Before the advent of CSRD, the Non-Financial Reporting Directive (NFRD) laid the foundation for sustainability reporting among large European Union (EU) companies. However, recognizing the evolving landscape and the need for more comprehensive disclosure, the European Commission introduced CSRD to supersede NFRD.
CSRD introduces a more robust framework, aiming to address gaps in its predecessor. This directive applies to all large EU and EU-listed companies, marking a significant expansion of its scope compared to NFRD. Even non-EU companies with substantial business interests in the EU market are brought under the umbrella of CSRD.
Who Falls Under the CSRD Umbrella?
CSRD casts its net wide, encompassing a diverse range of companies based on specified criteria. Large companies, defined by meeting at least two of the following criteria, are within the directive’s ambit:
- 250 or more employees
- More than €40 million in net turnover
- More than €20 million in total assets
Additionally, non-EU companies with a turnover of €150 million or more in the EU, having at least one subsidiary or branch in the union, are obligated to comply with CSRD. Notably, micro-enterprises with fewer than 10 employees and/or less than €20 million in net turnover are exempt.
When Will the CSRD Impact American Companies?
The implementation of CSRD unfolds in phases, creating a timeline for affected companies to adapt. The rollout spans from 2024 to 2028, taking into account factors like company size and applicable member state. By January 1, 2028, all companies within the directive’s scope must be fully compliant.
Phased Rollout Schedule:
- Large Public Interest Companies: Those with over 500 employees subject to NFRD will adhere to CSRD rules from January 1, 2024, with reports due in 2025.
- Large Companies Not Subject to NFRD: Companies with more than 250 million employees and/or more than €40 million in net turnover and/or more than €20 million in total assets must comply from January 1, 2025, with reports due in 2026.
- Listed SMEs: CSRD rules will apply starting January 1, 2026, with reports due in 2027. However, listed SMEs have the option to opt out until 2028.
Why the Rush? Companies Aiming to Get Ahead
With the impending CSRD regulations, American companies find themselves at a crucial juncture. Many forward-thinking organizations are recognizing the importance of getting ahead of these sustainability reporting requirements. Proactive engagement allows companies to not only meet compliance but also leverage sustainability as a strategic advantage, aligning with evolving market expectations and stakeholder demands.
As American companies navigate the intricate landscape of CSRD, the emphasis on sustainability reporting becomes a cornerstone of corporate responsibility. The transparency brought about by CSRD not only satisfies regulatory obligations but also paves the way for a more sustainable and accountable business ecosystem.
In the next installment, we will explore how companies can align with CSRD requirements and delve into the nuances of sustainability reporting in the American context. Stay tuned for an insightful journey into the future of corporate sustainability.
