CSRD ESSENTIALSTHE DEFINITIVE GUIDE TO THE EU CORPORATESUSTAINABILITY REPORTING DIRECTIVE

WITH THE SUPPORT OF

PASCAL DURAND, MEMBER OF THE EUROPEAN PARLIAMENT, CSRD RAPPORTEUR

2

Acknowledgments
THE DEFINITIVE GUIDE TO THE EU CORPORATESUSTAINABILITY REPORTING DIRECTIVE
ISBN 978-2-8027-7576-8

This project has been undertaken on the initiative and with thesupport of MEP Pascal Durand, rapporteur of the Corporate
Sustainability Reporting Directive

GlobalReporting
Initiative

Written and coordinated by Abrial Gilbertd’Halluin, Director EU and Engagement at GRI

We are grateful for their valuable inputs and forcontributing to the design of the infographics
to: Lefebvre – Sarrut Group (Giuffrè Francis
Lefebvre Dalloz Sdu Larcier Intersentia Stollfuß)

Reference: A. Gilbert-d’Halluin,
CSRD Essentials, 2024
https://www.globalreporting.org/CSRDEssentials

To order a printed copy at
Larcier-Intersentia(Lefebvre Sarrut group),
please flash this code

KEY CONTRIBUTORSOBSERVERS

Marc Boissonnet, Bureau Veritas/TIC Council

Griet Cattaert, UN Global Compact

Sophie Bridier, Lefebvre Sarrut Group

Paolo Mazzeo, EFRAG

Daniele Ciatti, E3G

Stefano Matonte, UN Global Compact

Filip Gregor, Frank Bold
Yona Kamelgarn, Group Caisse des Dépôts

PROOFREADING

Martin Michelot, TIC Council

Stefano Giacci, GRI

Yoshimi Onishi, Panasonic
Mylène Rahel Damamme, Decathlon

GRAPHIC DESIGN

Vita Ramanauskaité, Accountancy Europe

Scribble Design

Pierre-Louis Robert, Decathlon
Camille Sztejnhorn, Lefebvre Sarrut Group

SPECIAL THANKS TO THE OFFICE OF MEPPeter Paul van de Wijs, GRI

PASCAL DURAND FOR THEIR HELP WITH THE
PROJECT COORDINATION.

3

CSRD ESSENTIALS

Table of content

THE DEFINITIVE GUIDE TO THE EU CORPORATESUSTAINABILITY REPORTING DIRECTIVE

Foreword
NFRD vs CSRD: What’s new?
Scope
TimingEuropean Sustainability Reporting Standards (ESRS)
Legal interconnections
Reporting format
Consolidation of subsidiaries
Reporting by third-country companies
Audit & assurance
Materiality and internal supervision
SMEs and the value chain
Implementing & delegated acts
National implementation & penalties
Glossary
References

4
5
7
10
11
16
21
23
28
31
33
36
38
40
41
45

Table of figures
FIGURE 1

NFRD vs CSRD: what’s new?

FIGURE 2

CSRD: who and when?

6
9

FIGURE 3

What’s the timeline?

10

FIGURE 4

Sustainability matters covered in topical ESRSFIGURE 5

Legal interconnections

14-15
20

FIGURE 6 	Consolidation of a third-country parent group withsubsidiaries or branches in the EU

25

FIGURE 7 	Consolidation of a third-country parent company

that has listed subsidiaries in the EU

26

FIGURE 8 	Consolidation of a parent company in the EU thathas subsidiaries listed or not

27

FIGURE 9

Materiality assessment of sustainability data

35

FIGURE 10

Secondary legislations mandated by CSRD

39

CSRD ESSENTIALS

4WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Foreword
By Pascal Durand, MEP and CSRD rapporteurof sustainability information so far, creating real andrights record will be just as important as having a flawlesslasting value, away from short-term logics that focusesbalance sheet.

solely on profit maximization.
The EU is not alone in this journey. Globally, sustainability
Based on the CSRD, companies will need to report on thereporting has grown from a niche activity, adopted by

impact of their activities on the environment and society,a handful of companies, to a common and increasingly

as well as the related (financial) risks and opportunities

required practice for thousands of organizations

using ESRS; they will also be required to provide

worldwide. Today, more than 130 countries all over theassurance of reported information through standardized

world mandate voluntary or mandatory sustainability

reporting and transparency. The EU sends a strong signal

reporting. Since reporting obligations will also apply to a

to drive progress towards a more sustainable society andsignificant number of companies headquartered outside

conveys a message of hope and humanity regarding thethe EU, European decision-makers and the delegatedfight against daily abuses in global supply chains.

EU standard-setter (EFRAG) should maximize theOver the last decade, the way consumers and market

development of financial and impact-related standards

operators look at sustainability issues and corporate

Organizations will now have to assess how theircompatible with those already in use globally (suchbusiness accountability has evolved significantly. As

operations affect the wider world and will do so by

as GRI, the Task Force on Climate-related Financial

a consequence, the European Union had to adapt the

conducting a double materiality assessment process,Disclosures or the Carbon Project Disclosure).

legislation on corporate disclosure, in accordance withknown as ‘impact materiality.’ They will also have toits values and principles. With the final adoption of thegauge how sustainability issues, in turn, affect their

The CSRD can appear as a complex mandatory

Corporate Sustainability Reporting Directive (CSRD)

bottom-line or ‘sustainability-related financial materiality.’

regulation at first. The present work, carried out by

in December 2022 and the subsequent European

This will help make economic activity more ethicalvarious stakeholders in a collaborative and transparent

Sustainability Reporting Standards (ESRS), theand clean up the market. By declaring actions against

way, shows that its rules are, in fact, quite easy toEuropean Union now finds itself at a decisive moment

deforestation and social right abuses, companies will findunderstand and apply. I would like to thank warmly all of– a moment where the application of reporting rules

themselves in a clearer and more transparent competitivethose who contributed to these briefings, which continues

by market operators supervised by authorities can besituation compared with those that continue to importand sheds light on the legislator’s work.

transformational for the economy and society. This new

timber illegally or use child labor. In a nutshell, this marks

framework is not about undermining the business world,

the end of declarations made by companies purely forbut about ending the overly arbitrary and disparate nature

public-relation reasons: having an impeccable humanPascal DurandCSRD ESSENTIALS

5WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVENFRD vs CSRD: what’s new?
The CSRD (EU 2022/2464) did not emerge ex nihilo;anti-corruption and bribery issues. To that purpose, theits development is deeply embedded in recent history,

European Commission issued non-binding guidelines tostarting from 2014 when the Non-Financial Reporting

help companies disclose relevant information in a more

Directive (NFRD) came into force.

consistent and more comparable manner. If a company
decided not to disclose certain information, it was

The NFRD was a regulatory framework within therequired to provide a clear and reasoned explanation for

European Union (EU) designed to enhance transparency

this omission.

and disclosure of non-financial information by certain
large companies and groups within the EU. It was

The NFRD did not require assurance of the sustainability

adopted by the European Parliament and the Council of

information disclosed, although EU Member States

the European Union on November 22, 2014.

were free to set up their own assurance requirements.
Although it marked a milestone in the comparability of

The NFRD encouraged businesses to consider

sustainability disclosure, it had a rather limited scope both

environmental, social, and governance factors in theirwhen it came to reporting requirements and to the type ofbusiness strategies and operations, and requiredcompanies affected.

companies to disclose certain non-financial information. It
affected about 11,000 companies and directly referred toWith the CSRD, many more companies will have

the GRI Standards and to other frameworks.

to provide standardized qualitative and quantitative
information, both forward-looking and retrospective.

The directive applied to large public-interest entities(PIEs) with over 500 employees, including listedcompanies, credit institutions, and insurance companies,
as well as some other large companies brought within
the scope of application by decision of EU Member
States. Companies falling under the scope of the directive
were required to disclose non-financial information
either in their management report or in a separate
report published alongside their management report.
This statement covered information on environmental,social and employee matters, respect for human rights,

NFRD vs CSRD: what’s new?

6

FIGURE 1

NFRD

Non-Financial Reporting Directive
Disclose information on:

Approx. 11 700
companies including:
Large public interest
entities (> 500
employees) such as :- Listed companies- Banks and insurancecompanies, etc.
If they exceed somethresholds

2018: first report

AffectWhen ?

