Updated on 3 March 2023

The EU policymakers reached an agreement on the Corporate Sustainability Reporting Directive (CSRD) that will come into force 20 days after its publishing in the EU Office Journal (16/12/2022). It brings sustainability reporting to the same level as financial reporting for the first time ever. This is fundamental to support the EU Green Deal’s ambitions and transform Europe into the first climate neutral economy by 2050.  

The CSRD introduces more detailed reporting requirements than its predecessor the Non-Financial Reporting Directive (NFRD). 50,000 companies will now have to comply with the new rules, compared to 12,000 for the NFRD. Companies will have to disclose sustainability information in their management report according to mandatory European sustainability reporting standards and file it in a digital, machine-readable format. The CSRD also requires limited assurance on sustainability reporting. In the FAQs below, we provide a snapshot of these key changes that CSRD brings. 

The accountancy profession will need to be ready for this crucial shift and make sure we can support the CRSD’s reporting and assurance aspects. Read our statement on the CSRD.

We are happy to continue the discussion on sustainability matters and elaborate on the topics covered. Please contact [email protected] to discuss this further.

Questions & Answers

1. What companies have to apply the new rules?
2. What if the company is a subsidiary of a large group?
3. When will those rules start applying?
4. What is the scope of reporting requirements?
5. Where should companies report?
6. What reporting standards are companies expected to use?
7. When are reporting standards expected to be adopted?
8. In what format should companies report?
9. Is independent third-party assurance mandatory?
10. What assurance level is required?
11. What is the scope of the assurance engagement?
12. What assurance standards are expected to be used?
13. Who the CSRD mandates to provide assurance of sustainability reporting?
14. Are there any specific educational qualifications necessary to provide assurance services?

Sustainability Reporting 

1. What companies have to apply the new rules?

• all listed companies on the EU regulated market (including listed SMEs, but no micro-enterprises) 
• all large companies exceeding two of the three following criteria (as per the Accounting Directive 2013/34/EU): 
  • 250 employees during the financial year 
  • balance sheet total EUR 20 million  
  • net turnover EUR 40 million  
• non-EU companies generating a net turnover of more than EUR 150 million and having a subsidiary in the EU that follow the criteria applicable to EU companies (i.e., being listed on the European market except micro or being within the large company threshold) or a branch in the EU generating more than EUR 40 million net turnover 
• small and non-complex financial institutions as per the Regulation (EU) No 575/2013 Art 4(1), point (145) and captive insurance and reinsurance undertakings as per Directive 2009/138/EC  (provided that they are large undertakings or listed SMEs except micro-enterprises as per the Accounting Directive)*

Moreover, undertakings in the CSRD scope will also have to comply with Article 8 of the Taxonomy Regulation. 

2. What if the company is a subsidiary of a large group?

A subsidiary is exempted from the CSRD obligations if the parent undertaking produces a consolidated sustainability report that conforms with the CSRD. This subsidiary exemption also applies to subsidiaries that are public interest entities, unless they reach the large undertaking thresholds (which are listed public interest entities as per the Accounting Directive). 

Such exempted subsidiaries must include in their management report: 

• the name and registered office of the parent undertaking that is reporting sustainability information at group level 
• the web links to the consolidated management report 
• a reference of this exemption in their own management report 

Where significant differences are identified between the risks and impacts of the group vs the subsidiaries, the parent company should provide an adequate understanding of the risks and impacts of their subsidiaries, including information on their due diligence processes where appropriate. 

Subsidiary exemption should also apply when the parent undertaking is an undertaking established in a third country that produces reporting sustainability information in accordance with European or equivalent sustainability reporting standards. As the assessment of equivalence of sustainability reporting standards will take place at a later stage, transitional provisions have been put in place for seven years so that Member States shall permit EU subsidiaries to report under the European standards. 

3. When will those rules start applying?

• as from 1 January 2024 (first reports in 2025) for companies that are already within the scope of the Non-Financial Reporting Directive 2014/95/EU 
• as from 1 January 2025 (first reports in 2026) for other large companies 
• as from 1 January 2026 (first reports in 2027) for listed SMEs[1]
• as from 1 January 2028 (first reports in 2029) for non-EU companies with branches/subsidiaries

4. What is the scope of reporting requirements?

A company under the scope must report information necessary to understand the company’s impacts on sustainability matters and how they affect the company’s development, performance and position. A company must report according to the EU standards (see Question 6).

The information must contain: 

• description of business model and strategy as well as opportunities and resilience to sustainability risks and transition plans 
• targets and their progress status; indicators  
• company sustainability governance (administrative, management and supervisory bodies and their expertise and skills to fulfil their role) 
• sustainability policies 
• incentives schemes linked to sustainability matters 
• due diligence of sustainability matters and the process to conduct it 
• company’s principal and adverse impacts and actions to prevent, mitigate and remediate 
• principle risks and their management 
• double materiality 
• information on business operations, value chain, including products and services and business relationships and its supply chain[2]

Listed SMEs as well as small and non-complex financial institutions as listed in Article 19a (5) may comply with proportionate requirements using proportionate SMEs reporting standards. 

