23 November 2022 — Publication
Updated on 3 March 2023
The EU policymakers reached an agreement on the Corporate Sustainability Reporting Directive (CSRD) that will come into force 20 days after its publishing in the EU Office Journal (16/12/2022). It brings sustainability reporting to the same level as financial reporting for the first time ever. This is fundamental to support the EU Green Deal’s ambitions and transform Europe into the first climate neutral economy by 2050.
The CSRD introduces more detailed reporting requirements than its predecessor the Non-Financial Reporting Directive (NFRD). 50,000 companies will now have to comply with the new rules, compared to 12,000 for the NFRD. Companies will have to disclose sustainability information in their management report according to mandatory European sustainability reporting standards and file it in a digital, machine-readable format. The CSRD also requires limited assurance on sustainability reporting. In the FAQs below, we provide a snapshot of these key changes that CSRD brings.
The accountancy profession will need to be ready for this crucial shift and make sure we can support the CRSD’s reporting and assurance aspects. Read our statement on the CSRD.
We are happy to continue the discussion on sustainability matters and elaborate on the topics covered. Please contact [email protected] to discuss this further.
Moreover, undertakings in the CSRD scope will also have to comply with Article 8 of the Taxonomy Regulation.
A subsidiary is exempted from the CSRD obligations if the parent undertaking produces a consolidated sustainability report that conforms with the CSRD. This subsidiary exemption also applies to subsidiaries that are public interest entities, unless they reach the large undertaking thresholds (which are listed public interest entities as per the Accounting Directive).
Such exempted subsidiaries must include in their management report:
Where significant differences are identified between the risks and impacts of the group vs the subsidiaries, the parent company should provide an adequate understanding of the risks and impacts of their subsidiaries, including information on their due diligence processes where appropriate.
Subsidiary exemption should also apply when the parent undertaking is an undertaking established in a third country that produces reporting sustainability information in accordance with European or equivalent sustainability reporting standards. As the assessment of equivalence of sustainability reporting standards will take place at a later stage, transitional provisions have been put in place for seven years so that Member States shall permit EU subsidiaries to report under the European standards.
A company under the scope must report information necessary to understand the company’s impacts on sustainability matters and how they affect the company’s development, performance and position. A company must report according to the EU standards (see Question 6).
The information must contain:
Listed SMEs as well as small and non-complex financial institutions as listed in Article 19a (5) may comply with proportionate requirements using proportionate SMEs reporting standards.
Companies shall include information in the management report through a dedicated section. This means that companies must bring sustainability reporting forward to the time they publish their annual report.
Companies must report in accordance with the European sustainability reporting standards adopted by the EC via delegated acts after technical advice of EFRAG (see Question 7).
The EC shall adopt the European sustainability reporting standards (ESRS) via delegated acts as follows:
EFRAG has been mandated to develop a technical advice on ESRS. The EC shall take this into consideration when adopting delegated acts.
The EC will review the standards at least every 3 years, taking into account relevant developments, incl. developments in international standards.
The ESRS shall specify the information that an undertaking needs to report and, where relevant, the structure to report that information (see Question 4).
Companies shall prepare their management report in the electronic reporting format and mark-up their sustainability reporting to upload them to the upcoming European Single Access Point (ESAP) (as per Delegated Regulation (EU) 2019/815 on single electronic reporting format).
Independent third-party assurance is mandatory (as from 2025 on the 2024 year-end reports).
The opinion on the sustainability reporting should be based on a limited assurance engagement.
The CSRD foresees moving to reasonable assurance after assessing whether reasonable assurance is feasible for both statutory auditors and undertakings.
See our dedicated FAQs on sustainability information assurance.
Assurance is given on:
Member States may apply national assurance standards, procedures or requirements as long as the EC has not adopted an assurance standard covering the same subject matter.
The EC shall be empowered to adopt, by means of delegated acts, limited assurance standards before 1 October 2026.
By 1 October 2028, the EC shall adopt assurance standards for reasonable assurance, following an assessment to determine if it is feasible for the auditors and for the undertakings. The EC should then specify when reasonable assurance would be required.
The CSRD requires the statutory auditor to express an opinion on the sustainability reporting, mainly to “help ensure the connectivity between, and consistency of, financial and sustainability information”.
Shareholders with more than 5% voting rights or 5% capital of a company have the right to ask to involve an accredited third party to “prepare a report on some elements of the sustainability reporting”. This accredited third party cannot belong to the same audit firm or network as the auditor carrying out the statutory audit.
Members States may allow another statutory auditor or an independent assurance services provider (IASP) to express an opinion on sustainability reporting. Any assurance services provider will have to follow the standards adopted by the EC.
If a Member State makes use of an option to allow an IASP to express an opinion on sustainability reporting, it shall also allow another statutory auditor to do so.
IASPs are required to follow equivalent requirements as the ones included in the Audit Directive 2006/43/EC, especially on professional education, quality assurance, ethical requirements, including independence.
The IASP can benefit from a ‘passporting regime’ to provide their services across borders if another Member State opted to allow an IASP to provide assurance services on its territory.
Statutory auditors should meet specific requirements in addition to the necessary educational competences required by the Audit Directive 2006/43/EC to be allowed to carry out assurance engagements of sustainability reporting. The examination of professional competence shall guarantee the necessary level of theoretical knowledge and the ability to apply such knowledge in practice. The test of theoretical knowledge should cover the following subjects:
The statutory auditor must complete at least eight months of practical training in assurance of annual and consolidated sustainability reporting or other sustainability related services. The CSRD includes transitional arrangements for statutory auditors that have been qualified before 1 January 2024.
In case Member States have taken the option to authorise IASP, they should set out equivalent requirements as regards training and examination.
 Possibility to opt-out for the first two years if the SME provides a statement explaining why their management does not capture sustainability information.
 For the first three years, in case the necessary information is not available, the company shall explain the efforts made to obtain information on its value chain, the reasons why it couldn’t be obtained and plans to obtain such information in the future.
* information updated on 03/03/2023