Approx. 42 500
companies including:2025: first report fromlarge listed companies

Small, medium andlarge public interest
entities (PIE)
Large companies
Third-countries
companies
If they exceed somethresholds

2026: first report fromlarge companies
2027: first report from
SMEs which are PIE(with option to opt out
to 2029)

Example: Large companies
2029: first report
should exceed at leastfrom third-country
two of the following threecompanies
criteria:- €25m (balance sheet
total);- € 50m net turnover;- 250 employees during
the financial year

CSRD

1. Environmental
2. Social and employee
matters
3. Respect for humanrights
4. Bribery and corruption+ to present generaldisclosures (businessmodel, due diligenceprocess, etc.)

Double materiality
in the NFRD’s guidelines(soft law)

On a voluntary basis
by Member States

Disclosure
requirements

Assesment
requirement

Disclose information on
10 topics in line with EU
standards (ESRS):

Double materiality inthe directive (hard law)

1. Climate change
2. Pollution
3. Water and marine
resources
4. Biodiversity andecosystems
5. Resource use and circular
economy6. Own workforce
7. Workers in the valuechain
8. Affected communities
9. Consumers and endusers
10.Business conduct(business model,
value chain, viewsof stakeholders, due
diligence, etc.)+ to present generaldisclosures

Online reporting /PDF format

In the management
report or in a separate
non-financial
statement

Voluntary disclosure
based on international,
European or nationalguidelines

Audit
requirement

ReportingformatLocatedreportingStandards

From limited assuranceof the reporting(for the first report) toreasonable assuranceof the reporting (after
the adoption of astandard on it no later
than 1 October 2028)

Human-readable
format of reportingwith structured
machine-readable
data, compliant with
European Single
Electronic Format(ESEF), based on
online XBRLSpecific section of the
management report

Mandatory disclosure
based on European
Sustainability ReportingStandards (ESRS),
including sectoragnostic and sectospecific standards
and a robust materiality
assessment

Corporate Sustainability Reporting Directive
Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

7WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Scope
The CSRD makes a big leap in scope compared to the■ Member States may choose to include some

NFRD it replaces. From the 11,000 companies included

companies in the list of PIEs at national level.

in the NFRD Scope, the CSRD will directly apply to about
42,500 companies with their headquarters in the EU.

What is a branch?
In EU law a branch is a place of business

Furthermore, certain financial products, such as pension

other than the head office which is a part ofschemes or companies dedicated to cross-border

an investment firm, has no legal personality,

EU, a few thousand companies with headquarters outside

investments (UITPs), are excluded from the scope of thisprovides activities or investment services,

the EU will also be covered by these new rules.

directive.

and which may also perform reception andWhile no official figure has been communicated by the

The type of companies covered by the directive in

On top of the above-mentioned entities, all theeach Member State are listed in Annex I of the Accounting

companies with their headquarters in the EU exceedingtransmission of orders in relation to one or morefinancial instruments for which the firm has

Directive (2013/34/EU). In most cases, it concerns public

at least two of the three thresholds listed below fallbeen authorized.

and private companies limited by shares or by guarantee.

within the scope of the CSRD2. The following thresholds

For companies which are not governed by the law of analso apply on a consolidated basis. They define “large

EU Member State, obligations are defined by the legal

companies” as per EU law:form which is comparable with the types of companies
listed in this specific annex.

■ average net turnover of EUR 50 million;■ average balance sheet of EUR 25 million;

Several types of companies fall under the scope of the■ at least 250 employees.

CSRD, depending on specific size criteria. This is thecase for large, small and medium public-interest entities

Any company with a lower turnover, balance sheet and/

(PIEs), meaning:or number of employees is defined as a micro, small andmedium enterprise. The following thresholds also apply■ Listed companies on regulated markets. Theseon a consolidated basis.

markets, such as certain stock exchanges, arerecognized by national authorities and function■ Micro-companies that do not exceed two of thein accordance with the provisions of EU rules onfollowing criteria are not within the scope of the“markets in financial Instruments” .
1■ Credit institutions, insurance companies, mutual or

directive:■ a net turnover of EUR 900,000;

other, including cooperatives.

■ a balance sheet of EUR 450,000;● Member States may choose to exclude central■ 10 employees.

banks and particular public credit institutions.

1 Directive 2014/65/EU (MIFID).
2 Based on the latest adjustments of the Commission as per the EU delegated actof 17.10.2023.

ScopeCompanies with their headquarter outside the EU andwith either a large, small or medium listed subsidiary, or abranch in the EU, fall under the scope of the CSRD if:■ the large, small or medium, subsidiary, is a publicinterest entity and listed on an EU-regulated market;■ the branch generates more than EUR 40 million of net
turnover a year;■ The company that owns the branch or controls thesubsidiary generates more than EUR 150 million in the
EU during at least two consecutive years.

Review clause of the directive
By April 2029, the Commission should provide anassessment of whether and how the scope should
be further extended, especially in relation to small
and medium-sized companies and to third-country
companies. It should also provide an assessment of
the number of SMEs which have used the dedicatednon-binding European Sustainability ReportingStandards (ESRS) for SMEs.

8

Scope9

FIGURE 2 –CSRD: who and when?
2025

on the 2024 data2026

on the 2025 data2027

on the 2026 data2028

on the 2027 data2029

on the 2028 data

Thresholds (m = million)
with balance sheet (total) in excess of €25m;
and/or net turnover in excess of €50m;
with more than 500 employees during the financial year.

Large listed companies

Exceeding at least two of the following three criteria:€25m (balance sheet total);€50m net turnover;
250 employees during the financial year.

Large companies and groups

Public interest entities (PIEs) other than large listed companies, credit institution and insurances

Pending Member State’s applicable rules.

Listed parent companies of a large groupwith balance sheet (total) in excess of €25m;
and/or net turnover in excess of €50m;
with more than 500 employees (consolidated basis) during the financial year.
Exceeding at least two of the following three criteria on a consolidated basis:€25m (balance sheet total);€50m net turnover;
250 employees (consolidated basis) during the financial year.

Parent companies of a large group

Listed Small and Medium Enterprises (SMEs)

Do not exceed two of the following three criteria:€25m (balance sheet total);€50m net turnover;
250 employees during the financial year.

Small, non-complex credit institutions that are small
and medium size public interest entities or large undertakings

Thresholds oforCaptive insurance or reinsurance companies if they are small
and medium size public interest entities or large undertakings

Thresholds oforPossibility of an opt-out for 2 years

IMPACT REPORTING ONLY

EXCLUDED FROM THE SCOPE
Micro-undertaking

Third-country
companies

with net consolidated turnover of more than €150m in the EU;
and has either a large or listed subsidiary or a European branch with net
turnover in excess of €40m.
Do not exceed two of the following three criteria:€450 000 (balance sheet total);€900 000 net turnover;
10 employees during the financial year.

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

10

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Timing
FIGURE 3 –What’s the timeline?

2023

2024

2025

2026

2027

2028

2029

2030

05/01 Entry into force of the CSRD
06/07 End of transposition period for the Member States
Evaluation report on the directiveFirst report (based on limited assurance)

Legislatives acts
and proposals

EU Commission assessment ofpossible legal measures to ensuresufficient diversification of thesustainability assurance market
Public interest entities (PIEs) subject to a regulated market + bank + insurance companies if > 500 employees
Large companies
Listed SMEs (but possible to opt out during 2 years)

For whichcompanies?

Non EU-companies if net consolidated turnover > 150 millions euros
End of exemption for Listed SMEs
31/07 Sector-agnostic standards
By June Standards for SMEs

By June Sectorals standards and for Non-EU companies
By October Standards on limited assurance

Under which
standards?

First revision of the standards

By October Standards
on reasonable assurance

End of the artificial EU consolidation for
subsidiaries with parents’ HQ outside the EU

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

11

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

European Sustainability Reporting Standards (ESRS)
What are the European Sustainability
Reporting Standards – ESRS?
The ESRS outline the disclosure requirements thatcompanies need to meet to comply with the CSRD.
The directive mandates companies falling within its

3.	The outcome of these policies;(to be used by listed and large companies), the standard

4.	Risks and risk management;

for listed SMEs, and the standard for third-country

5.	Key performance indicators relevant to thecompanies.

business.