5. Where should companies report?

Companies shall include information in the management report through a dedicated section. This means that companies must bring sustainability reporting forward to the time they publish their annual report. 

6. What reporting standards are companies expected to use?

Companies must report in accordance with the European sustainability reporting standards adopted by the EC via delegated acts after technical advice of EFRAG (see Question 7).

7. When are reporting standards expected to be adopted?

The EC shall adopt the European sustainability reporting standards (ESRS) via delegated acts as follows: 

• by 30 June 2023 – cross-cutting standards and standards for all sustainability topics i.e., environment, social and human rights, and governance. They should also respond to the needs of the financial market participants under the scope of the Sustainable Finance Disclosure Regulation (SFDR) 
• by 30 June 2024: 
  • sector-specific standards 
  • proportionate standards for listed SMEs 
  • standards for non-EU companies exceeding EU turnover thresholds 

EFRAG has been mandated to develop a technical advice on ESRS. The EC shall take this into consideration when adopting delegated acts. 

The EC will review the standards at least every 3 years, taking into account relevant developments, incl. developments in international standards. 

The ESRS shall specify the information that an undertaking needs to report and, where relevant, the structure to report that information (see Question 4). 

Read our statement and response to the EFRAG PTF-ESRS exposure drafts on EU sustainability reporting standards here. 

8. In what format should companies report?

Companies shall prepare their management report in the electronic reporting format and mark-up their sustainability reporting to upload them to the upcoming European Single Access Point (ESAP) (as per Delegated Regulation (EU) 2019/815 on single electronic reporting format).

Sustainability information assurance

9. Is independent third-party assurance mandatory?

Independent third-party assurance is mandatory (as from 2025 on the 2024 year-end reports).

10. What assurance level is required?

The opinion on the sustainability reporting should be based on a limited assurance engagement. 

The CSRD foresees moving to reasonable assurance after assessing whether reasonable assurance is feasible for both statutory auditors and undertakings. 

See our dedicated FAQs on sustainability information assurance.

11. What is the scope of the assurance engagement?

Assurance is given on: 

• compliance with the CSRD reporting rules in Article 19a, including with the reporting standards adopted according to Article 29b or Article 29c  
• process carried out by the undertaking to identify the information reported according to those reporting standards  
• compliance with the requirement to mark-up sustainability reporting in accordance with Article 29d (digitalisation)  
• compliance with the reporting requirements of Regulation (EU) 2020/852 Article 8 (Taxonomy Regulation)

12. What assurance standards are expected to be used?

Member States may apply national assurance standards, procedures or requirements as long as the EC has not adopted an assurance standard covering the same subject matter. 

The EC shall be empowered to adopt, by means of delegated acts, limited assurance standards before 1 October 2026. 

By 1 October 2028, the EC shall adopt assurance standards for reasonable assurance, following an assessment to determine if it is feasible for the auditors and for the undertakings. The EC should then specify when reasonable assurance would be required. 

13. Who the CSRD mandates to provide assurance of sustainability reporting?

The CSRD requires the statutory auditor to express an opinion on the sustainability reporting, mainly to “help ensure the connectivity between, and consistency of, financial and sustainability information”. 

Shareholders with more than 5% voting rights or 5% capital of a company have the right to ask to involve an accredited third party to “prepare a report on some elements of the sustainability reporting”. This accredited third party cannot belong to the same audit firm or network as the auditor carrying out the statutory audit. 

Members States may allow another statutory auditor or an independent assurance services provider (IASP) to express an opinion on sustainability reporting. Any assurance services provider will have to follow the standards adopted by the EC. 

If a Member State makes use of an option to allow an IASP to express an opinion on sustainability reporting, it shall also allow another statutory auditor to do so. 

IASPs are required to follow equivalent requirements as the ones included in the Audit Directive 2006/43/EC, especially on professional education, quality assurance, ethical requirements, including independence. 

The IASP can benefit from a ‘passporting regime’ to provide their services across borders if another Member State opted to allow an IASP to provide assurance services on its territory. 

14. Are there any specific educational qualifications necessary to provide assurance services?

Statutory auditors should meet specific requirements in addition to the necessary educational competences required by the Audit Directive 2006/43/EC to be allowed to carry out assurance engagements of sustainability reporting. The examination of professional competence shall guarantee the necessary level of theoretical knowledge and the ability to apply such knowledge in practice. The test of theoretical knowledge should cover the following subjects: 

• legal requirements and reporting standards relating to the preparation of annual and consolidated sustainability reporting 
• sustainability analysis 
• sustainability due diligence processes 
• legal requirements and assurance standards for sustainability reporting 

The statutory auditor must complete at least eight months of practical training in assurance of annual and consolidated sustainability reporting or other sustainability related services. The CSRD includes transitional arrangements for statutory auditors that have been qualified before 1 January 2024. 

In case Member States have taken the option to authorise IASP, they should set out equivalent requirements as regards training and examination. 

[1] Possibility to opt-out for the first two years if the SME provides a statement explaining why their management does not capture sustainability information.

[2] For the first three years, in case the necessary information is not available, the company shall explain the efforts made to obtain information on its value chain, the reasons why it couldn’t be obtained and plans to obtain such information in the future.

* information updated on 03/03/2023