Non-Financial Reporting - CSRD Europe has published its Directive project on sustainability information.

What impact will it have on businesses?

Exit the NFRD: in November, the Commission published its CSRD directive project on the publication of sustainability information by companies. This package of measures, which includes the green taxonomy and the SFDR regulation on ESG reporting by financial actors, aims to complement the already established framework of Europe’s action plan for a sustainable economy.

With a major objective of the Green Deal being to truly engage companies in this new sustainable finance framework, it’s important to have reliable, relevant, and harmonized information from companies. Without such information, it will not be possible to meet market requirements and the imperative to redirect capital flows towards activities that are most committed to the sustainable transformation of our society.

Compared to the NFRD directive, the CSRD goes further: it aims to strengthen existing regulations, harmonize reporting across Europe, and simplify the reporting process. The goal is to provide an approach that meets the information needs of all stakeholders, including investors, civil society, etc., and ensures the reliability and comparability of the information provided.

It will lead to increased sustainability reporting requirements and clearly address current shortcomings: lack of reliability and assurance of data, absence of essential elements or, conversely, communication of irrelevant information, lack of clarity in the presentation of information, sometimes unclear and difficult to locate.

Beyond performance monitoring, the CSRD represents a fundamental transformation of the reporting process, moving from a simple declaration of sustainability to a demonstration of sustainability performance.

The CSRD will directly affect nearly 50,000 companies, almost five times more than before.

The EU’s requirements are strengthened: obligations are extended to companies with more than 250 employees (compared to 500 previously) and are also extended to all listed companies on the European market. The project targets almost 50,000 entities, compared to the 11,000 companies affected by the NFRD. Specific provisions are in place for SMEs: listed companies have three years to comply, while unlisted companies are strongly encouraged to anticipate and engage in the process. European subsidiaries of non-European companies and subsidiaries of groups are also eligible.

Companies such as SAS or SARL that were previously exempt from the DPEF reporting in France will now be eligible.

Additionally, all actors in the economic chain, including suppliers and subcontractors, European or outside the EU, will indirectly be involved through the specifications of their main customers.

A reinforced level of assurance

All large companies will now be required to use reporting standards and have their data verified by independent third parties. Currently, only 20% of companies apply standards and 30% of them have their data verified.

The required verification must cover the entire exercise: the process of collecting or calculating the information, its coherence with the company’s sustainability objectives, the relevance of the selected KPIs, and their time horizon. The goal is to move from a moderate level of assurance to a reasonable level of assurance and to align the requirements of non-financial reporting with those of financial reporting.

The main novelty of this directive project: the development of European standards, the ESRS.

The publication of these standards represents a major advance for sustainability reporting. Until now, companies had numerous reporting frameworks such as GRI, IIRC, SASB, TCFD, CDP, etc. The multiplicity of these international frameworks and standards, and their voluntary nature, did not meet the expectations of companies or other stakeholders, particularly investors.

With the CSRD directive, the first European standards are published, incorporating existing frameworks such as TCFD and consistent with other ongoing standardization initiatives, particularly outside Europe, with the IFRS (IFRS S1 – sustainability and S2 – climate).

EFRAG (the European Financial Reporting Advisory Group) leads the work and has a mission to feed reflections and develop this approach of “relevant and dynamic standardization of European sustainability reporting”.

A first common set of 12 standards, the ESRS (two cross-cutting standards and 10 thematic standards on environmental, societal, and governance aspects) has been made available. It should be officially validated by the end of June with the publication of the corresponding delegated acts. A second series of sectoral standards is expected in the coming year, covering more than forty activities. Finally, ‘proportionate’ standards will be established for SMEs eligible for the exercise.

These standards are expected to be reviewed every three years to incorporate relevant developments in international standards.

The Commission validates the principle of double materiality.

This point is essential and will be structuring for the entire exercise.  Double materiality will constitute the cornerstone of the CSRD, hence the importance to give to its achievement for a reliable and relevant implementation.

Materiality analysis will form the basis of the company’s CSR strategy and commitments.

It will have a strong impact on the content and information to be communicated for the CSRD. It will be closely scrutinized by third-party organizations during verification with a high level of demand.

For Europe, the anchoring of double materiality dates back to the publication of the European Accounting Directive (2013/04/EU), transposed into the French DPEF.Double materiality combines two types of materiality: financial materiality, which corresponds to the “Outside-In” perspective, and impact materiality, which takes into account the “Inside-Out” perspective.

Financial materiality (also known as simple materiality) only takes into account the positive (opportunities) and negative (risks) impacts generated by the economic, social, and natural environment on the company’s development, performance, and results.

For impact materiality (also known as socio-environmental materiality), the negative or positive impacts of the company on its economic, social, and natural environment are taken into account.

In this publication, companies will report on how sustainability issues such as climate change affect their activities, and how these same activities can impact the environment and society around them, according to the widely recognized principle of double materiality.

The analysis of double materiality will require a significant qualitative leap compared to current practices observed for many companies. Today, the existing matrices lack robustness, and less than a third of SBF 120 companies integrate external stakeholders into the materiality analysis.

Companies will need to be especially vigilant in its implementation, as its results will have a significant impact on the entire content.

