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The Corporate Sustainability Reporting Directive Countdown: Seven Questions

December 14, 2022

On 28 November, the European Union adopted the Corporate Sustainability Reporting Directive (hereafter: “CSRD”), succeeding the Non-Financial Reporting Directive (hereafter: “NFRD”) and ushering in the next era of sustainability reporting. Here are seven questions and responses to help your company prepare in the countdown to CSRD implementation.

1. What are the main objectives of the CSRD? 

The CSRD’s journey began in 2020, when the EU Commission launched a thorough revision process of the NFRD in order to notably:

  • Expand the number of companies that are subject to corporate sustainability reporting obligations; 
  • Extend the scope of reported information to include all three Environmental, Social, Governance, or ESG, factors; and 
  • Standardize the information to be reported to spur consistency and comparability of the reported information for investors.

2. Which companies must disclose under the CSRD?

Under the NFRD, only large companies of public interest were subject to the reporting obligation. 

The CSRD will ultimately apply to: 

  • Large EU companies of public interest with more than 500 employees (i.e. listed companies, banks, credit institutions, insurance companies, and other companies designated as an enterprise of public interest by the applicable national authorities);
  • All large EU legal entities, whether listed or unlisted, that meet at least two of the three following criteria: (i) more than 250 employees, (ii) more than EUR 40 million in net turnover and/or (iii) more EUR 20 million balance sheet total;
  • EU and non-EU companies (including small and medium-sized enterprises, “SMEs” -) listed on a EU regulated market. Micro enterprises – even listed ones – are not included in the scope of the CSRD; 
  • Non-EU companies non-listed on a EU regulated market (i) having at least one EU subsidiary/branch, and (ii)  having a net turnover of more than 150 million € within the EU[1].

The CSRD will provide a few exemptions to the above rules. One exemption applies to companies that are included in the annual report regarding the consolidated annual accounts of their parent companies. A second exemption applies to non-EU entities meeting the above-mentioned criteria if the EU Commission decides that they already comply with reporting obligations equivalent to those imposed by the CSRD in another jurisdiction. 

According to the new rules, it is estimated that upwards of 50,000 companies will be subject to the reporting obligations of the CSRD whereas less than 12,00 companies were bound by the NFRD. 

3. Which information must be reported?

The CSRD extends the scope of information companies must report, including: 

  • The business strategy, targets, and risks and opportunities related to sustainability matters (e.g.  environmental rights, social rights, human rights and governance factors). Companies must also communicate their timeframes for achieving their sustainability goals and must report on their progress in reaching these targets. This includes steps taken by the company to achieve climate neutrality by 2050 and limit global warming in line with the Paris Agreement targets.
  • The role of the board and management relating to sustainability matters (including incentive and remuneration schemes); and
  • The primary actual and potential adverse impacts on the ESG-factors connected to the activities of the company and its value chain. In addition, companies must report on the results from the implementation of the due diligence process throughout their value chain.

The CSRD integrates and builds upon the draft corporate sustainability due diligence directive by requiring companies under its scope to (i) integrate protection of human rights and the environment into their company policies and management systems, (ii) identify actual or potential adverse impacts to human rights and the environment, (iii) prevent and mitigate potential adverse impacts to human rights and the environment, and (iv) monitor the effectiveness of their due diligence process.

As under the NFRD, the CSRD requires companies to report on sustainability matters from a double materiality point of view, i.e., companies must report on (i) how ESG matters may affect the company and create financial risks (financial materiality) and (ii) the actual and potential adverse impacts of the company’s decisions and activities on consumers, civil society, employees from a ESG point of view  (impact materiality).

4. How will the quality and the reliability of the information reported be ensured?

Companies will be required to follow European Sustainability Reporting Standards (ESRS) when reporting information on sustainability matters. The European Financial Reporting Advisory Group (EFRAG) is mandated by the EU Commission to adopt diverse standards and approved its first set of cross-cutting and topical standards on November 15, 2022.  This first set encompasses the following topics: 

  • Environment: climate change, pollution, water and marine resources, biodiversity and ecosystems, as well as the resource use and the circular economy. 
  • Social: own workforce, workers in the value chain, affected communities, and consumers and end-users.
  • Governance: business conduct. 

The standards have been submitted to the EU Commission for adoption by June 2023. The EU Commission will consult the EU Member States and the EU institutions and bodies before adopting the final standards. 

