CSRD: What impact on businesses?

What impact will it have on businesses?

Out with the NFRD, and in with the CSRD, the new directive on sustainability information reporting by businesses. A change of name and a clear increase in ambition for this package of measures, which aims to complement the framework already established by Europe as part of its action plan for a sustainable economy. This framework already includes the green taxonomy and the SFRD regulation concerning ESG reporting by financial actors.

The primary goal of this Green Deal is to truly involve businesses in this new sustainable finance framework. This is because, without reliable, relevant, and harmonized information from companies, it will be impossible to meet market demands and the imperative of directing capital flows toward activities that are most committed to the sustainable transformation of our society.

Compared to the NFRD directive, the CSRD goes further: it seeks to strengthen the existing framework, standardize publications at the European level, and simplify the reporting process. This is to provide an approach that meets the information needs of all stakeholders, including investors, civil society, etc., and ensures the reliability and comparability of the information provided.

It will mean, in particular, a higher level of demand for sustainability reporting and aims to address current deficits: lack of reliability, comparability, data assurance; absence of essential elements or, conversely, the communication of superfluous information; lack of clarity in the presentation of information, sometimes being unclear and difficult to locate.

Beyond monitoring performance, the CSRD brings about a profound transformation of the exercise, moving from a mere declaration to a demonstration of sustainability performance.

The CSRD: Nearly 50,000 companies directly affected, almost five times more than before.

EU requirements are getting stricter: the obligations now extend to companies with over 250 employees (previously 500), and they are also expanded to all publicly listed companies in the European market. While the NFRD affected around 11,000 companies, the project now targets nearly 50,000 entities.

There is a specific framework for SMEs: publicly listed SMEs have three years to comply, and privately held SMEs are strongly encouraged to anticipate and engage in the process. European subsidiaries of non-European companies and subsidiary companies of larger groups are also eligible.

Companies operating as SAS or SARL, which were previously exempt from the DPEF exercise in France, will now be eligible (unless otherwise provided according to the transposition into French law of the CSRD, expected on 8/12/2023).

Let’s not forget all the players in the economic chain, including suppliers and subcontractors, both within and outside the EU, who will indirectly be involved through the specifications of their main clients.

A reinforced level of assurance

All large companies will now be required to use reporting standards and have their data audited by independent third parties. This is a challenge, given that until now, only 20% of companies have been applying standards, and only 30% are planning to audit their data!

The required verification must cover the process of collecting or calculating information, its alignment with the sustainability objectives of the company, the relevance of the selected KPIs, and their time horizon. The ultimate goal is to transition from a moderate level of assurance to a reasonable level of assurance and align non-financial reporting requirements with those of financial reporting.

The main novelty of this directive project: the development of European standards, the ESRS.

The publication of these standards represents a significant advancement in sustainability reporting. Until now, companies had various reporting frameworks such as GRI, IIRC, SASB, TCFD, CDP, and more. The multiplicity of these international frameworks and their voluntary nature did not meet the expectations of companies and other stakeholders, particularly investors.

With the CSRD directive, the first European standards are being published, incorporating existing frameworks and ensuring their interoperability with other ongoing standardization initiatives, including those outside of Europe, such as IFRS or GRI.

EFRAG (the European Advisory Financial Reporting Group) leads these efforts and has the mission of fueling discussions and developing this approach to “relevant and dynamic standardization of European sustainability reporting.”

A foundational set of 12 standards, the ESRS (including two cross-cutting standards and 10 thematic standards on environmental, social, and governance aspects), was adopted by the European Commission on July 31, 2023, through a delegated act. Their implementation will be the subject of several guidance documents published by EFRAG by the end of 2023. A second series of sectoral standards is expected for 2024 or 2025, covering more than forty activities. Finally, ‘proportionate’ standards will be established for eligible SMEs.

It is planned to review these standards every three years to incorporate relevant developments in international standards.

The Commission validates the principle of double materiality.

This point is essential and will be structuring for the entire exercise.  Double materiality will constitute the cornerstone of the CSRD, hence the importance to give to its achievement for a reliable and relevant implementation.

The materiality analysis will form the foundation of the company’s CSR strategy and commitments. It will directly impact the information to be communicated to comply with the CSRD. For this reason, it will be closely scrutinized by the independent third-party verifiers (OTI) with a high level of scrutiny.

In Europe, the concept of dual materiality dates back to the publication of the European Accounting Directive (2013/34/EU), which was transposed into the French DPEF. Dual materiality combines two types of materiality: financial materiality, which corresponds to the “Outside-In” perspective, and impact materiality, which takes into account the “Inside-Out” perspective. Financial materiality (also known as simple materiality) only considers the positive (opportunities) and negative (risks) impacts generated by the economic, social, and natural environment on the company’s development, performance, and results. Impact materiality (also known as socio-environmental materiality) considers the positive or negative impacts of the company on its economic, social, and natural environment.

Under the CSRD, companies must report on how sustainability issues such as climate change affect their activities on the one hand, and how these same activities can impact the environment and society around them on the other hand.

