Corporate Sustainability Reporting Directive

About CSRD

CSRD stands for “Corporate Sustainability Reporting Directive”, roughly translated as the Corporate Sustainability Reporting Directive. This is a directive of the European Union (EU) adopted to strengthen the requirement of transparency and accountability on environmental, social and governance (ESG) factors for businesses. The CSRD replaces the previous directive, the Non-Financial Reporting Directive (NFRD), which raises the standard and scope of reportable subjects.

Background of birth

In the context of climate change, biodiversity loss, resource crisis and increasing requirements from investors and the community for transparency, the EU has decided to strengthen the legal framework for sustainability reporting. The CSRD was adopted in 2022, with the aim of ensuring companies operating in Europe make full, consistent, and comparable disclosures about their impact on society and the environment.

Subjects of application

CSRD has a very broad scope, applicable to:

• Enterprises listed on the EU stock market (except for small and micro enterprises);
• Businesses with more than 250 employees or net sales of more than 40 million euros, or total assets of more than 20 million euros;
• The subsidiaries of the international group operate significantly in the EU;
• Non-EU businesses have revenues in excess of EU regulations (over 150 million euros/year) and have at least one subsidiary or branch in the EU.

This means that not only European companies but also foreign enterprises with large business activities in this market are also subject to CSRD.

Content of the CSRD report

Enterprises must disclose detailed information about:

• Environmental: Greenhouse gas emissions, energy use, water, resources, biodiversity, product life cycle impacts, etc.
• Social: Labor relations, human rights, diversity and inclusion, community development, etc.
• Governance: Governance structure, business ethics, corruption prevention, risk management, etc.

These indicators must be presented according to standards issued by the European Union, called ESRS (European Sustainability Reporting Standards). The report must have the same independent audit as the financial statements.

Implementation progress

CSRD is implemented according to the roadmap each year:

• From 2024: Applicable to businesses that have been subject to NFRD regulation.
• From 2025: Expand to large unlisted enterprises that meet the criteria of personnel, revenue or assets.
• From 2026: For small and medium-sized enterprises listed on the EU exchange.
• From 2028: Non-EU businesses with business activities in the EU exceeding the regulatory threshold.

Implications and impact on businesses

CSRD promotes transparency, helping investors, customers, and partners have a clear view of the sustainable performance of the business. Businesses must review all activities, risk management processes, supply chains, products and services to comply with the new standards. This requires investing in data systems, personnel, processes, and reporting technology.

In addition, CSRD compliance also brings long-term benefits such as improving brand reputation, access to international capital flows, reducing legal risks, and contributing to global sustainable development.

Challenges in implementing CSRD

• Large workload: Businesses, especially small and medium-sized companies, will have difficulty setting up a system for collecting, processing, and reporting ESG data in a methodical manner.
• Lack of resources: The demand for experts, technology, and independent audit solutions is increasing.
• Requires coordination of many departments: Reporting is not only the responsibility of the accounting department but also needs interdisciplinary coordination such as human resources, operations, marketing, supply chain, risk management, etc.
• Changing corporate culture: Businesses need to build a sustainable mindset right from leaders to employees so that compliance becomes a core value.

CSRD is an important step forward in the journey to promote sustainable development in Europe and globally. This is both a challenge and an opportunity for businesses to demonstrate their substantive commitment to environmental, social and governance responsibility. Early preparation, building a transparent and effective reporting system will be the key to helping businesses stand firm against the increasing requirements of the market and modern society.