You may have heard of the CSRD, the Corporate Sustainability Reporting Directive. It is part of the ambitions of the 2019 Green Pact for Europe, which aims to achieve climate neutrality by 2050. Nevertheless, the CSRD is the result of years of discussion at European level. The text was adopted at the end of July 2023 by the European Commission and transcribed into French law by Ordinance no. 2023-1142 of December 6, 2023 to enable its implementation on the territory.
However, this regulation does not only imply efforts in the environmental field. It also addresses the other pillars of CSR. This article summarizes the main themes of this regulation.
1. Non-financial reporting now has to comply with a detailed methodology
For those involved in the transition, it may seem strange to have chosen the form of a report to embody the necessary changes. Indeed, the extra-financial report had struggled to convince since 2014. In our article on the 2019 regulations, we presented the testimonies of legal and accounting experts on this solution. Lacking readability, skills and real impact, the DPEF - Déclaration de Performance Extra-Financière - was seen more as an administrative formality than an improvement tool.
So it's hard to understand how Europe could approve even more stringent regulations in this area. And yet, there are a number of elements that address the weaknesses of the former DPEF. We share the main points:
The form of the non-financial report as laid down in the CSRD
- The form of the report and its expected content must be precisely detailed and meet clarity requirements. A precise description of the report's structure and wording should help avoid redundancies and stylistic effects from previous reports.
- The form of the report should make it possible to quickly identify "sustainable" measures from "accounting" measures by separating these elements.
- The form of the report must be identical for all companies.
- The fields of expertise to be covered by the company in a precise order are detailed in 12 standards (presented below).
- The form must analyze figures collected by the company and be based on figures published by organizations with expertise in societal challenges.
- To facilitate reading and comparison, a digital format will be available to the general public, with metadata and keywords.
The substance of the CSRD non-financial report
- From now on, the report must show, in a single reading, the company's improvements in terms of CSR, year after year, supported by quantified and comparable data.
- The backbone of the report is based on two principles: double materiality and the value chain (principles detailed on this page), to give concrete expression to the company's responsibility in today's societal changes.
- The report requires details of the role CSR plays within the company. The company must justify the level of the position dedicated to CSR (whether it's an intern or a member of the COMEX) and the budget allocated to this discipline.
- Harmonization of form should enable data to be compared, so that investors can better identify genuinely committed companies.
- Harmonization of form should enable civil society and associations to redouble their vigilance against misrepresentation.
- Data harmonization will be accessible to companies in the same sector, and could become a competitive lever.
- Trusted third parties such as statutory auditors responsible for validating these reports will be required to receive at least 90 hours' training in CSR and sustainable development, to make up for the current skills shortage.
2. Les actions à mener en matière de RSE - les 12 ESRS de la CSRD
The Directive sets out 12 ESRS (European Sustainability Reporting Standards). These standards will guide report writers and provide management with action points to consider in the future.
The first two ESRS set out the methodology to be applied throughout the extra-financial section
They detail the fundamentals of double materiality and the impact on the value chain.
- ESRS 1: presents the general principles
- ESRS 2: presents general prerequisites in terms of CSR strategy, governance and materiality
5 ESRS deal with environmental issues
- ESRS E1 : sur le changement climatique
- ESRS E2 : sur la pollution
- ESRS E3 : sur l’eau et les ressources maritimes
- ESRS E4 : sur la biodiversité et les écosystèmes
- ESRS E5 : sur les ressources utilisées et l’économie circulaire
4 ESRS deal with social issues
- ESRS S1: On the organization's employees
- ESRS S2: on value chain contributors
- ESRS S3: On affected communities
- ESRS S4: On customers, consumers and end-users
1 ESRS governance principles and business practices
- ESRS G1: business practices
These ESRS are based on the 7 pillars of ISO 26 000, but include a more detailed environmental section. The first two ESRS are transversal and mandatory for all companies.
For the other topics, be they environmental, social or good business practice, the company will have to present the relevant standards and detail the measures planned and implemented. If a standard is not selected, for example water and marine resources, the company will still be required to justify why this ESRS does not concern it. Numerous revisions are regularly made to the CSRD, which can make it difficult to grasp the principles.
Other sector-specific standards will be issued progressively, depending on the impact of certain activities on living organisms, such as fossil fuel exploration and exploitation.
3. Chronology of companies affected by CSRD
Given the financial and operational burdens associated with this regulation, it is intended to be gradual. However, the intention is to reach as many companies as possible by 2028, either directly or indirectly through a trickle-down effect.
Some of the companies previously subject to the DEFP will be affected by the CSRD from January 1, 2024, for publication in 2025. Namely:
Large listed companies, i.e. those meeting 3 criteria:
- Companies listed on a regulated market in the European Union
- Companies with over 500 employees
- Companies with a balance sheet in excess of €25m
- Companies with sales in excess of €50 million
Subsidiaries of listed companies that are themselves listed must submit an independent report.
Please note that financial thresholds are to be assessed at consolidated level for groups. In this case, the economic thresholds are 30M€ for the balance sheet and 60M€ for sales. If subsidiaries are based abroad but report to the parent company in France, they are therefore concerned.
The CSRD will apply to the above-mentioned companies and those listed below from January 1, 2025, with publication in 2026. Namely:
All large companies, regardless of legal status, exceeding 2 of these 3 thresholds:
- 250 employees
- 25 M€ balance sheet total
- 50M€ net sales
Please note that the financial thresholds are to be assessed at consolidated level for groups with the same thresholds as above: balance sheet > €30m or sales > €60m.
The companies mentioned above and those listed below are concerned by the CSRD from January 1, 2026, for publication in 2027. Namely :
Certain SMEs recognized as Public Interest Entities (PIEs), listed on a regulated market if they meet at least 2 of these criteria:
- if their balance sheet exceeds €350,000
- sales in excess of €700,000
- have more than 10 employees
These companies will be able to declare a simplified report and defer to 2028 if necessary. Public-interest entities (PIEs) include :
- Listed companies,
- Captive insurance and reinsurance companies
- Non-complex credit institutions
Subsidiaries must now have their own section in the non-financial report, or even their own financial report if they are listed, while the parent company is not.
The above-mentioned companies and the foreign (non-EU) companies listed below are affected by the CSRD from January 1, 2027, for publication in 2028. Namely :
- Those with European sales in excess of €150m
- Those with a subsidiary or branch based in Europe and sales in excess of €50m
This is estimated to affect 50,000 companies in Europe, 7,600 in France.
Knowing that these companies are likely to pass on the obligation to justify sustainable measures to their suppliers and partners.
This reporting methodology therefore calls for collective vigilance to guarantee the sincerity and impact of these initiatives. However, the question arises as to the means made available to report any shortcomings observed, and the sanctions provided for in the event of omission or poor practices.
Did you know? The financial thresholds set out in the Accounting Directive have been modified to take into account the inflation over the last ten years (Commission Delegated Directive (EU) 2023/2775 of October 17, 2023 - to be transposed before the end of 2024), enabling the sales thresholds for SMEs to be raised.
Did you know? The Chairman of EFRAG, Patrick de Cambourg, is the former Chairman of Mazars and also the former Chairman of the French Accounting Standards Authority (Autorité des normes comptables), appointed by Bruno Lemaire (French Minister of Economy) to analyze the impact of non-financial reporting. Read the report and mission statement.
