Maybe you have heard about the Corporate Sustainability Reporting Directive. Here in the EU, it is “shaking” up the status-quo around sustainability: the directive requires all organisations to report, in a standardised way, about their sustainable performance. With the insights that are gained through the CSRD, the directive is a great chance for companies to re-think their business activities and way of operating. This makes the directive much more than a bureaucratic hurdle you have to take. It can actually be a great starting point towards your sustainable future.
Do you want to read more general information about the CSRD? Read our article https://nl.hhc.earth/knowledge-base/csrd-everything-you-need-to-know
How does the CSRD affect non-EU companies?
The CSRD is an EU legislation, but it affects all who operate on the EU-market. Companies based outside the European Union will need to comply if they fall into one of three categories:
- they were previously in scope of the Non-Financial Reporting Directive (NFRD)
- they do significant business in the EU
- they have securities listed on a regulated market in the EU
When to comply with the CSRD?
1.Large non-EU companies, that were previously in scope of the NFRD
The NFRD is “the predecessor” of the CSRD. This is the Non-Financial Reporting Directive (NFRD), an obligation for large (>500 employees), listed companies, banks, and insurance companies to report on aspects such as social responsibility, treatment of employees, human rights, and diversity.
Companies in this category include:
- Public interest entities (listed companies, banks, corporate insurance companies) with more than 500 employees.
This group has to report from 2025 onwards, over the financial year 2024.
2. Non-EU companies, that do significant business in the EU
These group consists of all large listed-companies on an EU-regulated market, that in each of the last two consecutive financial years were meeting two of the following three conditions:
- €50 million or more in net turnover
- €25+ million or more assets
- 250 or more employees
This group has to report from 2026 onwards, over the financial year 2025.
Non-EU companies that have, in each of the last two consecutive financial years, an annual net turnover exceeding €150 million in the EU, and have at least one of the following characteristics:
- A large EU subsidiary (meeting the general EU company criteria above)
- A branch in the EU, with net turnover of €40 million or more
- At least one security that is listed on EU regulated markets
This group has to report from 2029 onwards, over the financial year 2028.
3. Non-EU listed small and medium enterprises (SMEs)
These are companies that – or any of their subsidiaries – meet in each of the last two consecutive financial years two of the following criteria:
- €900,000 or more in net turnover
- €450,000 or more in assets
- 10 or more employees
The first reports for SMEs will be due in 2027,over 2026. Though they can be opted out of until 2028.
And what about smaller companies?
Smaller companies that are operating on the European Market, however not matching one of the criteria described above, can also expect to be “confronted” with the CSRD: through their chain partners that do have to meet the CSRD-criteria.
Because CSRD-compliant companies will have to ask these chain partners to reveal information on their way of operating, for the relevant ESRS-standards where the company has to report on.
So this way, the CSRD eventually affects almost all companies operating in the European Union in one way or another.
How to start your CSRD?
The first steps towards CSRD compliance are the Double Materiality Assessment (DMA) and the Gap Assessment. Through these, you identify on which sustainability topics you will have to report on.
European Sustainability Reporting Standards (ESRS) is the “backbone” of the CSRD. These standards form the structured framework with standards and guidelines that companies must follow.
The DMA is the key step in your whole CSRD journey. It’s called double materiality, because two perspectives are considered:
- an inside-out (impact) perspective: what is the effect of your company on the environment and society?
- an outside-in (financial) perspective: which developments might affect the financial performance of your company?
Let’s give an example: a manufacturing company may need to assess both its impact on the environment through plastic waste (inside-out) and how external factors, like stricter regulations, might affect its financial performance (outside-in).
After you performed the DMA, your next step is the Gap Analysis. This step is about comparing the current state of your sustainability practices with the CSRD requirements. So you know what you need to do to become compliant.
Read more in our article: https://www.hhc.earth/knowledge-base/the-european-sustainability-reporting-standards-esrs-explained
Context; The European Green Deal
The CSRD is part of the European Union's Green Deal. Europe aims to become climate-neutral by 2050, aligning with the Paris Agreement formulated during the UN Climate Conference (COP21) in Paris on December 12, 2015. The Green Deal is “the umbrella” with many directives and legislations leading to this goal.
So when you operate on the European market, or intend to do so, there will be many other legislations to keep in mind as well. Some of them are sector- or product specific, like the Regulation on Deforestation-free products (EUDR) (e.g. coffee, cocoa, timber) or the Waste from Electrical and Electronic Equipment Directive (WEEE) (electronics). Others, like the Corporate Sustainability Due Diligence Directive (applying to businesses of a certain size) are sector-independent.
Do you want to know more? Schedule a free call with one of our experts to discuss your specific situation.
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