CSRD and ESRS: What Changes for European Companies in Sustainability Management

In recent years, the growing focus on sustainability has prompted the European Union to introduce new regulations that require companies to report more transparently and comprehensively on environmental, social, and governance (ESG) matters. Among these new directives, the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) represent a turning point in sustainability management for European companies. These regulations, which replace and expand the previous Non-Financial Reporting Directive (NFRD), aim to standardize and improve the quality of ESG reporting, requiring many more companies to report their impacts.

What are CSRD and ESRS?

The CSRD (Corporate Sustainability Reporting Directive) is a directive introduced by the European Union in 2021, with the aim of improving the transparency and reliability of ESG reporting by companies. It requires companies to provide detailed information on their environmental, social and governance performance, thus contributing to the transition to a sustainable economy.

To support the CSRD, the European Sustainability Reporting Standards (ESRS) were created, which establish standardized criteria for ESG reporting, providing companies with clear guidelines on what and how they must report. ESRS are designed to be in line with European climate goals and other international regulations such as the Global Reporting Initiative (GRI) and the United Nations Sustainable Development Goals (SDGs).

Impacts for European Companies

With the introduction of the CSRD, the regulatory framework for sustainability reporting has radically changed. In particular, the scope is significantly expanded compared to the previous NFRD, including a much larger number of companies. By 2024, all large companies and, subsequently, many small and medium-sized companies listed on European financial markets will be required to comply with the CSRD and follow the ESRS standards.

Here are some of the main changes and their impacts on European companies:

Scope Extension: While the NFRD applied to around 11,000 companies across Europe, the CSRD will extend the ESG reporting obligation to around 50,000 companies. This means that many SMEs and other organisations that were not previously required to submit sustainability reports will also have to adapt.

Standardization and Comparability: ESRS offers a unified and detailed framework for ESG reporting. Companies must not only provide accurate information on topics such as CO₂ emissions, resource management, and respect for human rights, but they must do so by following strict standards that ensure comparability between companies in different industries.

Dual Approach to Materiality: The CSRD introduces the concept of “double materiality”, which requires companies to assess both the impact of their activities on society and the environment (external materiality), and the impact that environmental and social issues may have on their business (internal materiality). This approach provides a more comprehensive view of sustainability risks and opportunities.

Mandatory External Verification: Another important innovation introduced by the CSRD is the obligation to submit the sustainability report to an independent external verification, similar to what is already done for financial statements. This step aims to ensure the accuracy and reliability of the ESG information reported.

Integration with Corporate Strategy: CSRD pushes companies to integrate sustainability within their overall strategy, rather than treating it as a separate element. Companies will have to demonstrate how environmental and social issues are an integral part of their strategic decisions and long-term objectives.

Challenges and Opportunities

The adoption of CSRD and ESRS is a significant challenge for many companies, especially those that have not yet developed structured ESG reporting systems. Data collection, the adoption of new monitoring processes and the obligation to comply with European standards will require investment in new skills and technologies.

However, these regulations also offer great opportunities. Companies that adapt quickly to the CSRD and ESRS will be better positioned to attract sustainability-sensitive investors, improve their reputation in the market and anticipate any risks related to ESG issues.