The dual materiality analysis requires companies to make a significant qualitative leap, especially when considering current practices. Existing matrices lack robustness, and less than a third of SBF 120 companies include external stakeholders in their materiality analysis.

An expanded and more regulated content

The content required by the CSRD expands and becomes more enriched. In addition to the description of the business model and risk factors, as required by the DPEF, companies are expected to report on their resilience strategy to address environmental and climate changes and their transition strategy to achieve carbon neutrality.

In line with the taxonomy and its six sustainability objectives, a detailed list of the company’s major negative impacts must be described. These impact mappings should be based on both qualitative and quantitative information, prospective and retrospective data, and cover all time horizons, including short, medium, and long-term, as relevant.

Companies will need to rely on both qualitative and quantitative information, prospective and retrospective, and covering all time horizons – short, medium, and long term – depending on their relevance.

A new requirement: the publication of information on intangibles, such as intellectual, human, social, or relational capital. Finally, particular attention will be paid to the quality of the information published. Companies will also need to justify how they were sourced and identified.

The standards, balanced the three ESG pillars, will set out the information that companies must publish on:

  • Environment: These are the six themes directly in line with those identified by the taxonomy that must be described: mitigation and adaptation to climate change, water and marine resources, resource use and circular economy, pollution, biodiversity, and ecosystems.
  • Social: Standard social and societal reporting themes include equal opportunities and access to the labor market, including skills development, gender equality, and employment of disabled individuals; working conditions, including wages, social dialogue, work-life balance, health, and safety; human rights, fundamental freedoms, and standards described in various international norms.
  • Governance: The role of governing, directing, and supervising bodies and their composition; ethics and corporate culture, including anti-corruption policies, the company’s political commitments, including lobbying activities; management and the quality of relations with business partners; internal control and risk management systems. The CSRD increases governance requirements, particularly concerning transparency regarding the composition and responsibilities of various bodies, corruption prevention plans, the balance of business relationships, and lobbying activities.


In line with the EU’s digital strategy, the CSRD foreshadows the digitization of sustainability reporting, much like what is already done for financial reports (ESEF format).

The Commission envisions publishing the management document in digital format and depositing the reporting in the ESAP (European Single Access Point), the future European database that would centralize financial and non-financial reporting. Key data will need to be “tagged” or associated with a “digital label” to make it more easily readable by algorithms and usable for analysis by stakeholders.


The first application is scheduled for spring 2025, for the fiscal year starting on January 1st, 2024.

    • Starting from January 1st, 2024, for companies already subject to an obligation of non-financial reporting under the NFRD (large listed companies with more than 500 employees).
    • Starting from January 1st, 2025, for all large companies that meet 2 out of the following 3 criteria: 250 employees, €50 million turnover, or €25 million balance sheet total.
    • Starting from January 1st, 2026, for listed SMEs (10 to 250 employees, turnover > €900 thousand or balance sheet > €450 thousand), with a possibility of deferring their reporting obligation for 3 years with a lighter standard.
    • Starting from January 1st, 2028, for European subsidiaries of non-European parent companies that generate more than €150 million in turnover in Europe.

Note that subsidiaries may be exempt from reporting if the parent companies already provide a sustainability report compliant with the CSRD (this exemption does not apply to listed subsidiaries).

To achieve this, two processes, legislative and standardization, are being carried out in parallel. The text of the directive was published at the end of 2022, with transposition into the various Member States to be completed within 18 months, before July 2024. In France, the government is expected to transpose this text by December 8, 2023, which will modify the existing system of the Extra-Financial Performance Statement.

At the same time, EFRAG is leading the standardization work and the publication of ESRS (European Sustainability Reporting Standards).

In a few words, the CSRD brings a significant evolution in sustainability reporting, which must reflect the transformation undertaken on material environmental, social, and governance issues. The goal is no longer just to describe the company’s approach but to explain how the company aligns with European environmental policies and scientific consensus to go beyond good intentions and avoid greenwashing. The exercise becomes a true demonstration of performance, with special attention to formalizing the approach and presenting it in the sustainability report.

Companies have every reason to take advantage of the provided timeline to prepare and anticipate, aligning with the expected requirements and achieving compliance within the deadlines.

What your need to remember

The CSRD: a more detailed sustainability reporting, mandatory for all large European companies, in accordance with European standards and verified by an independent auditor.

  • First implementation in 2025, covering the 2024 fiscal year;
  • Scope expanded to include all large companies (> 250 employees), including SAS and SARL, and all listed companies; SMEs in the future.
  • Publication according to European sustainability reporting standards developed in parallel;
  • Introduction of the principle of double materiality: companies must publish the necessary information to understand both how sustainability factors affect their business and, reciprocally, how their activities impact society and the environment;
  • Enriched content, including on strategy, objectives, governance elements, major negative impacts, intangibles, and how this information was identified;
  • Requirement for assurance of sustainability information, via systematic verification of publication by OTI, with “degrees” of assurance that could be strengthened and aligned with those required for financial reporting;
  • Mandatory inclusion of all this information in the management report;
  • Digitalization of information, similar to financial reporting.

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