EU Corporate Sustainability Reporting Directive Proposal (CSRD)

Last updated: December 16, 2024

Overview

What is CSRD? 

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive mandating comprehensive sustainability. It requires businesses to report on their environmental, social, and governance (ESG) impacts, to improve transparency and accountability across the EU. The CSRD introduces standardized reporting via the European Sustainability Reporting Standards (ESRS), ensuring that sustainability information is consistent and comparable across sectors.

The European Sustainability Reporting Standards (ESRS) were originally planned to include sector-specific standards for high-impact industries such as textiles, agriculture, electronics, and others by mid-2024 under the CSRD. However, in March 2023, the European Commission instructed EFRAG to prioritize sector-agnostic standards, delaying the development of sector-specific standards until 2026.

Despite this delay, companies should start preparing now by adhering to the general ESRS adopted in July 2023 to remain on track with CSRD timelines. For high-risk industries where most impacts arise in the value chain, traceability is essential for meaningful sustainability reporting. Understanding supplier locations, manufacturing processes, and materials used is critical to conducting an accurate impact analysis.

With TrusTrace, companies can gain the visibility needed to manage supply chain risks and meet compliance standards for both current and evolving regulations. TrusTraces’ flexible platform allows brands to gather relevant data today while adapting easily to future regulatory requirements, to prepare for any compliance challenge ahead.

Requirements 

1. Business Model and Strategy:
   1. How sustainability considerations are integrated, including risks, opportunities, and alignment with the 1.5°C Paris Agreement goal.
   2. Implementation of sustainability in the strategy.
2. Targets:
   1. Sustainability targets and progress towards them.
3. Governance:
   1. Role of governance bodies in sustainability oversight.
4. Policies:
   1. Company policies on sustainability matters.
5. Due Diligence:
   1. Processes for identifying and mitigating actual or potential adverse impacts within the value chain.
6. Risks:
   1. Identification of sustainability-related risks and dependencies, and mitigation actions.
      
      

Key Reporting Obligations and Principles

• Double Materiality: Companies must report on how their activities impact people and the planet and how sustainability issues affect business operations.

• Accessibility and Format: Reports should be a separate chapter in the management report, available on the company’s website in a digital, accessible format.

• European Sustainability Reporting Standards (ESRS): Reporting content and format will be standardized across the EU through ESRS.

• Independent Verification: An independent third-party audit will be required:

  • Limited assurance by October 2026.

  • Reasonable assurance by October 2028.
    
    

Standardized Reporting Through the ESRS

The European Sustainability Reporting Standards (ESRS) are a set of detailed guidelines developed by the European Financial Reporting Advisory Group (EFRAG) to standardize sustainability reporting across the EU.

The ESRS “Topical Standards” cover specific sustainability themes that outline required data on environmental, social, and governance (ESG) matters:

• Environmental: Climate change mitigation/adaptation, water and marine resources, resource use and circular economy, pollution, and biodiversity.
• Social: Diversity and equal opportunity, working conditions, human rights, and fundamental freedoms.
• Governance: Roles of administrative and supervisory bodies, business ethics, anti-corruption, relationships with partners, payment practices, internal controls, and risk management systems.

ESRS employs the "double materiality" concept, meaning companies must report on both:

• Impact Materiality: How their operations affect people and the planet.
• Financial Materiality: How sustainability issues affect the company’s financial performance.

publication & Audit

Member States shall ensure that the administrative, management, and supervisory bodies are collectively responsible for the publication of the sustainability report by the requirements. They must also require statutory auditors* and audit firms to conduct the assurance of the report. Finally, Member States shall ensure that companies publish their report within 1 year after the balance sheet date, together with a statement by the auditors. 

Any subsidiaries of a parent company shall be exempted from the publication requirement if the sustainability report of the parent company includes information about it. 

* A statutory auditor is a person or entity with an auditing role, whose appointment is mandated by the terms of a statute. 

Consequences 

Member States must provide effective and proportionate penalties applicable to infringements of this Delegation including the following sanctions: 

• Companies will have to publicly disclose a statement about the infringement detailing the nature of the infringement and the person or entity responsible for it.  

• An order will be issued requiring the person or entity to cease and prevent any repetition of the infringement 

• Companies will face administrative financial sanctions.  

When determining the penalties and sanctions, Member States must consider the gravity and duration of the breach, but also the degree of liability, the financial strength, the interests, and the level of cooperation of the person or entity responsible for the breach.  

Timeline

The directive is in force since 5 January 2023. It applies to all companies in the EU, but the enactments happen in a phased approach depending on the size of the company:

Key Takeaways 

The CSRD requires companies to build a comprehensive overview of their social and environmental impact. Fashion has been identified as a high-risk industry, not until 2026 will the sector-specific requirements start. For a wide range of companies), most of the impact lies in the value chain. Even though sustainability reporting requires more than traceability, implementing traceability is a necessary step for the brand to understand and disclose its impact.

Without specific knowledge on where the suppliers are established, their manufacturing processes, and the materials and chemicals used in the products, most of the impact analysis will be unfounded.

How TrusTrace can help? 

With TrusTrace you have the visibility and proof you need to proactively manage supply chain risks and ensure compliance with current and future regulations. The platform’s built-in flexibility empowers you to gather the right data for today’s standards and seamlessly adapt to meet evolving regulatory demands, keeping your business one step ahead of compliance challenges. Book a consultation with one of our experts to see which products can accelerate your brand’s traceability journey.