The full ESRS are made up of three categories: cross-

How are the ESRS structured?

cutting standards (sector agnostic), topical standards(sector agnostic), and sector-specific standards.

scope to adopt the ESRS when reporting on theirsustainability information. The ESRS align with the goals

There are different sets of ESRS to be used by the

Cross-cutting standards (ESRS 1 and ESRS 2):

and requirements set forth by the CSRD and provide

different companies in the CSRD’s scope: the full ESRSStandards that define the general principles whena standardized approach to sustainability reporting(environmental, social and governance) across the EU. In
short, they impose obligations in terms of transparency,
but they do not prescribe any obligations in terms of
behavior. Like a detailed recipe book, they provide step-

The role of the EFRAG in developing the ESRS

by-step instructions to comply with the directive.

What does the CSRD require for ESRS
standards setting?

ESRS are based on technical advice from EFRAG, an independent, multistakeholder
advisory body, primarily funded from the European budget. As part of its mandate
granted by the CSRD to provide technical advice to the European Commission on
ESRS, EFRAG is in charge of developing sector-agnostic standards, sector-specific

Article 1 of the CSRD introduces new articles (19a andstandards, mandatory standards for listed SMEs. The development of the initial sets of29a) in the Accounting Directive, prescribing with various

ESRS will be a multi-year exercise. Although this was not part of the CSRD mandate

levels of granularity what information shall be disclosed

as such, EFRAG has undertaken to draft voluntary standards for SMEs, as well as

on environmental, social and governance matters.

standards for companies operating in the European market with headquarters outsideMore specifically, they require companies to disclose

the EU. The CSRD requires a regular review of each standard no more than three years

information on five reporting areas:

after its entry into force.
EFRAG has also issued implementation guidance documents, releasing three ‘ESRS

1.	Business model

implementation guidance’ resources to aid in adhering to reporting standards. These non-

2.	Policies, including the due-diligence processes

authoritative materials serve as educational tools and can be found in the REFERENCES

implemented;

section.

European Sustainability Reporting Standards (ESRS)

reporting according to the ESRS (ESRS1). They

12

Terminology of the standards

specify the “general disclosures”, which outline theessential information to be disclosed irrespective

Disclosure Requirements (DR): all the

resulting in a plethora of disaggregated data,of the sustainability topics (ESRS 2) and can apply

information that shall be or could be disclosed in

specific to the entity rather than the sector.

across sectors. These include: whether a company has

the various categories of ESRS.

When defining its entity-specific disclosures

opted to omit a specific piece of information pertaining

for the first three sustainability reporting years,

to intellectual property, know-how or the results of

Datapoint (DP): are the smallest, most specificthe company may use other frameworks orinnovation, or to what extent the sustainability statement

reporting element of the of all disclosure

reporting standards, such as IFRS industry-

covers the company’s upstream and downstream value

requierements. It can be produced as a narrative

based guidance or GRI Sector Standards,

chain.

(e.g. how the organization seeks to ensure

to complement disclosures which are not yetmeaningful engagement with stakeholders) oravailable in the ESRS.

ESRS 1 and ESRS 2 apply to sustainability mattersdescribed in the topical standards and sector-specificas quantitative data (e.g. the percentage of total

standards. The information requested by ESRS 2 isemployees covered by collective bargaining

Materiality assessment: ESRS 1 requires all

mandatory for all companies. All other standards areagreements). ESRS 2 and topical standards

companies to conduct a materiality assessment

subject to a materiality assessment.

represent more than 1,000 datapoints in total,that applies the principle of double materiality

but not all of them will be reported by a company(identification of relevant impact and financial– only those that are deemed material.

materiality). The identification of the material

Topical standards (10 of them) reflect the three
dimensions of sustainable development (ESG). Eachmatters is the starting point to determine thedimension is indicated by a letter and a number (forImpacts, Risks and Opportunities (IROs): theymaterial information to be disclosed in the

instance, ESRS S1 focuses on the social dimension,

relate to environmental, social and governancesustainability statement, and to identify which

specifically on the organization and its workforce). Eachmatters that are to be reported in the company’s

related IROs need to be reported on, using the

topical standard is itself structured into sustainability

own operations and its value chain. Only

relevant standard. This assessment requires the

topics, sub-topics and sub-sub-topics, collectively called

material IROs are to be reported.

exercise of judgement by the company, which“sustainability matters”.

needs to define itself what is material/relevant to
Entity-specific disclosure: when specific

Sectoral standards: as of 2027 and upon the adoption

Impacts, Risks, or Opportunities (IROs) are notof the sectoral standards by the EU, companies should

addressed in the ESRS, whether at the topicalreport on specific disclosures, depending on their sector

or sectoral level, but the company deems themof activity. They will be applicable to all companies withinmaterial for reporting, it can offer supplementarya specific sector (e.g. textile industry, including footwear

entity-specific disclosures. This allows users

and garment production activities). By addressing sector-

to understand the impact of these IROs. In thespecific impacts, risks and opportunities, the ESRS

absence of sector-specific standards, companies

should ensure that organizations report informationmust report each material IRO, potentiallythat are specific to that sector, and that are not alreadyits activities and throughout its value chain.

TO LEARN MORE ABOUT MATERIALITYASSESSMENT, PLEASE READ OUR
BRIEFING ON MATERIALITY AND INTERNALSUPERVISION, AND OUR GLOSSARY.

European Sustainability Reporting Standards (ESRS)

covered, or not sufficiently covered, by the 10 topicaltherefore have no legal authority. Its structure differs fromstandards. Until sector-specific standards are adopted by

the other ESRS, and no assurance of the data is required.

the EU, companies will also need to determine sector-

A materiality assessment is nonetheless incorporated.

specific material information on their own (using rules

Voluntary standards should be more basic, focusing on

for entity-specific disclosures). Companies or groups

specific narratives on the company’s own policies, actions

operating in more than one sector are likely to report

and targets, as well as information on lenders, investors

against more than one sectoral standard. However, there

and clients.

may be some overlap in data points.
Standards for third-country companies: they specify
Standards for listed SMEs: the CSRD requests these

the information to be included in the sustainability report

standards to be simpler than the full ESRS set for largeof third-country companies, generating an annual net

companies and proportionate to SMEs’ capacity toturnover of EUR 150 million in the EU and that have atreport, as well as to the scale and complexity of theirleast one subsidiary or branch in the EU. These standards

activities. They should at least include requirements onshould be adopted by June 2026 and applied as of fiscal

sustainability matters, including a set of targeted metrics

year 2028. They will only address the sustainability

to assess how companies measure their performance

performance of companies, focusing on their impacts.

and how they identify, manage, and engage on the impact
and risks of their activities. Reporting standards for listed

In addition, the CSRD provides the European

SMEs are under development: they should be adopted

Commission with the possibility to allow third-country

by June 2024, and apply as of fiscal year 2026, with acompanies within the scope of the CSRD, or non-EU

possibility to ask for a 2 year “opt-out” option (a delay).

parent companies of EU subsidiaries (such as those

They will apply to listed SMEs on regulated markets,

based in the U.S. or the UK), to use sustainability

including small listed non-complex credit institutions

standards equivalent to the ESRS. In that case, thewhich are public-interest entities, and captive insurance orEuropean Commission will need to grant an equivalence

reinsurance companies.

status to those jurisdictions first.

TO LEARN MORE ABOUT THE DIFFERENT TYPES OF SMEs
READ OUR GLOSSARY.

Voluntary standard (for SMEs): this standard can beused on a voluntary basis for SMEs which are not listed
on regulated markets. Non-listed SMEs are outside thescope of CSRD – the CSRD does not require them todisclose any sustainability information. This standard will

13

European Sustainability Reporting Standards (ESRS)

14FIGURE 4 –Sustainability matters covered in topical ESRS – 1/2

Climate change adaptation
ESRS E1c

CLIMATE CHANGE
Pollution of air
Pollution of water
Pollution of soil
Pollution of living organisms
and food resources
Substances of concern

Climate change mitigation
EnergyESRS E2POLLUTION

Substances of very high concern
Microplastics

ESRS E3c

Climate Change
Land-use change, fresh water-use change
and sea-use change
Direct exploitation
Invasive alien species
Pollution
Others

WATER AND
MARINE RESOURCES

Water consumption
Water withdrawals
Water discharges
Water discharges in the oceans

Water

Marine resources

Extraction and use of marine resources

Direct impact drivers of biodiversity loss

Examples:Species population size,
Species global extinction risk

Impacts on the state of species

Examples:Land degradation, Desertification, Soil sealing

Impacts on the extent and conditionof ecosystems
Impacts and dependencies
on ecosystem services
ESRS E5c

