PRIMER: the EU Corporate Sustainability Reporting Directive
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PRIMER: the EU Corporate Sustainability Reporting Directive


In our latest explainer, we take a closer look at the new Corporate Sustainability Reporting Directive, which replaces the Non-Financial Reporting Directive

Due to go live in 2023, the EU Corporate Sustainability Reporting Directive (CSRD) will replace the Non-Financial Reporting Directive (NFRD). The new rules introduce updated standards and will require many EU corporations to report against ESG metrics.

The CSRD is being introduced amid reviews of ESG-focused law in Europe, including the green Taxonomy Regulation and the Sustainable Finance Disclosure Regulation (SFDR). The SFDR requires asset managers to label financial products such as funds, while the NFRD, and now the CSRD, target corporates and require them to provide the data for asset managers to use.

“The general perception of the NFRD in the market is that companies aren’t reporting in enough detail,” said Paul Alexander, principal counsel at the European Bank for Reconstruction and Development. “It’s not easy to compare companies between them as they all use a different standard. The CSRD is trying to fix those problems.”

The NFRD has only been live for three years, Alexander added, and the speed with which a new directive has been proposed shows how quickly views on appropriate sustainability policy are changing.

“Rather than calling the directive NFRD II, policymakers have changed the name to move away from the concept that sustainability reporting is a non-financial issue,” said Kelly Sporn, senior policy advisor at Allen & Overy.

See also: A binary approach to taxonomy regulation is problematic

Difference to NFRD

Both the NFRD and CSRD are comprised of amendments to the pre-existing Accounting Directive. The CSRD builds on the NFRD in a number of ways, including in the scope of companies it applies to, the standards that reporting should meet, the presentation of the information, and auditing requirements.

  • Scope

The NFRD applied to approximately 11,000 organisations, while the CSRD is expected to apply to 50,000.

“In addition to large European undertakings (more than 500 employees), which were included in the NFRD scope, the CSRD will apply to any undertakings established within the EU, or outside the EU but with subsidiaries listed on an EU-regulated market,” said Shantanu Naravane, senior associate at Herbert Smith Freehills. “The regulation very much broadens the scope of the accounting directive.”

  • Standards and format

The NFRD did not provide any standards on how information should be disclosed. The CSRD, instead, specifies the format and will include a standard that firms have to meet for their reports.

“The NFRD amended the accounting directive to state that the information should be reported in the annual report, but individual member states could permit publication as a separate document,” said Naravane. “However, the CSRD prescribes that all the information must be included in the management report.”

According to Alexander, the CSRD reporting standards are still unclear but should be disclosed towards the end of 2022.

  • Auditors

While the NFRD did not require auditing, the CSRD will require for sustainability reporting to be checked externally.

“Under the new regime, corporates will need some sort of external assurance,” said Alexander. “This won’t need to be the same level of detail as the sign-off that auditors give for financial information, but there will still need to be someone verifying the information.”

See also: COP26: M&A boom expected to continue as net zero pressure grows


The CSRD mandatory standards are due to be published in October 2022 and should be aligned with the following financial year, but reports are not expected until 2024. European SMEs, meanwhile, will have another three years to prepare for the regulation and won’t need to publish their reports until 2026.

See also: COP26: Gaps in emissions reporting could dampen effects of Sunak’s net zero target


In the financial services space, the new requirements will be particularly important for asset managers and for corporates.

“Banks are subject to these requirements just as much as other firms,” said Ben Pott, EMEA head of public policy and government affairs at BNY Mellon. “But the CSRD will also provide financial services firms with information that they can use for other EU requirements, such as the SFDR and the EU taxonomy disclosure.

“There are questions over the timing of the regulation because we need the CSRD data disclosures to support reporting for the other regulations.”

While the CSRD should help with SFDR-linked issues, it probably won’t solve them as it will only apply to a small subset of the investments that European asset managers make.

For European asset managers investing in Asian equities and American infrastructure companies who also need to report under the SFDR, the new rules won’t help, explained Herbert Smith Freehills’s Naravane.

“It doesn’t entirely solve the information issue for European investors,” he said. “It only does so to a degree, for the investments they make in certain types of European companies – it’s a small part of the overall puzzle.”

Global stage

The CSDR’s interplay with the SFDR, however, isn’t the only difficulty it will pose on an international scale.

“One of the key questions is how this is going to operate within international frameworks,” said Allen & Overy’s Sporn. “Even though the legislation only covers the EU, it will have cross-border effects.”

She added : “It’s going to be quite difficult for companies that may have to get information from their counterparts in different jurisdictions, where they don’t face a requirement to disclose this information but it’s required under the mandatory EU obligation.”

The newly International Sustainability Standards Board (ISSB), launched during COP26, could provide a solution to this problem.


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