An expanded and more regulated content

The content of the publication is expanding and enriching. Beyond the description of the business model and risk factors, as required by the Extra-Financial Performance Statement, companies are also expected to present their resilience strategy to address environmental and climate changes, as well as their transition strategy to achieve carbon neutrality.

In line with the taxonomy and its six sustainability objectives, a detailed list of the company’s main negative impacts must be described.

Companies will need to rely on both qualitative and quantitative information, prospective and retrospective, and covering all time horizons – short, medium, and long term – depending on their relevance.

A new requirement: the publication of information on intangibles, such as intellectual, human, social, or relational capital. Finally, particular attention will be paid to the quality of the information published. Companies will also need to justify how they were sourced and identified.

The standards, balancing the three ESG pillars, will set out the information that companies must publish on:

  • The environment: these are the 6 topics directly related to those identified by the taxonomy that must be described: mitigation and adaptation to climate change, water and marine resources, resource use and circular economy, pollution, biodiversity and ecosystems;
  • Social: standard themes of social and societal reporting are found here: equal opportunities and access to the labor market, including the development of training and skills, gender equality, and employment of disabled persons; working conditions, including salaries, social dialogue, work-life balance, health and safety; human rights, fundamental freedoms, and standards described in various international norms;
  • Governance: the role of management, supervisory and governance bodies and their composition; ethics and corporate culture, including anti-corruption policies, political commitments of the company, including lobbying activities; management and quality of relationships with business partners; internal control and risk management systems. Governance issues are strengthened by the exercise with increased transparency requirements on the composition and responsibilities of different bodies, anti-corruption prevention plans, the balance of commercial relationships, and lobbying actions.


In line with the EU’s digital strategy, the text anticipates the digitalization of sustainability reporting, similar to what is already being done for financial reports (in the ESEF format).

The Commission envisions the publication of the management document in digital format and its inclusion in the ESAP (European Single Access Point), the future European database that would centralize financial and non-financial reporting. Key data will need to be “tagged” or associated with a “digital label” to make it easier for algorithms to read and for stakeholders to analyze and utilize.


The first application is scheduled for spring 2025, on the fiscal year starting on January 1st, 2024.

  • Starting from January 1st, 2024, for companies already subject to an obligation of non-financial reporting under the NFRD (large listed companies with more than 500 employees).
  • Starting from January 1st, 2025, for all large companies that meet 2 out of the following 3 criteria: 250 employees, €40 million turnover, or €20 million balance sheet total.
  • Starting from January 1st, 2026, for listed SMEs (10 to 250 employees), with a possibility of deferring their reporting obligation for 3 years with a lighter standard.
  • Starting from January 1st, 2028, for European subsidiaries of non-European parent companies that generate more than €150 million in turnover in Europe.
  • Note that subsidiaries may be exempt from reporting if the parent companies already provide a sustainability report compliant with the CSRD (this exemption does not apply to listed subsidiaries).

To achieve this, two processes, legislative and standardization, are being conducted in parallel.

The text of the directive was published at the end of 2022, with transposition into the various Member States within 18 months, i.e., before July 2024. In France, this text will modify the existing system of the Extra-Financial Performance Statement.

In parallel, EFRAG is leading the standardization work and publication of the European Sustainability Reporting Standards (ESRS). A first series of standards, called transverse and thematic, has been released, with adoption planned before the end of June 2023. This will be followed in the following year by a second wave of sectoral standards.

In a few words, the CSRD brings a major evolution in sustainability reporting that should reflect the transformation implemented on material Environmental, Social and Governance issues.

The analysis of the European standards projects (ESRS) communicated last spring shows that the CSRD substantially modifies the very purpose of the reporting exercise. The objective is no longer just to tell the company’s approach, but now to explain how the company is aligned with European environmental policies and scientific consensus. To avoid limiting themselves to good intentions and avoid greenwashing.

The exercise evolves from a simple declaration exercise to a real demonstration of performance, with particular attention given to formalizing the approach and presenting it in the sustainability report.

And for many companies, this new exercise will represent both a qualitative and quantitative leap. The idea is to take advantage of the timetable provided to prepare and anticipate as best as possible to align with the expected requirements and achieve compliance within the deadlines.

What your need to remember

The CSRD: a more detailed sustainability reporting, mandatory for all large European companies, in accordance with European standards and verified by an independent auditor.

  • First implementation in 2025, covering the 2024 fiscal year;
  • Scope expanded to include all large companies (> 250 employees), including SAS and SARL, and all listed companies; SMEs in the future.
  • Publication according to European sustainability reporting standards developed in parallel;
  • Introduction of the principle of double materiality: companies must publish the necessary information to understand both how sustainability factors affect their business and, reciprocally, how their activities impact society and the environment;
  • Enriched content, including on strategy, objectives, governance elements, major negative impacts, intangibles, and how this information was identified;
  • Requirement for assurance of sustainability information, via systematic verification of publication by OTI, with “degrees” of assurance that could be strengthened and aligned with those required for financial reporting;
  • Mandatory inclusion of all this information in the management report;

Digitalization of information, similar to financial reporting.

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