CIRCULAR ECONOMYESRS E4

BIODIVERSITY
AND ECOSYSTEMS

Resources inflows, including resource use
Resource outflows related
to products and services
Waste

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteurEuropean Sustainability Reporting Standards (ESRS)

15

FIGURE 4 –Sustainability matters covered in topical ESRS – 2/2

Secure employment
Working time
Adequate wages
Social dialogue
Freedom of association, the existenceof works councils and the information, consultationand participation rights of workers
Collective bargaining, including rateof workers covered by collective agreements
Work-life balance
Health and safety

Child labor
Forced labor
Adequate housing
Privacy

Gender equality and equal pay
for work of equal value
Training and skills development
Employment and inclusionof persons with disabilities
Measures against violence andharassment in the workplace
Diversity

Working conditions
ESRS S1

Equal
treatment andopportunities
for allOWN WORKFORCEESRS S2

WORKERSIN THE VALUE CHAIN

Other work-related rights
Communities’ economic,
social and cultural rights
ESRS S3c

AFFECTED COMMUNITIESCommunities’ civil
and political rights
Rights of indigenous people

Privacy
Freedom of expression
Access to (quality) information
Health and safety
Security of a person
Protection of children
Non-discrimination
Access to products and services
Responsible marketing practices

Information-related impacts
for consumers and/or end-users
Personal safety of consumers
and/or end-users

Adequate housing
Adequate food
Water and sanitation
Land-related impacts
Security-related impacts
Freedom of expression
Freedom of assembly
Impacts on human rights defenders
Free, prior and informed consent
Self-determination
Cultural rights

ESRS S4CONSUMERSAND END-USERS

Social inclusion of consumers
and/or end-users
Corporate culture
Protection of whistle-blowers
ESRS G1c

BUSINESS CONDUCTAnimal welfare
Political engagement and lobbying activities
Management of relationships with suppliers including payment practices
Corruption and bribery

Prevention and detection
including training
Incidents

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

16

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Legal interconnections
Legal reporting obligations on corporate sustainability are■ specification of the content of the management report,

often scattered across various legal frameworks. Despite

including additional information on their performance,

the inclusion of over 40 legal cross-references in theposition, and future developments;

CSRD, their primary objective is to establish consistency
in disclosure requirements. By doing so, the CSRD not
only adds significant value, but also simplifies the reporting■ audit and assurance requirements on financial
statements and sustainability reporting;■ definitions, size criteria and thresholds for companies

process for both preparers and users. The following

and groups, to determine the level of disclosure andbriefing presents concise definitions of the essential cross-reporting requirements for companies.

references. It also aims to improve the understanding

exceed or meet certain thresholds;■ disclosure of information about companies’ corporate
governance practices in a Corporate GovernanceStatement;■ language of the report;■ designation of a “home Member State” – where thecompany has its registered office.
What is amended by the CSRD:

of the structure of mandatory measures outlined in the

What is amended by the CSRD:

To ensure that companies listed on an EU regulated

directive, and to clarify the implications for companies

The CSRD extends the existing rules governing themarket adhere to the same sustainability reporting

engaged in the preparation of their management reports.

disclosure of financial information to encompass specificrequirements as non-listed companies falling under thedetails on the disclosure of sustainability-related information

scope of the Accounting Directive, the CSRD amends– including environmental, social, human rights, andthe Transparency Directive accordingly. Additionally,

governance topics. It also introduces a single electronic

it establishes criteria for the European Commission

format for the preparation of the management report.

to assess the equivalence of sustainability reporting

The CSRD (Directive 2022/2464/EU) amends
four structural European legislative acts inthe field of company law:standards used by third-country issuers.
1. The Accounting Directive (Directive 2013/34/EU)

2. The Transparency Directive (Directive 2004/109/EC)

establishes rules and standards for the preparation

aims to improve the transparency of financial markets

and presentation of financial and sustainability

by establishing disclosure requirements for issuers of

establishes rules for the statutory audit of annual andstatements by companies.

securities listed on regulated markets.

consolidated financial and sustainability statements in

3. The Audit Directive (Directive 2006/43/EC)

the EU.
This directive harmonizes accounting rules andIt focuses on enhancing transparency in financial andregulations across EU Member States. It aims to ensuresustainability reporting by companies which are listed on

It aims at improving the quality and transparency of audit

the consistency and comparability of financial statements

regulated markets within the EU.

services within the EU. This directive sets outs rules forand sustainability information provided by companies.

the appointment of statutory auditors, the conduct of
Key mandatory measures prescribed by the directive:

Mandatory measures include:■ periodicity of companies’ reporting;■ preparation of (consolidated) financial statements;■ obligations for shareholders when their voting rights

statutory auditors and the oversight of audit firms.

Legal interconnections

Key elements of the directive:■ a framework for quality assurance systems for audit

17

the Audit Regulation’s list of prohibited services, it■ a list of non-audit services (e.g. consultancy services)

also introduces provisions on prohibited non-audit

that audit firms are prohibited from providing to theservices for statutory auditors carrying out sustainability

clients they audit.

firms to ensure consistent high-quality audits;assurance services, such as consultancy services on■ provisions for an audit committee composed ofsustainability matters (e.g. preparation of a materiality

What is amended by the CSRD:

assessment).

■ extends the prohibition of the provision of non-audit

non-executive members of the administrative or
supervisory body;■ measures on auditors’ independence, to avoid conflictsof interests;■ measures for auditors and their firms to prevent themfrom engaging in financial, business, employment,
and other relationships that could compromise their
independence;■ transparency requirements on ownership and

The CSRD also amends the Audit Directive,by adding specific requirements to the necessary
educational competencies. These requirements are
sustainability assurance engagements.
In a bid to promote diversity in the audit market, thedirective provides companies’ shareholders with morethan 5% voting rights or 5% capital the option to request
the involvement of an accredited third party, to prepare

the legal structure, ownership, and governancea report on some elements of the sustainability reported.

arrangements;

This accredited third party cannot be affiliated with thefor statutory auditors.

sustainability assurance services.

for statutory auditors to qualify for the conducting ofgovernance of audit firms, including disclosure of■ requirements for education, training and competences

services to cover sustainability assurance;■ It extends the limits of certain audit fees to include

While defining which information should be disclosed bycompanies, the CSRD also refers to key legal acts:

The EU Taxonomy Regulation on
Sustainable Investment (Regulation (EU)2020/852)

same audit firm or network as the auditor conducting the

The CSRD proposes to integrate the disclosure

statutory audit.

requirements related to the EU Environmental Taxonomy
into the larger framework of sustainability reporting. This

Finally, the directive describes the content and format of

4. The Audit Regulation (Regulation (EU) No

means that companies falling within the scope of theauditors’ reports and requirements for the public oversight537/2014) sets out specific requirements and rules

CSRD would need to disclose information on the extent toof statutory auditors and audit firms to ensure compliancegoverning the conduct and oversight of the statutory

which their activities are associated with environmentallywith professional standards.

audits of public-interest entities.

sustainable economic activities, as defined by the EU
Taxonomy Regulation.

What is amended by the CSRD:

It complements the Audit Directive to establish rules and

The CSRD introduces a mandatory assurance (audit) ofstandards for the audit profession within the EU andeconomic activities to be classified as environmentally

sustainability information by an independent third party.

provides additional requirements for the content of thesustainable. It focuses on economic activities

This can either be the statutory auditor, who alreadyaudit report.

that substantially contribute to one or more of theaudits the financial information, or a second auditor oran Independence Assurance Service Provider (IASP),

environmental objectives, without significantly harmingThis Regulation introduces:

if allowed by national public authorities. Notably, thedirective introduces a limited assurance review in the

The EU Taxonomy Regulation sets specific criteria for■ the mandatory rotation of audit firms for certain

European Single Market, with a planned transition

categories of companies (the public-interest entities –to reasonable assurance over time. By referring to

see Glossary for more details);(being detrimental) to other goals.

Legal interconnections

The environmental objectives covered by the regulation

sustainability of their economic activities, a requirement

include:fully integrated into the CSRD. Consequently, non-financial

18

The European Climate Law (Regulation
2021/1119/EU)

companies concerned by the CSRD are required to■ Climate Change Mitigation: activities that contributedisclose the three ratios, namely the turnover, CapEx

Companies in the scope of the CSRD should disclose theirto the reduction of greenhouse gas emissions and theand OpEx in relation to economic activities which areclimate transition plan – if they have one – showing howtransition to a low-carbon economy;

Taxonomy-aligned. Reporting related to the Taxonomy

their business model and strategy are compatible with:■ Climate Change Adaptation: activities that enhance
resilience to the impacts of climate change, helping
society and ecosystems adapt to changing climate
conditions;■ Sustainable Use and Protection of Water andMarine Resources: activities promoting theshould be incorporated into a specific section within the
management report, alongside the sustainability statement.

