In one of the biggest changes to sustainability reporting in years, the announcement of the EU’s Corporate Sustainability Reporting Directive (CSRD) will create a new benchmark for sustainability disclosures in the EU with implications for some large Australian companies.

The new legislation significantly increases the scope for mandatory reporting by EU-listed and private companies, as well as some foreign companies with EU subsidiaries. CSRD requires far greater levels of disclosure, transforming the way an organisation reports its impacts.

What are the key changes?
Organisations will report against 12 standards, called the European Sustainability Reporting Standards (ESRS). Although mandatory disclosures are still being debated, it is likely they will apply the concept of double materiality, which takes in both financial materiality and the impact of a company’s operations on society and the environment. Disclosures must be integrated into a company’s financial report and be digitally tagged. Limited assurance is mandatory.

What do the new standards involve?
The new draft ESRS standards were launched last November with the final standards to be released in June this year. The new requirements include mandatory reporting of Scope 1, 2 & 3 GHG emissions for all sectors – small, medium and large. There is a big focus on climate, with companies expected to align to the 2015 Paris Agreement. Organisations must also provide information about risks, opportunities and impacts connected to its operations and supplier value chain, such as pollution, gender pay differences and the human rights of workers.

When will the CSRD take effect?
CSRD has a phased-in approach that begins from 2025, depending on size and turnover. Larger companies who are already subject to the current Non-Financial Reporting Directive (NFRD), must start collecting data in 2024 for reporting in 2025. For organisations with a non-EU parent company, data should be collected in 2028 for reporting in 2029.

How many companies will CSRD affect?
Approximately 50,000 organisations in the EU and 10,000 foreign companies are likely to be subject to the CSRD. Estimates suggest that Australian companies represent about 6% of the non-EU organisations expected to comply with the new standards.

What are the criteria for Australian companies?
CSRD will apply to some Australian companies with a presence in the EU. Organisations with an EU subsidiary that is a large company, defined as meeting two of the following three criteria will be subject to the standards: more than 250 EU-based employees, a balance sheet above EU20million, or a physical branch that generated net turnover of EU40 million.

How can my business prepare?
If your company falls under the CSRD or has plans to increase its EU operations, we recommend reading the draft ESRS standards here and to follow the final update in June. You can also prepare for the additional requirements by doing an internal audit of your company’s key sustainability issues, identifying all risks, opportunities and impacts. Talk to Futureproof about how we can help support and accelerate sustainability for your business.