The transition from the Non-Financial Reporting Directive (NFRD) to the Corporate Sustainability Reporting Directive (CSRD) marks a significant shift in the sustainability reporting landscape within the European Union. This change aims to enhance transparency, accountability, and consistency in sustainability reporting, impacting a wide range of companies across various sectors. In this article, we will explore what this transition entails, the differences between NFRD and CSRD, and how organizations can effectively navigate these changes.
Understanding the NFRD to CSRD transition
The NFRD, implemented in 2014, required large public-interest companies with over 500 employees to disclose non-financial information on environmental, social, and governance (ESG) factors. The CSRD, however, expands the scope, requiring more detailed and standardized reporting from a broader range of companies. This directive aims to address the shortcomings of the NFRD by introducing more comprehensive reporting requirements and ensuring that sustainability information is reliable and comparable across the EU.
CSRD Reporting Requirements
The Corporate Sustainability Reporting Directive (CSRD) introduces more rigorous reporting requirements compared to the Non-Financial Reporting Directive (NFRD). Companies must now provide detailed disclosures on how sustainability issues impact their business and how their operations affect people and the environment. This includes:
- Detailed disclosures on sustainability risks and opportunities.
- Clear information on the company's strategy and targets for managing sustainability impacts.
- Comprehensive reporting on environmental, social, and governance (ESG) factors, including climate-related information aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
- Assurance of sustainability information, ensuring accuracy and reliability.
Under the CSRD, the reporting requirements are more extensive and structured, compelling companies to disclose their sustainability strategies and the impact of their operations on society and the environment. This aims to enhance transparency and accountability, providing stakeholders with more reliable and comprehensive ESG information. Additionally, the CSRD reporting requirements mandate third-party assurance to verify the accuracy and reliability of the reported sustainability data, thereby improving the credibility and trustworthiness of the information provided.
NFRD versus CSRD
The transition from NFRD to CSRD marks a significant shift in the regulatory landscape of sustainability reporting. Key differences between the NFRD and CSRD are as follows:
- Scope: The CSRD applies to a broader range of companies, including all large companies and listed small and medium-sized enterprises (SMEs), whereas the NFRD was limited to large public-interest entities with over 500 employees. This expanded scope means that more companies are now required to comply with CSRD regulations.
- Reporting Standards: The CSRD mandates the use of EU sustainability reporting standards, ensuring more consistent and comparable data. In contrast, the NFRD allowed for more flexibility in reporting, leading to variability in the quality and comparability of the information provided.
- Assurance: The CSRD requires third-party assurance of reported sustainability information, enhancing the credibility and trust of the data. This is a significant upgrade from the NFRD, which did not mandate external assurance.
These differences highlight the shift towards more stringent and uniform reporting standards under the CSRD, aimed at improving the quality, consistency, and reliability of sustainability information provided by companies. The CSRD also emphasizes the importance of third-party assurance to ensure the accuracy and reliability of reported data, further enhancing stakeholder trust and confidence.
CSRD scope and applicability
The CSRD significantly broadens the scope of companies required to report, including:
- All large companies meeting two out of three criteria: more than 250 employees‚ €40 million in net turnover, or €20 million in total assets.
- All companies listed on EU-regulated markets, except for listed micro-enterprises.
- Non-EU companies generating a net turnover of more than €150 million in the EU and having at least one subsidiary or branch in the EU.
This expanded scope ensures that a larger number of companies are now subject to CSRD regulations, promoting greater transparency and accountability in sustainability reporting. The inclusion of non-EU companies with significant activities in the EU also underscores the directive's broad applicability, ensuring that all relevant entities are covered regardless of their geographic location.
By encompassing a wider range of companies, the CSRD aims to create a more comprehensive and inclusive framework for sustainability reporting, encouraging companies of all sizes and sectors to adopt sustainable business practices. The directive's stringent reporting requirements and mandatory third-party assurance further ensure that the reported information is accurate, reliable, and useful for stakeholders, ultimately driving better ESG performance and long-term value creation.
What needs to be done to make the transition happen
Transitioning from the NFRD to the CSRD requires companies to undertake several critical steps to ensure compliance with the new regulations.
- Internal Assessment
Begin with a comprehensive internal assessment to understand the differences between the CSRD and NFRD reporting requirements. Identify gaps in your current reporting practices and determine what additional data needs to be collected. This involves reviewing the new CSRD regulations in detail and evaluating how they impact your current processes.
- Engage Stakeholders
Engage key stakeholders, including board members, senior management, and external advisors, to align on the new reporting requirements and their implications. Effective stakeholder engagement ensures that everyone involved understands the changes and their responsibilities. Involve stakeholders early in the process to gather their insights and foster collaboration.
- Upgrade Reporting Systems
Enhance your existing reporting systems and processes to collect, analyze, and report the additional data required by the CSRD. This might involve investing in new software or upgrading current systems to handle more complex data requirements. Ensure that your reporting infrastructure can meet the new standards for accuracy and transparency.