The Sustainable Finance Disclosure
Regulation (SFDR) (Regulation 2019/2088/
EU)

responsible and efficient use of water resources,■ the limiting of global warming to 1,5 °C, in line with theParis Agreement adopted as part of the United Nations
Framework Convention on Climate Change; and■ the objective of carbon-neutrality (the sum between
positive and negative Greenhouse Gas Emissions –as well as the protection and restoration of marine

The SFDR aims to enhance the transparency andecosystems;

sustainability of disclosures in the financial sector by■ Transition to a Circular Economy: activities that■ the transition to a sustainable economy;

GHG is net-zero) of the European Climate Law.

establishing a framework for how financial market

This regulation establishes a legal framework in thecontribute to the sustainable use of resources, waste

participants and financial advisers integrate ESG

EU to address climate change and to set the stage forprevention, and the promotion of circular businessconsiderations into their investment processes andachieving climate neutrality by 2050. The key elements

models:decision-making. It sets disclosure obligations forand mandatory measures of the European Climate Law

financial market participants, including investment

include:■ Pollution Prevention and Control: activities aimed
at preventing pollution, reducing the release offirms, asset managers and insurance companies, as wellhazardous substances, and promoting the sustainable

as financial advisers, and for specific financial products.

use of resources;■ Protection and Restoration of Biodiversity and

To meet these obligations, financial market■ an overarching goal for the EU to become climateneutral by 2050, with intermediate targets to reduce

participants need sustainability information fromthose by 55% by 2030 compared to 1990 levels;

Ecosystems: activities that support the preservation,companies, not only to understand the broader■ carbon budget trajectories, which allocate the total

restoration, and sustainable use of ecosystems,

sustainability performance of companies covered by thebiodiversity, and natural habitats.

CSRD, but also to better assess the sustainable nature of
their investment portfolio.

These objectives are complemented with criteria for

The directive introduces the notion of Principal

allowable emissions over a specific period for Member
States;■ a governance mechanism to monitor progress, ensureaccountability, and facilitate adjustments throughsustainable activities in each of the environmental goals

Adverse Impact (PAI). PAIs refer to the adverse effects

National Energy and Climate Plans (NECPs) outlining

mentioned above. Activities meeting these criteria can beor negative impacts that the investment decisions of

the contributions of Member States to the EU’s climate

considered as environmentally sustainable.

financial market participants may have on sustainability

Article 8 of this Regulation specifically deals with thematters. However, the directive does not set any metrics

goals;■ provisions for the regular review of Member

obligations of large companies and financial institutions

to assess those. The ESRS should help financial

States’ progress toward climate goals including an

to disclose information regarding the environmental

institutions build relevant metrics for PAIs disclosure.

intermediate target in 2040.

Legal interconnections

EU Climate Transition Benchmarks and
EU Paris-aligned Benchmarks (DelegatedRegulation (EU) 2020/1816 – 1817 – 1818)

processes (obligation to tell), the CSDDD requires
about 5,500 companies to identify, prevent, mitigate,communicate and remedy adverse impacts in their value
chain (obligation to act). This means that companies

The EU Climate Transition Benchmarks and EU Paris-

within its scope have to describe how they act on duealigned Benchmarks are among the key legislative

diligence in their management report, using the ESRS.

vehicles used by EFRAG in the development of the ESRSThat includes defining a climate transition plan in line withon climate reporting.

the Paris Agreement on climate change, and consistent

These benchmarks are designed to help investors
identify environmentally sustainable economic activities,

with the objective of meeting carbon neutrality by 2050.
The directive should be formally adopted by European

and investments aligned with the objectives of the Paris

policymakers in April 2024. Starting with EU and non-

Agreement on climate change. They strongly connect

EU companies with over 5,000 employees and EUR400

with the EU Taxonomy Regulation: to qualify and comply

million turnover, it should progressively enter into force

with an EU Climate Transition Benchmark, companies’

three years after its adoption.

activities and revenues to be considered as sustainable

Companies falling within the CSDDD scope but notmust meet certain requirements, such as minimum

covered by the CSRD, including certain sizable third-

carbon reduction and maximum carbon content.

country companies operating in Europe without branches

Corporate Sustainability Due Diligence
Directive (CSDDD)

or subsidiaries, will have to communicate their due
diligence obligations in line with the CSRD requirements.
This communication will be guided by dedicated reporting
criteria, to be established at a later stage by the European

The Due Diligence Directive lays down obligations forlarge companies regarding actual and potential adverse
impacts on the environment and human rights for theirbusiness chain of activities. This includes coverage of the
upstream business partners of the company. Additionally,
it partially encompasses downstream partners’ activities.
These activities involve distribution, transport, andstorage. The directive requires companies to adopt aplan ensuring that their business model and strategy arecompatible with the Paris Agreement on climate change.
It also lays down rules on penalties and civil liability for
infringing these obligations.
While the CSRD sets mandatory disclosure
requirements for companies on their due diligence

Commission.

19Legal interconnections

20

FIGURE 5 –Legal interconnections
Linked to the CSRD

EU Taxonomy Regulation

Modified by the CSRD

Graph legend

Obligations regarding the content of the management report:
disclosure requirements (turnover, capex, opex) on the activitiesof the companies that can be classified as environmentally sustainable.

Accounting Directive

Reporting requirements

Part of the sustainability reporting

Obligations regarding the content
of the management report (reporting
requirements on financial andsustainability reporting)+ audit requirements, etc.

Obligation to act
Audit

European Climate Law

Disclosure of a climate mitigation plan that shows how the business model andstrategy of the companies are compatible with the transition to a sustainableeconomy, with the limiting of global warming of 1,5 °C and the objective ofcarbon-neutrality (reduction of 55 % by 2030 compared to 1990 levels).

Financial sector

Transparency Directive

Benchmarks

Obligations regarding the content
of a corporate governance statement,
etc.

Part of the sustainability reporting (climate transition plan)

Corporate Sustainability
Due Diligence Directive

Requires companies to identify, prevent, mitigate, communicate
and remedy adverse impacts on the environment and humanrights for their direct business chain of activities, etc.

CSRD

CSRD

Audit Directive

Audit process of sustainability
information (from limited toreasonable assurance)+ measures on independanceof the auditor, etc.

Use the ESRS on due diligence processes

EU Climate Transition
and EU Paris-Aligned Benchmarks

Defines the minimum standards for EU climate transition
and EU Paris-aligned benchmarks, etc.
Linked to the CSRD standards on climate reporting

Sustainable Finance Disclose Regulation

Disclosure obligations on how sustainability matters are included
in investment processes and decision-making.
ESRS will serve financial institutions to monitor information
to be disclosed on Principal Adverse Impacts (PAIs)

European Single
Access Point

Digital platform for thecentralized access to financial
and sustainability informationin the EU (by July 2027).

Audit Regulation

List of forbidden non-audit services
for auditors + rotation rules.

Access to sustainability reporting(by january 2028)

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

21

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Reporting format
Unlike the NFRD, the CSRD specifies the format ofmarkets should use the European Single Electronic

Companies targeted by the CSRD will be required todisclosure and standards that companies will have toFormat (ESEF) to prepare their annual financial reports

prepare their management report in the electronic format

meet to draft their reports.

for filing with the competent authority. The CSRD

and tag their sustainability information based on theextends this obligation to sustainability information anddigital taxonomy.

Location
The CSRD requires sustainability information to be locatedin a particular section of the annual management report,

to non-listed companies under the scope of the directive.

EFRAG was tasked to develop the XBRL digital

The European Single Access Point (ESAP)

instead of a separate sustainability report. A more detailed
structure is set out by the ESRS in its Appendices D and

The ESAP is designed to provide a single

makes the information easily accessible for

F. It is made up of four parts: general, environmental,

digital point of access to public financial

other stakeholders.

social and governance information. Therefore, financial

and non-financial information about EU

and sustainability information will be disclosed all at once.

companies and investment products.

of EU regulations (such as most of theCompanies should publish their management report on their

It is built as a digital platform for the

EU SMEs) will also be able to voluntarily

website or make a hard copy available upon request. Theircentralized access to information alreadytransmit information on the platform.

management report must be submitted to the appropriate

published in accordance with existing

In practice, companies will file theirauthority in accordance with national regulations.

