Corporate Sustainability Reporting Directive (CSRD) - Löning

Introduction

In January 2024, the Corporate Sustainability Reporting Directive (CSRD) replaced the Non-Financial Reporting Directive (NFRD). Under CSRD, companies must report on environmental, social, human rights, and governance factors, with these reports subject to external audits.

The information must be submitted in a single electronic format, adhering to the “double materiality” principle, which requires reporting on both the effect of sustainability on the company and the company’s impact on people and the environment.

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The CSRD mandates detailed reporting on various aspects, including the roles of management and supervisory bodies in sustainability, the company’s business model and strategy, relevant policies, due diligence processes, principal risks and dependencies, sustainability targets and progress, and indicators for measuring these elements. Details of these aspects are found in the European Sustainability Reporting Standards (ESRS), a legally binding framework that enforces strict reporting structures to ensure comprehensive, standardized and comparable reports with no omissions. The ESRS provide the framework and methodology for reporting under the CSRD, and the requirements and obligations laid out in the directive.

The reporting process has already started, with the first companies (under the current scope of the CSRD), having to submit their CSRD-compliant reports by January 1, 2025, on their 2024 financial year.

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CSRD timeline

Scope of application

The scope of the first year of the CSRD incorporates the requirements of the NFRD and specifically mandates that listed companies previously subject to the NFRD must publish reports.

Under the scope of NFRD fell any EU company that met at least two of the following criteria—balance sheet total of EUR 20 million, net turnover of EUR 40 million, or an average of 500 employees. This also applies to public-interest entities.

Any EU company meeting at least two of the following criteria must comply with the CSRD: more than 250 employees, turnover exceeding €50 million, or a balance sheet over €25 million. Additionally, listed small and medium companies and non-EU companies generating over €150 million in EU revenues with at least one subsidiary or branch in the EU are also required to comply.

HREDD – the overlap of all three legislations

Even though the CSRD is a reporting framework, elements of a human rights and environmental due diligence are integrated at the core. By focusing on HREDD, synergies can be used to comply with requirements of all three legislations.

“Do no harm”: Assess human rights and environmental risks (negative impacts) along entire value chain (excluding downstream for the LkSG); engage with stakeholders; implement preventative measures and remediation, and report on developments.

“Do good”: Understand and assess positive social & environmental impacts along entire value chain incl. downstream (specific for the CSRD).

Read our blog post here to compare the CSRD and LkSG reporting requirements, and watch our webinar on connecting the CSDDD & CSRD.

graphic HREDD

Scope of obligations

To understand what needs to be considered for each assessment of potential impacts, risks and opportunities, the scope and requirements of the frameworks needs to be considered.

CSRD: What should be reported

The sustainabilty statement should take the same scope of reporting as the undertaking’s financial statements. However, this should be extended to include information on the material impacts, risks and opportunities connected with the undertaking through its own operations, and through its direct and indirect business relationships in the upstream and downstream value chain. The report should cover information on the company’s material impacts, risks and opportunities, in accordance with specific requirements in the ESRS

Reporting Structure

The ESRS provides a comprehensive reporting structure on sustainability matters to ensure companies report consistently across social, environmental, and governance topics.

Governance

Governance refers to “the processes, controls, and procedures used to monitor, manage, and oversee impacts, risks, and opportunities.” This includes:

Overarching topics like the roles and responsibilities of administrative, management, and supervisory bodies concerning sustainability matters (primarily within general disclosures).

Statements on due diligence, internal risk management systems, and internal controls.

Strategy and Business Model

Strategy and business model refer to “how an organisation's strategy and business model interact with its material impacts, risks, and opportunities, and how these are addressed.” This includes:

Key elements of the strategy related to sustainability, as well as a description of the business model and value chain.

Disclosing how stakeholders' interests and perspectives are considered.

Impacts, Risks, and Opportunities

Impacts, risks, and opportunities involve the process by which the organisation:

Identifies its material impacts, risks, and opportunities, and assesses their significance.

Manages material sustainability issues through policies, action plans, and initiatives.

Metrics and Targets

Metrics and targets cover the organisation's performance, including the targets set and the progress made towards achieving them.

These metrics and targets must be disclosed for each sustainability topic.

Double materiality assessment

For companies subject to the CSRD, conducting a double materiality assessment is mandatory. This process enables them to identify which sustainability issues are material and must be included in their reporting.

Double materiality has two dimensions: impact materiality and financial materiality. Impact materiality and financial materiality assessments are inter-related and interdependent. A topic is material either from the impact perspective, the financial perspective or both.

graphic infinity impact materiality and Financial materiality

Impact Materiality

A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the
environment over the short, medium- and long-term time horizons.
Impacts include those connected with the undertaking’s own operations and upstream and downstream value chain, including through its products and services, as well as through its business relationships.
When assessing actual negative impacts, materiality is based on the severity of the impact, while for potential negative impacts it is based on the severity and likelihood of the impact.
For positive impacts, materiality is based on the scale and scope of the impact for actual impacts; and the scale, scope and likelihood of the impact for potential impacts.

Financial Materiality

A sustainability matter is material from a financial perspective if it triggers or could reasonably be expected to trigger material financial effects on the undertaking, over the short, medium- or long-term.
The scope of financial materiality is an expansion of the scope of materiality used in the process of determining which information should be included in the undertaking’s
financial statements.
The materiality of risks and opportunities is assessed based on a combination of the likelihood of occurrence and the potential magnitude of the financial effects.

Quote from our expert

The CSRD's reporting requirements are more extensive and detailed than the LkSG, demanding targeted reporting with a focus on KPIs and a broader scope of ESG issues. Neglecting these new requirements risks significant damage to a company's reputation and stakeholder confidence.

Maxine Bichler

Reporting Expert

We recognise the strong link between strategy and reporting, especially in the evolving landscape of sustainability regulations. As companies navigate the Corporate Sustainability Reporting Directive (CSRD), aligning sustainability objectives with business strategies is essential for long-term success.

We are here to support companies in advancing their strategic approach to meet CSRD requirements, ensuring that reporting reflects a cohesive and forward-thinking strategy.

Our services include:

Double materiality assessment

ESRS gap assessment

Roadmap and implementing actions

Streamline strategies

Introduction

CSRD timeline

Scope of application

HREDD – the overlap of all three legislations

Scope of obligations

Reporting Structure

Double materiality assessment

Impact Materiality

Financial Materiality

Our services include:

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