The Corporate Sustainability Reporting Directive (CSRD) at a glance
In 2024, a new directive will come into force – the Corporate Sustainability Reporting Directive (CSRD). Signed on 21 June 2022 and approved by the European Parliament in November 2022, the CSRD is replacing the NFRD (Non-Financial Reporting Directive) to establish new non-financial reporting standards and obligations.
What is non-financial reporting?
It is the monitoring of non-monetary information, including risks and impacts on a company's entire ecosystem, society, human beings, and the environment.
Why and for whom is this information reported?
To push all players on the financial markets to adopt a sustainable development approach and help distinguish companies excelling at *ESG. More than 50,000 companies in Europe are required to carry out non-financial reporting on their **CSR, i.e., their environmental, social, and societal implications, in addition to their financial balance sheet.
Some new developments in the CSRD:
Introduction of the concept of double materiality – Companies targeted by the NFRD had not been required to disclose the climate risks they were subjected to. With the CSRD, such companies must now publish the following information:
The impact of the company's activities on the climate and population;
How the concepts of sustainability (social, societal, and environmental) influence the company.
The principle of double materiality, the main concept introduced by the CSRD, consists of identifying both the company’s impacts on society and the impacts of ESG criteria on the company itself. This new system now extends to many companies with over 250 employees and all listed companies, including SMEs and large companies exceeding at least two of the following criteria:
€20 million balance sheet;
€40 million in net turnover.
In practical terms, what needs to be done?
Company assessments combine financial and non-financial risks;
Reports must include the strategy, the business model, and the resources mobilised to contribute to the ecological transition. The outcomes of these actions must also be monitored using predefined indicators;
Reports must be published according to precise standards, including a digital format for better use and sharing of this non-financial information;
Reports are audited and certified to verify the accuracy of the information and the inclusion of sustainability objectives.
What is the carbon assessment?
The carbon assessment is a technique for measuring carbon footprints at a given time. The term carbon assessment (bilan carbone) was first used in France in the 2000s and refers to the measurement of a company's carbon footprint – the sum of the various greenhouse gas (GHG) emissions related to its activity. A carbon footprint is a number equal to the sum of greenhouse gas emissions generated by a product, person, country, or company. Among the six greenhouse gases officially recognised by international agreements and therefore taken into account, the most well-known is obviously carbon dioxide or CO2, which concerns all companies.
The European Financial Reporting Advisory Group (EFRAG) has proposed a number of ESG criteria, including carbon indicators.
When should the company's non-financial reporting be carried out?
This reporting is based on activities from the previous financial year. For example, non-financial reporting submitted in 2025 should refer to the 2024 financial year.
The French government has set up the Impact platform to help companies evaluate their performance based on 45 environmental, social, or governance indicators.
Companies can also analyse their impact on the environment and draft their CSR strategy by following these steps:
Do their carbon assessment;
Talk to stakeholders (collect information from suppliers, search for subcontractors with a low-carbon approach);
Hire skilled third parties to handle the carbon assessment and the monitoring of ESG criteria and the CSR strategy.
Are there any sanctions for non-compliance with the CSRD?
Penalties for violating the CSRD will be specified by each Member State. The text states that the measures provided for must be “effective, proportionate, and dissuasive”.
Finally, even though the schedule of the CSRD may still change depending on the speed of the discussions, the schedule is as follows:
April 2021 – European Commission and Parliament adopt the CSRD proposal;
November 2022 – The CSRD is validated by the EU Council;
June 2023 – The Commission adopts an initial set of non-financial standards proposed by EFRAG;
January 2024 – the CSRD officially replaces the NFRD.
How do we approach the CSRD as asset managers or management companies?
Our SGSS clients involved in the investment fund industry (asset managers/management companies) are already affected by two major regulations on extra-financial reporting, which are the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy.
As EFAMA, the European Fund and Asset Management Association based in Brussels, pointed out, it is important to avoid duplication of what is already required in terms of financial and non-financial sustainability reporting under the SFDR. And investment funds must be clearly excluded from the CSRD.
In the meantime, and while standardisation that is more than just a convention for presenting information is desirable, the development of a precise and detailed definition of what we consider to be a sustainable company is necessary.
The CSRD significantly increases the amount of quantitative and qualitative data and information that companies must produce.
Does the CSRD replace the SFDR? Rather, the CSRD complements these other two regulations, which point in the same direction: the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy.
While the European Taxonomy provides a legal framework for the classification of sustainable activities, the CSRD regulates sustainability reporting and the SFDR defines information requirements for selling financial products.
It can be said that the CSRD and the SFDR are interconnected since the CSRD extends corporate reporting obligations to asset managers, while the SFDR extends the reporting obligations of asset managers to investors in their funds.
The CSRD's first wave of applicability will impact the 2025 extra-financial annual report, covering the 2024 financial year. Given the very broad scope of the CSRD and the number of new indicators requiring rigorous data collection, it is prudent to start a gap analysis between existing information, initiatives and publications on the one hand, and the new requirements imposed by the CSRD on the other, in anticipation of an audit of this report.
In concrete terms and in summary, companies must publish information on the environment, the management of their employees, and their approach to social issues, human rights, corruption and diversity in management bodies. The difficulty in this reporting remains the inclusion of this notion of double materiality.
For the first time, all this sustainability-related information will have to pass a systematic audit process before it can be published.
This is undoubtedly a major advance for asset managers: access to raw and audited information, and therefore first-hand information, because it is more accurate than what is currently available. On the other hand, what about accessibility to this data? Managers must be able to connect to companies' websites in order to access this extra-financial information. It remains to be seen how the regulator intends to address this question. In any case, this would justify a single point of entry or central repository, which would consolidate this data.
Jean-Pierre Gomez, Head of Regulatory & Public Affairs at Societe Generale Securities Services Luxembourg
*ESG: Environmental, Social and Governance criteria
**CSR: Corporate Social Responsibility