- Training and Capacity Building
Train relevant staff on the new CSRD requirements and ensure they have the necessary skills to comply. This includes providing ongoing training sessions and resources to keep your team updated on the latest regulations and reporting standards. Capacity building is crucial for maintaining compliance and improving the quality of your sustainability reporting.
- Third-Party Assurance
Engage with third-party assurance providers to meet the CSRD's assurance requirements for sustainability information. Third-party assurance enhances the credibility and reliability of your reported data, building trust with stakeholders and ensuring compliance with the CSRD regulations.
Decision tree for CSRD eligibility
To determine if your company falls under the scope of the CSRD, it’s crucial to assess your company’s characteristics and operations against the new criteria. Here is a more detailed questionnaire that will help you understand your eligibility for the CSRD:
- Company Size Criteria:
- Does your company have more than 250 employees?
- Does your company have a net turnover of more than €40 million?
- Does your company have total assets exceeding €20 million?
If you answer "yes" to at least two out of these three questions, your company is classified as a large company under the CSRD.
- Market Listing: Is your company listed on an EU-regulated market?
If "yes," your company falls within the scope of the CSRD, regardless of size.
- Non-EU Companies:
- Does your company generate a net turnover of more than €150 million within the EU?
- Does your company have at least one subsidiary or branch located in the EU?
If you answer "yes" to both questions, your non-EU company must comply with the CSRD.
- Public Interest Entities: Is your company a bank, insurance company, or other institution classified as a public interest entity?
If "yes," your company must comply with the CSRD.
This questionnaire helps clarify if your company needs to comply with the CSRD based on the specific criteria set by the new regulations. Understanding your eligibility is the first step in transitioning from NFRD to CSRD and meeting the new CSRD reporting requirements.
Let’s have a look at real-life examples of successful transitions from NFRD to CSRD
Several companies have demonstrated best practices in adapting to the new regulations. The following examples highlight how organizations can effectively manage the increased reporting requirements and broader scope of the CSRD:
- Siemens has been proactive in adapting to the new CSRD requirements. Their sustainability initiatives, known as Siemens EcoTech, have set ambitious targets to address sustainability issues comprehensively. For instance, Siemens aims to achieve carbon neutrality by 2030 and has already reduced its carbon footprint by 54% since 2014. With the transition to CSRD, Siemens has enhanced its data collection and reporting processes to provide more detailed disclosures on sustainability risks and opportunities. By integrating more detailed sustainability disclosures and aligning with the CSRD's stringent requirements, Siemens continues to maintain compliance and improve its transparency in sustainability practices.
- Philips has leveraged the transition from NFRD to CSRD to strengthen its commitment to sustainability. In 2023, Philips delivered a strong ESG performance, achieving significant milestones such as generating 70% of its sales from Green and Sustainable products and services and reducing operational carbon emissions by 30%. The transition to CSRD prompted Philips to expand its scope of reporting to include more comprehensive environmental, social, and governance (ESG) factors. Philips has upgraded its internal assessment processes to identify gaps and align with CSRD reporting standards, engaging external advisors to ensure compliance. This proactive approach has enabled Philips to provide more detailed and reliable sustainability reports, enhancing stakeholder trust and compliance with CSRD.
What is the role of Zuno Carbon in facilitating CSRD compliance?
Zuno Carbon offers comprehensive solutions to help companies transition from NFRD to CSRD, meeting stakeholder expectations and achieving sustainability goals. By implementing a robust ESG stakeholder engagement framework, companies can enhance transparency and collaboration, ensuring compliance with CSRD reporting requirements.
Streamlined Approval Workflows
Zuno Carbon's platform features approval workflows that assign data owners and approvers to streamline collaboration and reduce errors. This ensures that the right people are involved in the reporting process, enhancing accountability and accuracy.
Comprehensive ESG Reporting
Utilizing multiple frameworks to meet reporting requirements, Zuno Carbon ensures stakeholders are informed of progress. Their tools support the collection, analysis, and dissemination of ESG data, helping companies comply with the stringent CSRD reporting requirements.
Effective Dashboard Visualizations
Zuno Carbon provides advanced dashboard visualizations to help companies track their sustainability performance. By visualizing emissions data and aligning with Science-Based Targets (SBTi) to set decarbonization targets, companies can communicate their progress effectively and secure stakeholder buy-in.
To learn more about how Zuno Carbon can support your sustainability initiatives and navigate the complexities of CSRD reporting requirements, book a demo today. Our comprehensive solutions and expertise will enhance your ESG performance and ensure you meet all regulatory obligations.
Frequently Asked Questions (FAQs)
Which companies are in scope for NFRD?
The Non-Financial Reporting Directive (NFRD) applies to large public-interest companies with more than 500 employees. This includes listed companies, banks, insurance companies, and other companies designated by national authorities as public interest entities.
Which companies are in scope for CSRD?
The Corporate Sustainability Reporting Directive (CSRD) expands the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises). It will gradually include small and medium-sized enterprises (SMEs) and non-EU companies with significant activities in the EU.
