The Corporate Sustainability Reporting Directive (CSRD) is an EU legislation that standardizes and expands the scope of ESG reporting for companies operating or selling within the EU. It is an expansion of the previous Non-Financial Reporting Directive (NFRD). Whereas the NFRD only applied to companies with 500+ employees, CSRD extends to companies with 250+ employees, €50M turnover, and €25M in total assets. This makes the CSRD the most comprehensive corporate sustainability reporting mandate globally.
Any company operating or selling within the EU
The CSRD’s new requirements aim to make sustainability reporting more reliable and comparable, helping investors shift their focus toward sustainable technologies and industries. By extending the reach of companies required to report, 40,000 EU and 10,000 non-EU companies will be required to report by 2027, greatly expanding the ESG tracking and intentions of the private sector.
Large companies already subject to the NFRD will likely have to shift some reporting efforts to meet the small changes outlined by the CSRD, while smaller companies that have never embarked on sustainability reporting could face a learning curve.
Although it is unclear exactly how and when the EU Commission will start to sanction businesses that fail to comply, the CSRD outlines the potential for significant penalties, with specifics depending on each Member State. For example, German companies must adhere to their national version of the CSRD or face steep fines, €10M, 5% of their total annual turnover, or twice the profits gained or losses avoided from non-compliance. In contrast, French companies won’t automatically face fines for failing to report. Penalties are only imposed if an interested party requests CSRD information that hasn’t been provided. In such cases, a judge could enforce financial penalties.
Will require climate targets, concrete transition plan,s and reporting across companies,
Reporting requirements will start in 2024 for large companies, with SMEs following in subsequent years.
| 2025 | Phase 1: Companies subject to NFRD report for 2024 |
|---|---|
| 2026 | Phase 2: large companies report for 2025 |
| 2027 | Phase 3: SMES’s report on 2026 |
| 2028 | Phase 4: Full Reporting for all companies with 250+ employees €50M turnover, and €25M in total assets. |
The CSRD is in development and roll out of sector specific guidelines, the health and beauty industry specific guidelines are still to be determined. However, the moment for CSRD compliance period has arrived. Here’s what cosmetic brands, labs, ingredient suppliers and retailers can do to prepare
Determine if your brand falls within the scope of CSRD
Establish or Improve a Robust Reporting Framework
3. Conduct a Materiality Assessment
4. Enhance Data Collection and Management