European legislation, as well as futurereports to national “collection bodies” (e.g.

European directives and regulations.

a public authority specifically appointedThis includes financial regulations andfor that role) and Officially Appointed

ESG-related disclosure regulations, such

Mechanisms (e.g. appointed national stock

The language of the management report should be theas the Sustainable Finance Disclosure

exchanges) that will check, approve, andone of the Member State where the company is based,

Regulation (SFDR) and CSRD. The

make the data available via the ESAP.

or another language that said Member State’s authorities

information will be accessible for free,

Verifications shall be limited to assess that

accept. To avoid unnecessary costs, EU regulators decided

and the system will be user-friendly andall the necessary documents have been

to lift the obligation to have the necessary translations

located in one central place.

handed in the correct reporting format.

Languagecertified, if the absence of certification is clearly stated.

Electronic format
Since 2020, companies listed on European regulated

Companies not covered by the scope

One of its objectives is to give

The ESAP platform should be available

companies more visibility towards

from summer 2027 and gradually phased

investors and open more financing

in. Information required by the CSRD shall

opportunities, especially for small

be available from the first year on.

companies in small capital markets. It also

Reporting format

taxonomy for sustainability reporting, including themark-up of the datapoints related the EU Taxonomy forsustainable activities. The XBRL tagging is important
to ensure that the same sustainability-related data
are labeled consistently across organizations andgeographies. This computer-based language alsoenables the electronic communication of structured
business data by providing machine-readable information,
which helps to delete the language barrier to accessthe information. For instance, XBRL tagging will enable
the users to assemble data from documents written in
Finnish or Welsh. This consistency is crucial for accuratebenchmarking and comparative analysis of sustainability
practices and reporting, allowing investors and otherstakeholders to make more informed decisions.
FOR MORE INFORMATION ELECTRONIC FORMAT, CONSULTTHE GLOSSARY.

Based on EFRAG’s XBRL taxonomy, the European
Securities and Markets Authority (ESMA) will develop
regulatory technical standards to define the tagging
rules to be applied in digital reporting. The European
Commission will adopt these regulatory standards via
delegated acts.

Review clause of the directive
By April 2029, the Commission should assess
whether and how to ensure that sustainability reports
published by companies covered by the CSRD areaccessible to people with disabilities.

22

CSRD ESSENTIALS

23

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Consolidation of subsidiaries
What is a subsidiary?

controlled by the parent company, rather than looking at
each entity in isolation.

A subsidiary is a company controlled by anotherIt should be emphasized that thresholds for the

The CSRD further specifies that subsidiary
undertakings are exempted from the obligation to
include a full individual sustainability statement in theircompany, known as the parent, or holding company. In

application of financial and sustainability reporting

own management report, if they are included in thethe accounting rules, a parent company, together will

obligations, under the EU Accounting Directive, areconsolidated management report of another (parent)

all its subsidiary companies, form a group. A parent

determined on a consolidated basis. Therefore, acompany drawn up in accordance with the CSRD andcompany can also be controlled by another, higher-up

subsidiary not listed or considered as large as per

the ESRS.

company (still defined as parent). In that case that parent

the CSRD thresholds may still be included in the

In practice, this means that parent companies must

company included in the group is considered also as

consolidation by the parent company of a group, –include subsidiaries in their consolidated sustainability

a subsidiary. In this context, the parent company has

which exceeds the CSRD thresholds on a consolidated

statement, and that such consolidated subsidiaries

the power to govern the financial and operating policies

basis. The group’s report, including the data for that

may use the exemption or may issue an individualof the subsidiary to obtain benefits from its activities.

subsidiary, will be subject to mandatory reporting andsustainability statement in their own management report,

For instance, different accounting standards, like theaudit requirements. This underscores the importancein addition to being consolidated.

IFRS or the US GAAP, may define control differently. Inof considering the consolidated financial position

general, owning more than 50% of the voting rights in thewhen deciding on consolidation practices, as it directly

needs to provide a sustainability statement and issue ansubsidiary, should enable control

affects the obligation to report and audit the informationindividual report, or have this information consolidated

voluntarily included in the consolidation. The specific caseat parent-company level – such as with an EU holdingof subsidiaries with parent companies based outside thecompany. In this case, the subsidiary is exempted

EU is described in a following section.

from publishing a stand-alone report. This exemption

What is consolidation?
Consolidating the financial and sustainability informationof an EU subsidiary at the parent-company level,
whether based in or outside, refers to the process ofWhat does the CSRD change forconsolidation?

combining the individual financial and sustainability

Therefore, a subsidiary within the scope of the CSRD

does not apply to PIEs that are large, listed companies
on an EU regulated market. For those, whether they
are consolidated by their parent company or not, asustainability statement in their own management reportstatements of the parent company, and its subsidiary or

The CSRD broadens the existing rules that govern thesubsidiaries into a single set of consolidated statements.

disclosure and consolidation of sustainability information,

These statements will become the formal record of theincorporating environmental, social, human rights, andregime for consolidated sustainability reporting

activities and position of a group, and will be audited or

governance topics. Both financial and sustainability

operates independently from the exemption to prepare

assured.

information shall now be in the same consolidated

consolidated financial statements and a consolidated

management report, although the sustainability statement

management report. This, for instance, means thatshall be presented in a dedicated section.

a holding based in the EU and that consolidates

The purpose of consolidation is to present acomprehensive and aggregated view of the groupis still required.
The CSRD explicitly states that the exemption

Consolidation of subsidiaries

financial reports for its subsidiaries may not consolidate
sustainability reports.

The specific case of subsidiaries withparent companies based outside the EU

If there are significant differences between thesustainability risks or impacts of the group and those of

A distinctive form of the subsidiary exemption is currently

its subsidiaries, the parent company should provide, inapplicable (on a temporary basis) to EU subsidiaries

the consolidated sustainability statement, an adequate

or subgroups, with a parent company headquarteredunderstanding of the risks or impacts of its subsidiaries

outside the EU. Until 2030, these companies may be– including information on their due diligence processes

exempted from individual reporting requirements if they

(where appropriate).

are incorporated into a report using ESRS and “artificial

During the CSRD transposition process by Member

consolidation,” meaning that the EU subsidiaries andStates, national authorities have the discretion to restrict

subgroups are consolidated. The entity responsible forthe use of reporting exemptions or to mandate distinct

consolidating other EU-based subsidiaries is the one withdisclosures at entity or country level. This might involvethe highest turnover within the EU. The purpose of thisobligating companies within the country to submit

transitional provision is to reduce the burden for the non-standalone reports.

EU groups that do not have a single EU-based holding

What is required from exemptedsubsidiaries which are individualcompanies or groups?

entity that controls the group’s EU entities.
The ultimate parent companies that are not basedin the EU may also consolidate their EU subsidiaries
in a global sustainability statement. However, suchconsolidation exempts the EU subsidiaries from the

Exempted EU-based subsidiaries are subsidiaries thatobligation to produce their own sustainability statements

will be consolidated; their sustainability information will be

only if the global consolidated statement is drawn up inincorporated in the report of their parent company. In thisaccordance with the ESRS, or in an equivalent manner.

case, they will still need to:a) report the name and registered office of the parent
company that is reporting on the sustainability
information at group level;b) publish the weblinks to the consolidated
management report of their parent company, withclear information and instructions on how to accessthe consolidated management report, especially if it
is not available online;c) clearly state that they are exempted fromsustainability reporting, in their management report.

24

Consolidation of subsidiaries

25

FIGURE 6 –Consolidation of a third-country parent group with subsidiaries or branches in the EU

Outside EU

Inside EU
From 2026

After 2030

The subsidiary that has the largest
turnover in the EU consolidates for theother EU subsidiaries in the same group

The subsidiary that has the largest
turnover in the EU can no longer
consolidate for the other EU subsidiaries
in the same group(using the full ESRS)
TCPG consolidates for its subsidiaries
which are large companies in the EU(provided it surpasses the CSRD
thresholds on a consolidated basis)

Or
TCPG publishes its management report
including the sustainability reporting of
its consolidated EU subsidiari(es)*(provided it uses the full ESRS or
standards deemed equivalent to them)

2026

2027

2028

2029

2030

After 2030

Third-country parent group(TCPG)

TCPG directly generates > €150 m net
turnover in the EU (for 2 consecutive
years at least)

TCPG has an EU branch(that generated > €40 m net turnover
per year)

After 2028
The branch publishes the sustainability report(using either ESRS for third-country companies,
equivalent standards to ESRSor the full ESRS)(*) In that case the EU subsidiaries are exempted from publishing a management reportthat includes sustainability information unless they are large listed public-interested
entities
Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteurConsolidation of subsidiaries

26

FIGURE 7 –Consolidation of a third-country parent company that has listed subsidiaries in the EU

Outside EU

Inside EU
Progressive application as of 2025
Those listed subsidiaries publish a stand-alone management report.

