The CSRD is the European standard for sustainability reporting. It dictates how the reporting should be prepared, in terms of both format and content. The common electronic format adopted by Europe will allow for unlimited use of this new corporate data.
The European NFRD directive, which currently governs extra-financial reporting by European companies, will be replaced early next year by the Corporate Sustainability Reporting Directive (CSRD). This change will also have an impact on the ‘Déclaration annuelle de performance extra-financière’ (DPEF), the French application of the NFRD. More ambitious than the NFRD, the CSRD aims to reinforce the European Union’s sustainable finance objectives by promoting international convergence in sustainability reporting. It will require European companies to disclose certain non-financial data.
This regulatory development is part of the European Union’s “Sustainable Finance Action Plan”, the main aim of which is to involve the financial sector in the EU’s climate objectives. The regulatory package formed by the new SFDR and Taxonomy regulations requires investors to disclose a wide range of extra-financial information on their investments: greenhouse gas emissions, carbon footprint, energy consumption, gender pay gap, etc. These reporting requirements pose a problem for the investors concerned, as most companies do not publish this information, as they are not legally obliged to do so. Similarly, many companies disclose ESG information that is inaccurate, biased and difficult to compare. The CSRD aims to remedy this problem by ensuring that investors have access to standardised extra-financial data.
By requiring European companies to report annually on their sustainability performance, the CSRD aims to improve the transparency and consistency of ESG reporting in Europe. With access to reliable and comparable sustainability information, investors will be able to redirect their investments towards more sustainable technologies and industries.
The CSRD extends the existing scope and requirements: whereas the NFRD only provided guidelines for ESG reporting, the new directive introduces mandatory reporting standards for all large companies. The companies concerned will therefore soon have to provide improved, formatted and audited extra-financial reports that respect the principle of double materiality.
This is an important step for ESG reporting: with the CSRD, ESG information will be subject to the same assurance standard as financial reports. From now on, companies will have to treat sustainability data with the same rigour as their financial data.