1. What is the difference between NFRD and CSRD
Non-Financial Reporting Directive (NFRD) was used to report on Sustainability issues for large companies. However, the European Commission identified that the information companies reported was insufficient; therefore, it developed the CSRD.
The CSRD will require company sustainability data to be submitted in a standardized digital format allowing for better comparability between reports, ending greenwashing, and strengthening the EU’s social market economy. This is meant to provide a clear format for company sustainability reporting.
One significant change between NFRD and CSRD is that companies will be obliged to disclose their due diligence process about sustainability matters in their operations, their value chain, and the principal actual or potential adverse effects.
Under the proposed value chain sustainability reporting, companies must report Scope 3 emissions. These indirect emissions result from the company’s upstream and downstream activities. They are hard to measure, as there is minimal visibility of these for several reasons. One of the most important areas for most companies is their Upstream and Downstream emissions.
CSRD will apply to:
1. all large EU companies, that is, EU companies (including EU subsidiaries of non-EU parent companies) exceeding at least two of the following criteria:
- more than 250 employees
- a turnover of more than €40 million; or
- total assets of €20 million
2. Companies with securities listed on an EU-regulated market, irrespective of whether the issuer is established in the EU or a non-EU country. This includes listed small and medium-sized enterprises (SMEs), except for certain listed micro-enterprises
3. Non-EU undertakings that meet the following:
- annual EU-generated revenues in excess of €150 million, and
- which also have either a large or listed EU subsidiary or a significant EU branch (generating €40 million in revenues).
- Timeframe – When submissions must occure
- 1st January 2024 - companies that are already subject to NFRD – Will need to report in 2025 for their 2024 data – Limited assurance required
- 1 January 2025 - Large companies that are not presently subject to NFRD – will need to report in 2026 on 2025 data.
- 1 January 2026 - listed SMEs, albeit subject to opt-out until 2028 – will need to report in 2027 for their 2026 data.
- 1st January 2028 – Non-EU companies that satisfy the requirements in Point 3 above- will need to report in 2029. The respective subsidiary or branch will publish CSRD-style sustainability reports for these non-EU undertakings at a consolidated level from 2028 onwards.
Entities that fall under the scope of CSRD will be required to comply with European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG).