than 10 employees (unless they are listed in an EU-regulated marketplace). For these organizations, however, some form of disclosure is beneficial because transparency adds to a company’s credibility and good standing in relation to its stakeholders. Presently, the European Financial Reporting Advisory Group (EFRAG) is working on voluntary standards for this class of entities for the provision of information that might be requested by stakeholders. On top of public standing, we find value in climate techs determining relevant impacts and risks. Check out Climate Tech Propel's double materiality blog post to learn about other benefits we identify.
How Climate Tech Propel can help?
Your climate tech startup could be barreling towards non-compliance and its consequences. Furthermore, your organization could be missing valuable business opportunities by solely considering the CSRD as a reporting requirement. Our expertise and advisory oversight allows you to make sense of your compliance requirements, collect data, and use it to grow your competitive advantage. The move from disclosure to advantage requires strategic thinking, and that’s where Climate Tech Propel comes in. Get in touch with us to learn what else is possible.
About Climate Tech Propel
Climate Tech Propel provides integrated sustainability services for climate tech startups that want to grow and stand out. We are a team of experienced professionals in marketing, sales, public relations, policy, and due diligence, who act as long term partners to build sustainability assets that propel your solution forward.