An overview of the Corporate Sustainability Reporting Directive (CSRD) – What (IT and software) companies need to know

In today’s world, companies are under increasing pressure not only to achieve economic success. It is also about assuming social and environmental responsibility. The Corporate Sustainability Reporting Directive (CSRD) is an initiative of the European Union that aims to improve the disclosure of sustainability information by companies. It is a further development of the previous Non-Financial Reporting Directive (NFRD) and a response to the growing importance of Environmental, Social and Governance (ESG) factors. The CSRD aims to establish uniform standards for reporting on sustainability-related information in order to increase the transparency, comparability and quality of these reports. Ultimately, this should help to promote sustainable development.

The development of sustainability reporting in brief

Non-Financial Reporting Directive (NFRD): In 2014, the European Commission adopted the Directive on the disclosure of non-financial information. Its primary objective was to hold companies accountable and enable stakeholders to monitor and assess the ESG performance of companies. In short, this directive requires specific large companies to be transparent about their operations and how they address ESG challenges.

Corporate Sustainability Reporting Directive (CSRD): As a further development of the NFRD, the European Union introduced the CSRD in 2021. The CSRD serves to further improve the disclosure of sustainability information by companies. Essentially, the CSRD extends the scope of the NFRD to a larger number of companies and introduces stricter reporting obligations. A central component of the CSRD is the obligation to apply globally recognised standards for sustainability reporting. The Global Reporting Initiative (GRI) plays a key role here. The GRI is an independent international organisation that develops standards for sustainability reporting. These standards serve as guidelines for companies to record and communicate relevant environmental, social and governance aspects in their reports. From 2025, companies that were previously subject to the NFRD reporting obligation will be required to disclose their progress from 2024. The group of companies that will be required to report will be gradually expanded until 2029.

European Financial Reporting Advisory Group (EFRAG): EFRAG’s aim is to establish standards for sustainability reporting. Those companies that have already been involved in sustainability reporting (for example through the Global Reporting Initiative, GRI) will not encounter any fundamental changes, but rather extensions. In addition, the reliability of the published information is guaranteed by independent audits.

Companies affected by the Corporate Sustainability Reporting Directive (CSRD)

Small and medium-sized enterprises (SMEs) in particular are therefore faced with the challenge of dealing with sustainability reporting for the first time. Financial markets, investors and consumers are paying increasing attention to a sustainable business model. Such a model is seen as an indicator of the quality of management and can be decisive for future business success. Sustainability is therefore becoming a business opportunity for companies in the necessary transformation process and should not be seen as a threat.

• 2022: Formal confirmation of the CSRD
• 2023: Adoption of the cross-sector EU reporting standard
• 2024: Adoption of the sector-specific EU reporting standards and the standard for SMEs and non-EU companies
• 2025: Annual reports for the 2024 reporting year for companies that are already required to report within the meaning of the CSR-RUG
• 2026: Annual reports for the 2025 reporting year for large companies that are not yet required to report within the meaning of the CSR-RUG
• 2027: Annual reports for the 2026 reporting year for listed SMEs, small and non-complex credit institutions and captive (re)insurance companies
• 2029: Annual reports for the 2028 reporting year for non-EU companies with EU branches and/or subsidiaries

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The five steps of sustainability reporting

1. The status and environment analysis is the first step towards a comprehensive sustainability strategy. Internal and external factors that could influence the company are carefully analysed and evaluated. This includes analysing current business practices and identifying potential risks and opportunities related to environmental, social and governance (ESG) factors. A thorough status & environment analysis lays the foundation for the development of an effective sustainability strategy.
2. Developing a sustainability strategy and defining the content of the report is a crucial step for companies that want to improve their sustainability practices. Long-term goals and action plans are defined in order to optimise ESG performance and communicate this transparently to stakeholders.
3. The implementation of an effective sustainability management system is crucial in order to successfully realise the defined goals and strategies. This includes the integration of sustainability aspects into business processes, the establishment of responsibilities and the provision of resources for sustainability initiatives. Through structured sustainability management, companies can ensure that their measures are implemented efficiently and achieve long-term positive effects.
4. Sustainability reporting is becoming an essential part of a company’s transparency and accountability process. It involves summarising and publishing the data and information collected on the company’s ESG performance in a formal report. Reporting provides stakeholders with insights into the company’s sustainability performance and enables them to make informed decisions and accompany the company on its sustainability journey.
5. Continuous improvement is a central principle of sustainable management. Companies should regularly review their sustainability goals, strategies and measures to ensure that they meet changing requirements and expectations. By systematically evaluating and adapting their sustainability efforts, companies can achieve positive long-term effects and strengthen their competitiveness.

This information must be included in the CSRD sustainability report

1. Dual materiality refers to the identification and disclosure of information that is material to both the company and its stakeholders. In the CSRD sustainability report, companies must therefore disclose not only those aspects that are material to their own business activities, but also those that are considered material by their stakeholders.
2. Companies must be transparent about their business model, strategy and corporate governance. This includes information on how the company intends to achieve its business goals, what long-term strategies it is pursuing and how the company management directs and supports the implementation of sustainability measures.
3. In the CSRD sustainability report, companies must disclose the identified environmental, social and governance risks and opportunities that may have an impact on their business.
4. Companies are required to disclose information about their due diligence processes in relation to environmental, social and governance factors. This includes the methods and procedures used by the company to identify, assess and manage risks associated with its business activities.
5. In the CSRD sustainability report, companies must present their sustainability performance to date, including the milestones, targets and progress achieved in relation to ESG aspects. This enables stakeholders to track the company’s development in terms of sustainability.
6. Companies must provide an estimated timeframe for achieving their sustainability goals. This includes information on when the company intends to achieve certain targets and what measures will be taken to realise these targets.
7. In the CSRD sustainability report, companies must disclose information about their supply chain, including the measures the company takes to ensure that its suppliers also comply with sustainable practices. This includes the assessment of supplier risks and the implementation of measures to promote sustainability along the entire supply chain.
8. Companies must provide information in the CSRD sustainability report on the confirmation and verification of their sustainability reporting by third parties. This includes information on whether the report has been reviewed by external auditors and whether there were any recommendations or suggestions for improvement.

From effort to added value of the CSRD sustainability report: a hopeful outlook

Although preparing a CSRD sustainability report undoubtedly requires time and resources, companies should view this process as an investment in their long-term sustainability strategy. Ultimately, a transparent and meaningful report can not only fulfil the bureaucratic requirements, but also help shape a more sustainable future.