What is CSRD, for whom, when and how ?

The Corporate Sustainability Reporting Directive (CSRD) is a European directive initiated by the European Commission in April 2021 and published in the Official Journal of the European Union on 16 December 2022.

This directive (EU - 2022/2464) will apply progressively from 1 January 2024.

It will be based on the European Sustainability Reporting Standards (ESRS) currently being developed by the European Financial Reporting Advisory Group (EFRAG), the first set of which shall be adopted by the European Commission in August 2023 and the second later in June 2024.

The ESRS will replace the 2014 Non-Financial Reporting Directive (NFRD), which currently provides a framework for European companies' non-financial performance statements (NFPs).

Its aim is to harmonise and standardise sustainability reporting by companies operating in the European Union and to strengthen the quality requirements for the environmental, social and governance (ESG) information published.

Until 2029, its scope will be gradually extended to a larger number of companies.

Companies will have to publish their ESG-related risks, opportunities and material impacts in a standardised format. This information will have to be verified by an independent third-party organisation or by a statutory auditor.

Who will be affected ?

The following companies will have to comply with the obligation to publish a sustainable development report in accordance with the Sustainable Development Directive :

• Large European companies, whether listed or not, meeting two of the following three criteria: more than 250 employees, more than €40 million in turnover and more than €20 million in balance sheet total.

• All companies listed on European regulated markets, with the exception of micro-enterprises (listed SMEs will benefit from lighter regulatory requirements).

• Non-European companies with a European subsidiary or branch and an EU turnover in excess of €150 million.

Particular attention must be paid to the transposition of the CSRD in France, as SASs are currently exempt from publishing an extra-financial performance statement. This situation could change in the future.

When does it come into force ?

The directive must be transposed into the various national laws of the Member States before the end of 2024.

In France, transposition is scheduled for the end of 2023. The directive will apply as follows :

1. Publication in 2025 in respect of the 2024 financial year for companies (European and non-European) listed on a European regulated market that meet the following two criteria :

• >500 employees

• >40 million euros in sales and/or >20 million euros in total balance sheet

2. Publication in 2026 in respect of the 2025 financial year for all other European companies and non-European companies listed on an EU regulated market that meet at least two of the following criteria :

• >250 employees

• > €40 million turnover

• >€20 million balance sheet total

3. Publication in 2027 for the 2026 financial year for SMEs (European and non-European) listed on a European regulated market. Micro-enterprises (companies that do not exceed two of the criteria: 10 employees, €250K balance sheet total, €700K turnover) are not subject to the obligation.

There will be a transitional period of 2 years, until 2028, during which SMEs may choose not to publish a sustainable development report, provided they explain the reasons for doing so in their annual management report.

4. Publication in 2029 in respect of the 2028 financial year for non-EU companies with EU sales in excess of €150m and having a subsidiary or branch based in the EU.

How does it work ?

CSRD reporting is based on the principle of double materiality. On the one hand, it involves assessing the impact of the company's activities on people and the environment, and on the other, the impact of ESG issues on the company's activities.

The report therefore covers the three environmental, social and governance themes of ESG and is structured around four reporting areas :

• Governance around sustainable development issues,

• Corporate strategy and business model integrating sustainable development,

• Identification of the impacts, risks and opportunities associated with sustainable development in the company's value chain,

• Definition of objectives, actions implemented and resources, measurements and key performance indicators.

There are 12 ESRS standards, 2 dealing with genral issues and 10 others covering environmental, social and governance issues. These ESRS standards will be the subject of a Delegated Act (a European act that does not require national transposition).

The 2 transversal standards cover the general principles and the general information to be provided.

The 10 thematic standards are broken down as follows :

• 5 relate to environmental issues: climate change (E1), pollution (E2), marine and aquatic resources (E3), biodiversity and ecosystems (E4), use of resources and circular economy (E5).

• 4 deal with social and societal issues: employees (remuneration, working conditions, equal treatment and respect for human rights), the workforce in the value chain (S2), affected communities (S3) and consumers and end users (S4).

• 1 other deals with governance: business conduct (management of relations with suppliers, prevention and detection of corruption).

The draft delegated act adopting the first set of ESRS standards was published on 9 June 2023 and should be adopted by the European Commission by 31 August 2023 at the latest.

These standards will apply to all companies regardless of their sector of activity.

The draft of 9 June 2023 also provides for a gradual entry into force, in addition to the timetable set out above :

• For companies with fewer than 750 employees, a one-year deferral concerning the information required by the Employees standard (S1) and the Climate Change standard (E1) concerning Scope 3 greenhouse gas emissions. Similarly, a two-year deferral is planned for the Biodiversity (E4), Labour in the Value Chain (S2), Affected Communities (S3) and Consumers and End Users (S4) standards.

• For all companies, a one-year postponement is envisaged for the information relating to the Employees standard (S1) concerning social protection, people with disabilities and work-life balance, as well as for the information relating to the expected financial impact concerning Pollution (E2), marine and aquatic resources (E3), Biodiversity (E4) and Use of resources and the circular economy (E5).

A second part concerning the mandatory sectoral standards applicable according to the sector of activity and the standards specific to SMEs listed on regulated markets will be the subject of a second delegated act scheduled for adoption by June 2024.

Standards for the mining, coal and quarrying and oil and gas sectors are expected to be published in autumn 2023, followed by those for road transport and agriculture.

The two simplified standards for SMEs should also be published by the end of 2023.

One of the aims of the CSRD is to bring sustainability reporting up to the same level as financial reporting. It is also planned to quantify financially the impacts, risks and opportunities on a company's results, activities, assets or investments.

The sustainable development report will be published in the financial report. Like the financial information, the sustainable development information will be digitised in ESEF (European Single Electronic Format) and made available on the ESAP (European Single Access Point) server.

To conclude, the CSRD has set itself the very ambitious goal of producing high-quality, multi-criteria and standardised information on sustainable development. It should enable a large number of companies to better clarify their ecological, societal and strategic choices and priorities, and to communicate in a qualitative manner with all their stakeholders. This will enable investors to better assess the financing required for their transition.

More than just a regulatory requirement, this new directive can be seen as a steering tool that should be fully exploited to help companies enter a virtuous circle of environmental, social, societal and economic performance.