Beyond The EU: The Wider Implications Of The CSRD

Beyond The EU: The Wider Implications Of The CSRD

Over the past two years, the EU’s Corporate Sustainability Reporting Directive (CSRD) has received widespread attention throughout Europe, as it will require an estimated 49,000 firms to report on environmental and social metrics with the same rigor that they use for financial reporting. However, new analysis by financial data firm Refinitiv estimates that at least 10,000 organizations outside of the EU will have to report in line with the CSRD, which could be effective as soon as 2025. This includes non-EU firms that have:

• Listed securities (e.g., stocks or bonds) on a regulated market in the EU
• Annual EU revenue of at least €150 million ($163m) and an EU branch with net revenue of more than €40 million ($44m)
• An EU subsidiary that is defined as a “large company”, meeting at least two of the following criteria: more than 250 employees based in the EU; a balance sheet above €20 million ($22m); or local revenue of more than €40 million ($44m).

The approximately 10,000 non-EU organizations expected to be impacted by the CSRD are located across the globe, with 31% of these firms in the US, 13% in Canada and 11% in the UK. In order to comply with the CSRD, organizations will need to:

1. Report across a broader range of metrics. Firms that have focused on preparing climate-related disclosures to comply with the US SEC’s proposed climate-related disclosure rule or regulations aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) will need to expand the scope of their disclosures to cover a larger range of ESG topics, such as water resources, biodiversity, gender equality, working conditions and business ethics.
2. Access double materiality. Firms subject to the CSRD will need to report on both impact materiality and financial materiality, a departure from other disclosure frameworks. Accessing double materiality will require sustainability and finance teams to collaborate to produce the required information.
3. Meet assurance requirements. Firms subject to the CSRD will be required to assure their sustainability disclosures. To do so, corporates will need to be able to produce auditable records of their sustainability data.

Organizations that fail to comply with the requirements of the CSRD could be fined a percentage of their annual revenue in the EU or be subject to other country-specific rules and penalties.

To ensure firms are best prepared to comply with the CSRD, they should look to service providers to help them navigate the regulatory landscape and stay ahead of looming deadlines. Those subject to the legislation should also consider software solutions to accelerate the data collection process, elevate reporting capabilities and support assurance requirements.

For more information on service firms offering ESG and sustainability strategy development planning, see Verdantix Green Quadrant: ESG & Sustainability Consulting 2022; for more information on digital ESG risk management strategies, read Verdantix Smart Innovators: ESG Reporting And Data Management Software.