TCPG has a small, medium or large
subsidiary with securities admitted to
trading on an EU regulated market(By consolidating it surpasses the CSRD
thresholds)(It can use:
- full ESRS- ESRS for listed SMEs if it is a listed SME)
TCPG can also publish a consolidated report that includes
its listed subsidiaries in the EU(it can use either:- full ESRS
- equivalent standards to ESRS

2025

2026

2027

2028

2029

2030

After 2030

Third-country parent group(TCPG)
TCPG directly generates > 150m
net turnover in the EU that are
independent of the activities of its
subsidiaries (for 2 consecutive years
at least)

TCPG has a small, medium or large
subsidiary with securities admitted to
trading on an EU regulated market

After 2028
The listed subsidiary publishes the sustainability
reporting of the third-country parent group(using ESRS for third-country companies),
TCPG can also publish a consolidated reportthat includes its listed subsidiaries in the EU
and information at group level.
(it can use either:- full ESRS
- equivalent standards to ESRS)
Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteurConsolidation of subsidiaries

27

FIGURE 8 –Consolidation of a parent company in the EU that has subsidiaries listed or not

Inside EU

Progressive application as of 2026
Parent company (PC)
PC has subsidiaries which are either
large or listed SMEs in the EU

PC publishes a consolidated report that includes its subsidiaries in the EU*(it uses the full ESRS)

2026

2027

2028

2029

2030

After 2030(*) In that case the EU subsidiaries are exempted from publishing a management reportthat includes sustainability information unless they are large listed public-interested
entities

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

28

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Reporting by third-country companies
The CSRD extends the scope of the reporting obligations■ use the full sets of ESRS available to date;to include international companies. It applies to:■ use their own domestic reporting rules (for them,exclusively on impact materiality), provided that■ third-country companies with securities listed on an

Stand-alone report for listed
small, medium and large publicinterest entities

applicable standards set by those rules for third-

EU regulated market (about 100 companies as per thecountry companies are deemed equivalent to the

EU companies exceeding the CSRD

European Commission’s estimate);

ESRS by the European Commission. The same

thresholds and that have their parent

applies to parent companies outside the EU that wantcompanies outside the EU cannot be

turnover of over EUR150 million in the EU and have a

to consolidate the reporting of their EU subsidiaries.

exempted from producing their sustainability

subsidiary or a branch, with no legal personality, withThe European Commission assesses the equivalence

statement on the account of being

a net turnover of at least EUR40 million in the EU,

on a country-by-country basis, following a request by aconsolidated by their parent company.

or a listed subsidiary in the EU which is an SME or acountry to do so.

The exemption only applies if their parent■ non-EU companies that directly generate a net

large company.

company issues a sustainability statement
The European Commission, based on the information

drawn up in accordance with the ESRS,

While no official figure on the number of third-country

received by EU Member States, should make publicly

or standards for which an equivalencecompanies with substantial EU business have been

available on its website a list of the third-country

status has been granted by the European

released, the global provider of financial market datacompanies that have published a sustainability report

Commission through an implementing act.

Refinitiv estimated that 11,000 companies with their

applying the ESRS.

However, until 2030, the EU subsidiary ofheadquarters outside the EU could be impacted by thereporting obligations, including about 1,000 in the UK and
more than 3,000 in the U.S3.
The directive states that branches or subsidiaries are
responsible for publishing the sustainability report of theircontrolling company and, if they do so, that sustainability
report should be published in a language accepted by thea non-EU group with the highest turnover
FOR MORE INFORMATION ON CONSOLIDATION OF
PARENT COMPANIES, PLEASE READ OUR BRIEFING ON
CONSOLIDATION OF SUBSIDIARIES.

Which criteria guide the determination ofequivalence with domestic standards?

within the EU can prepare a consolidated
sustainability statement that includes all otherEU subsidiaries in this group and which are
subject to the CSRD. Such consolidated
subsidiaries can then benefit from theexemption unless they are listed.

Member State where they are registered.
Third-country companies meeting the above-mentioned

While the CSRD provides the European Commission

conditions have the following options for reporting theirwith the possibility to allow in-scope third-country

sustainability information, from 2028 onwards:

companies to use sustainability standards equivalent to
the ESRS, it has not yet decided which standards would■ use the standards for third-country companies;

be deemed equivalent. Note that equivalent standards

3 https://www.wsj.com/articles/at-least-10-000-foreign-companies-to-be-hit-by-eusustainability-rules-307a1406

Reporting by third-country companies

will only be available for reporting at the third-country

29

Global standard-setting landscapeparent-company level; any reporting done at an EUcompany level must use the ESRS.

The last few years have seen significant

with the ESRS based on the high level of commonality

The criteria that the Commission will use, whendevelopments in the regulatory landscape, due

and technical cooperation on non-EU Standards.

assessing the equivalence of sustainability reportingto the recognition of the human-rights impacts of

The IFRS-ISSB governance framework has

standards used by third-country issuers, shall ensure

climate change, and environmental degradation atrecently consolidated other frameworks and risk-that those standards require:the international and national level. The increasing

related standards, such as the SASB metrics anddemand for transparent information on companies’ tax

the Climate Disclosure Standards Board (CDSB).

payments and ensued practices has led governments

Australia is at the forefront, incorporating ISSB intowanting to drive a positive agenda towards a more justtheir national standards. Several countries instead,■ reporting the impacts the company has on

and sustainable society, and to use legislative tools to

including Brazil, Canada, Nigeria, and Japan, havesustainability matters, as well how thesechange corporate behavior and market conditions. As

expressed their intention to reference or mandate

sustainability matters affect the development,a consequence, this has driven a broader increase in

ISSB, formal adoption has not yet occurred.

performance, and position of the company.

corporate sustainability initiatives globally. But while

The EFRAG serves as the technical advisor■ disclosing information on environmental, socialand governance factors; andstock exchanges play a particularly active role in Asia-

to develop the ESRS for the EU. Under the EU

In other words, the second equivalence criterion shall

Pacific and the Middle East, governments remain the

mandatory regime, approximately 42,500 user

consider standards that incorporate double materiality.

most active issuers of ESG & sustainability policies4.

companies, along with several thousand non-EU large

Until equivalences are set, policymakers around

Many companies around the world alreadycompanies with significant operations in the EU, are

the world, responsible for their own national

report on their sustainability impacts, using globally

reporting standards, can benefit from ensuring futureaccepted standards such as those developed by theequivalence to the ESRS. They can also support their

GRI, which provides the world’s most widely usedsetters actively engage in close collaborationcompanies by building on globally widely adopted

sustainability reporting standards. 73% of the world’s

with the Taskforce on Climate Disclosure (TCFD),

standards, such as those from the GRI and ISSB.

250 largest companies by revenue use GRI guidelines

now integrated into the ISSB, the Taskforce onor standards and 67% of the top 100 companies by

Nature-related Financial Disclosure (TNFD). This

revenue in 52 countries and jurisdictions use GRI

collaborative effort aims to establish a shared

guidelines or standards. The GRI offers the only

methodological foundation for reporting on impacts

reporting standards used by most surveyed companies

and risks related to climate and nature.

TO LEARN MORE ABOUT THE IMPLEMENTINGDECISIONS PROCEDURES, PLEASE READ OUR
BRIEFING ON THE IMPLEMENTING & DELEGATED
ACTS.

affected.
Regional and globally recognized standard-in all regions (75% in the Americas, 68% in Asia-Pacific

ISSB, ESRS and GRI form the triangle ofand Europe, 62% in the Middle East & Africa). 99% ofsustainability reporting. While it would be ideal toSingapore-registered companies use GRI standards.

have a single international standard, having fullBy April 2029, the Commission should provide an

Organizations already using GRI standards in theircompatibility would already be a huge step forward.

assessment of the implementation of the reporting

reporting will maximize their chances of compliance

Review clause of the directive

requirements on subsidiaries and branches ofthird-country, including an assessment of thenumber of third-country companies.

