The CSRD is a framework aimed at enhancing sustainability reporting requirements for companies operating in the EU. But what does it mean for UK businesses?
The corporate world is undergoing a profound transformation, with sustainability and responsible business practices taking center stage. As part of this global shift, the European Commission has proposed a groundbreaking legislation called the Corporate Sustainability Reporting Directive (CSRD). The CSRD aims to enhance and harmonize sustainability reporting requirements for companies operating within the European Union (EU). In this blog post, we will delve into what the CSRD means for UK companies and explore the potential implications and benefits of this new regulatory framework.
Note that following a decision from EU lawmakers on 24 January 2024, reporting obligations for non-EU companies with turnover above €150 million and their branches in the EU with turnover above €40 million will only start to apply in 2028.
The scope and objectives of the CSRD
The CSRD represents a significant expansion of sustainability reporting obligations for companies, replacing the existing Non-Financial Reporting Directive (NFRD). The directive aims to standardize and increase the quality, comparability, and reliability of sustainability information disclosed by companies. It extends reporting requirements to a broader range of organizations, including small and medium-sized enterprises (SMEs), and introduces mandatory reporting on a broader set of sustainability topics.
Key changes and reporting requirements
The CSRD introduces several key changes that will impact how EU companies report on their sustainability performance. Firstly, it expands the scope of reporting to include additional environmental, social, and governance (ESG) areas, such as climate change mitigation, biodiversity, and human rights. Companies will be required to disclose information on their business model, policies, risks, targets, and actions related to these topics.
Moreover, the CSRD places an emphasis on digital reporting by requiring companies to use electronic formats and tagged data to enhance accessibility and comparability of information. This shift towards digital reporting is aimed at streamlining data collection, analysis, and stakeholder engagement.
Additionally, the CSRD introduces an audit requirement for sustainability information, ensuring that the reported data is accurate, complete, and reliable. This move towards independent assurance of sustainability reporting enhances trust and credibility in the disclosed information.
What UK companies need to know
In terms of applicability, the CSRD may have an impact on UK-incorporated companies in the following scenarios:
-
Listed Securities: If a company has securities listed on an EU regulated market, regardless of its location, it will fall under the scope of the CSRD reporting obligations.
-
EU Net Turnover: Companies with a net turnover in the EU exceeding €150 million over the last two consecutive financial years will be subject to the CSRD if they meet either of the following criteria:
a) EU Subsidiary: The company has an EU subsidiary with securities listed on an EU regulated market or qualifies as a large undertaking. A large undertaking refers to a company that meets two of the following criteria: (i) total assets of €20 million, (ii) net turnover of €40 million, or (iii) an average of 250 employees throughout the financial year.
b) EU Branch: The company operates an EU branch that has generated a net turnover exceeding €40 million in the previous financial year.
It is important for UK companies to assess their specific circumstances and determine whether they fall within the scope of the CSRD based on these criteria. Compliance with the CSRD will involve meeting the expanded reporting requirements and fulfilling the obligations set forth by the directive.
The broader implications of the CSRD
For UK businesses that fall outside the scope of the CSRD, it is crucial to recognize the broader implications of this regulation. The CSRD serves as a pioneering model for sustainability initiatives on a global scale, with the potential for further expansion or the introduction of localized regulations.
With the ever-growing focus on ESG considerations, the UK government has emphasized the necessity for a comprehensive ESG strategy.
At the same time, the Financial Conduct Authority (FCA) has introduced the UK Sustainable Disclosure Regulation (SDR) which aims to provide investors with more comprehensive, consistent and comparable sustainability information from issuers and investment managers.
It is highly likely that regulations pertaining to sustainability reporting and monitoring will become more comprehensive over time. Therefore, the sooner your company can embrace and adapt to these evolving regulatory landscapes, the better prepared it will be to navigate future sustainability obligations.
Want to learn more about how the CSRD affects you?
Contact us directly for support from our expert team.
And if you want to make sure you’re compliant with the latest sustainability regulations affecting your business, find out more here.
