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The new EU Corporate Sustainability Reporting Directive (CSRD) came into force at the beginning of this year. It will gradually extend sustainability reporting to almost all European listed companies by the end of the decade. It will also cover foreign companies with significant operations in the EU.

In the first phase, the reporting obligation will apply to the largest companies, i.e. listed companies with more than 500 employees, and large national public utility companies. They will be required to report sustainability issues in their 2025 financial statements based on data collected for that year according to CSRD standards. From the start of next year, sustainability reporting will be extended to larger mid-sized companies, and from 2026 the obligation will also cover listed SMEs. In the future, sustainability reporting will therefore be mandatory for all listed companies except for the smallest micro companies.

Replaces sustainability reporting

In practice, the reform corrects the previously criticized patchy and inconsistent sustainability reporting. The aim is to harmonize the content, reliability, and comparability of corporate sustainability reporting. This will make it easier for partners, investors, and financiers for example, to access information and assess how responsible a company is in practice and whether it is meeting the EU's green sustainability goals.

The aim is to increase transparency and highlight how non-financial information affects business performance. The focus of the reporting is on the 'double bottom line': on the one hand, to look at the impact the company's business has on people and the environment, and on the other hand, to measure how different sustainability factors in turn impact the business.

The impact of the assessment

The CSRD will create additional work for companies, as they will also have to report on all indirect emissions from their value chain (scope 3). In addition, reporting processes and data will need to be of high quality and independently validated.
Each sustainability issue is assessed not only in terms of its impacts but also in terms of the risks and opportunities it presents. Looking beyond the company's operations, for example to the supply chain, will improve the company's understanding of its operating environment and the associated threats and opportunities. The EU hopes this will encourage companies to make more conscious investments in green and sustainable development and, among other things, to invest in building a more socially just working life.

At the same time, reporting can bring significant benefits and advantages for companies: for example, it will be easier to convince investors or financiers of the genuine green and responsible nature of a company's activities if there is verified evidence of these. And, especially in the early stages of the directive's implementation, fast adopters can use the information as a competitive advantage to differentiate themselves from other producers and to attract the best employees and partners into their chain.

Text: Nina Broström  Images: Shutterstock