A second set of SME-focused and sector-specific standards is expected to be adopted by EFRAG later this year, including agriculture, coal mining, mining, oil+gas (upstream and mid-to downstream), energy production, road transport, motor vehicle production, food/beverages, and textiles.

The information to be reported under the CSRD by companies will have to previously be audited/certified by an independent external auditor or certifier to ensure the quality and the reliability of the information. This independent auditor/certifier will verify that the sustainability information complies with the certification standards adopted by the EU. In the case of a non-EU company falling under the scope of the CSRD, the auditing/certification can be performed by an auditor/certifier based either in the EU or in a third country. The choice has been to opt for a progressive approach to provide for a transitional period to companies. This requirement will be a limited assurance during a first stage. The Commission announced that it will adopt standards for limited assurance by October 1st, 2026. Subsequently, the Commission will adopt further standards to provide for a higher “reasonable” assurance by October 1st, 2028. 

5. When will the CSRD come into force? 

The implementation of the CSRD, including the EU Commission adopted ESRS, will occur in different stages according to the category of companies concerned:  

  • From January 1st, 2024 for companies already subject to the NFRD (i.e. large entities of public interest with more than 500 employees);
  • From January 1st, 2025 for large companies not currently subject to the NFRD and non-EU companies listed on EU regulated markets;
  • From January 1st, 2026 for listed SMEs, as well as for small and non-complex credit institutions and captive insurance companies; and 
  • From January 1st, 2028 for non-EU and unlisted entities with a net turnover exceeding EUR 150 million in the EU and which have at least one large or listed EU subsidiary or an EU branch generating a net turnover exceeding EUR 40 million.

Notwithstanding the above, and taking into account the specificities of SMEs, the EU legislation has granted non-listed SMEs the possibility to opt-out during a transitional period until January 1st, 2028. 

6. What are the next steps for CSRD? 

The immediate next step is the forthcoming publication of the CSRD in the Official Journal of the EU. The CSRD will then enter into force 20 days later and Member States will have 18 months to integrate the CSRD in their respective national law. 

7. How can you prepare and how Crowell can help you? 

As the application of the CSRD approaches, we recommend companies, no matter their size, to take action and prepare for the implementation of required obligations, including: 

  • Educating senior management and boards of directors on the anticipated reporting requirements and related ESG considerations. Crowell offers customized education and training sessions, taking into consideration the size, structure, activities, and the sector of your company; 
  • Assessing how the scope of the CSRD might apply throughout your organization and supply chain and crafting your strategy. This may be more complex than it seems, especially in relation to non-EU subsidiaries. Information should also be gathered regarding other EU ESG regulations such as the corporate due diligence directive. Crowell can assist you to assess whether or not the companies of your group/throughout your supply chain (including non-EU subsidiaries) will be subject to the CSRD or other EU ESG regulations;
  • Comparing the CSRD with other reporting obligations and standards under other legal systems such as the UK and the US. Crowell has offices in the EU, the UK and the US and can help you to make this assessment and help you design a reporting strategy to fit your current and anticipated geographic footprint. 
  • Developing reporting and disclosure mechanisms. Crowell can help you to design such mechanisms, and assist you with the double materiality standard; and 
  • Evaluating your articles of association, internal policies, code of conduct, and other processes. Crowell can assist you to assess your current practice and provide you with recommendations to assist your organization in filling any gaps and in aligning with good practices.
  • Making your voice heard on current and future ESRS standards. Crowell can (i) provide your company with advice on the reporting requirements contained in the first set of ESRS submitted to the EU Commission in November and (ii) act as an intermediate and help you cast the voice of your company or your sector with the EU institutions regarding the shaping of the second set of ESRS. 
  • Identifying value creation opportunities for your company that are resulting from the CSRD and other EU ESG regulations. While there is significant focus on forthcoming risks and obligations, Crowell can also help your company’s senior leadership understand and capture positive opportunities that may result from the CSRD based on your current and forward-looking strategy.  

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Frederik Van Remoortel
Partner – Brussels
Phone: +
Sakine Yilmaz
Associate – Brussels
Phone: +
Andrew Blasi
C&M International Senior Director – Washington, D.C.
Phone: +1.202.624.2837

[1] Except in this specific case, the employees, turnover and balance sheet criteria are calculated on a global basis.