4 Carrots & Sticks Database, GRI, Kings College London, the University of Edinburg, Stellenbosch Business School. The database covers 2,463 policies from 132
countries, 76 international and regional organizations, in 38 languages, from 1897 to 2023; with 36% ESG mandatory policies and 63% voluntary worldwide.
https://www.carrotsandsticks.net/#:~:text=Welcome%20to%20the%20Carrots%20%26%20Sticks,ESG)%20impact%20of%20businesses%20worldwide

CSRD ESSENTIALS

30

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Audit & assurance
Both amended by the CSRD, the Audit Directive (Directive
2006/43/EC) and the Audit Regulation (Regulation EU
No 537/2014) establish laws and regulation for the
statutory audit of annual and consolidated financial and■ the assurance requirements for companies in andoutside the EU; and■ the organization of the audit market in Europe,
especially for the sustainability assurance services.

sustainability statements in the EU. In addition, the Audit

concerns about the reliability of the sustainability
information reported by companies. Although theobjective is to have a similar level of assurance forfinancial and sustainability reporting, a progressive
approach has been undertaken. The CSRD stages theRegulation sets out specific requirements and rules

The CSRD mandates the European Commission to

introduction of mandatory auditing starting with a “limited”

governing the conduct and oversight of statutory audits ofdevelop assurance standards that will outline technicalassurance requirement and aiming to introduce EU-wide

public-interest entities.

aspects of the assurance engagement of sustainability

standards for limited assurance by October 1, 2026.

The CSRD introduces a mandatory assurance (audit)

information, by auditors and independence assuranceThis represents a significant advance considering onlyof sustainability information by an independent third party.

service providers. These standards will be adopted by

France, Italy and Spain previously opted for mandatory

This can either be the statutory auditor, who alreadymeans of delegated acts. In that context, the Committee

independent assurance, based on limited requirements

audits financial information, or another auditor than theof European Auditing Oversight Bodies (CEAOB) has

for reported sustainability information.

statutory auditor or an Independence Assurance Service

been tasked by the European Commission to work on

Provider (IASP), if allowed by national public authorities.

the adoption of non-binding assurance guidelines, toonly as of October 1, 2028, pending a favorable

Notably, the directive introduces a limited assurance

help independent assurance providers in the absence ofassessment of the Commission on the introduction ofreview in the European Single Market, with a planned

EU standards. It should deliver technical advice for thethis stricter assurance level. This marks the latest datetransition to reasonable assurance over time.

drafting of the Delegated Act adopting limited assurance

the Commission can adopt standards for reasonable

before May 2025.

assurance.

TO LEARN MORE ABOUT THE ADOPTION PROCEDURE
OF DELEGATED ACTS, PLEASE READ OUR BRIEFING ON
IMPLEMENTING AND DELEGATED ACTS.

for this level of assurance, the legal audit requirement in

In a bid to promote diversity in the audit market, thedirective gives companies’ shareholders with more than
5% voting rights or 5% capital the option to request the
involvement of an accredited third party, to prepare areport on some of the sustainability information. Thiscannot be affiliated with the same audit firm or network as
the auditor conducting the statutory audit.

A “reasonable” assurance requirement is requested

Once the Commission has adopted EU-wide standards

Audit: What does the CSRD say about theaudit of sustainability information?

the CSRD will automatically become a requirement forreasonable assurance instead of limited assurance. Until
the adoption by the Commission of EU-wide assurance
standards, Member States may apply national assurance
schemes, rules, and procedures.

The CSRD introduces:
The CSRD introduces a general EU-wide audit■ the level of assurance engagements (limited andreasonable);(assurance) requirement for reported sustainability
information, addressing investors’ and other stakeholders’

TO LEARN MORE ABOUT LIMITED AND REASONABLE
ASSURANCE DEFINITIONS, PLEASE READ OUR GLOSSARY.

Audit & assurance

Sustainability assurance market

Passporting system

31

Review clause of the directive
By December 31, 2028, the Commission shallThe directive allows Member States to open the market of

The CSRD also sets a so-called “passporting system”

review and report on the level of concentration of thesustainability assurance services to so-called “independent

for IASPs. This allows accredited service providers

sustainability assurance market and assess possible

assurance services providers” (IASP). This means thatin one Member State to operate freely in anotherlegal measures to ensure sufficient diversification of

a Member State can choose to allow firms other thanMember State that has opted to accredit IASPs, without

the sustainability assurance market and sustainability

the usual auditors of financial information to assure

having to seek accreditation from each of the national

reporting quality.

sustainability information. While this leaves the optioncompetent authorities. So far, only France has granted

for Member States to provide fairer access to the audit

this opportunity, while several other Member Statesmarket for non-statutory auditors, it can also result in a lesshave announced their intention to grant authorizations.

consistent approach throughout the EU market. In practice,In practice, it is the Member State that has provided theset out on quality assurance systems, requirements on

accreditation of independent assurance providers operates

accreditation (the “home” ) that will keep supervising theirregularities, investigation and sanctions. Nevertheless,in the public interest across all market sectors. It provides

independent assurance services providers operating

at the implementation stage, the continuous evaluation

an attestation that accredited bodies offering assurance

in another Member State (the “host”), unless the latter

criteria may differ between IASPs and statutory auditors.

services have the technical competence and impartiality toindicates otherwise.

the relevant standards and regulations.

Organization of the assurance profession

Equivalence with third-country audit
companies

Member States willing to open their market to IASPs shallMember States that chose to authorize IASPs should

The directive provides a mechanism for the recognition

appoint a public authority or any other body to undertake

set out requirements equivalent to those applyingof third-country auditors if their regulatory framework

the accreditation process of IASPs. This process should

to the statutory auditors under the Audit Directive,

is deemed equivalent to the EU’s, for statutory audits.

conform with the applicable requirements of the EU

to be allowed to carry out assurance engagements

Third-country auditors seeking to provide audit services

Regulation on accreditation and market surveillance,of sustainability reporting. Especially in terms offor entities based in the EU are required to register withsuch as proper monitoring, as well as objectivity andprofessional ethics, independence, objectivity,

the competent authority of the Member State where

impartiality of the rules and processes in place. The

confidentiality, and professional secrecy regarding

they intend to carry out the audit. In case they do not,national accreditation body may be either the same as

the assurance of sustainability reporting, existing

their assurance report shall have no legal effect in thator different from the entity issuing operating licenses forrules applying to statutory auditors shall apply mutatis

Member State.

statutory auditors.

mutandis to IASPs.

check the conformity of products and services, based on

The creation of the IASP status is a positive stepMoreover, statutory auditors are subject toforward in terms of opening the market and the quality

specific educational qualification requirements toof assurance services. It should be noted that in casebe allowed to carry out assurance engagements of

two assurance providers work together, it is the groupsustainability reporting. IASPs should also meet specificauditor in charge of auditing the consolidated reports who

requirements on educational competences, training andprovides the final engagement.

examination. Equivalent requirements should also be

CSRD ESSENTIALS

32

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Materiality and internal supervision
The importance of the materiality
assessment

Steps to get there

activities and business relationships as well as thecontext in which these take place; it would then try toCompanies seeking guidance on conducting a materiality

understand which stakeholders are primarily affected.

The CSRD recognizes the wide range of users and uses

assessment can use the guidance provided by EFRAG

Subsequently, the company usually determines whichof reported information, and therefore states that theand GRI to inform their process.

environmental, social, and governance matters arecompany’s evaluation of materiality must consider both

A materiality assessment in sustainability reporting

significant enough to influence decision-making andthe impact and financial aspects of a company’s activities,

starts with understanding the context of the company.

impact the perceptions of stakeholders. It should aim towhile also acknowledging their interconnections. However,This means the company develops an overview of its

identify the issues that are most relevant to its businessit doesn’t require separate and independent procedures.
Typically, identifying material impacts is the starting point,
as the financial evaluation benefits from this assessment.
This is because material impacts often lead to significant

Materiality thresholds

risks, opportunities, and financial consequences.
In the context of double materiality reporting, aMateriality thresholds on sustainability impacts

for conducting the materiality assessment, as one

The ESRS do not prescribe a specific method

materiality threshold refers to the criteria (qualitative

shall therefore be determined by severity for actual

approach may not suit all businesses due to variations in

and/or quantitative), used both internally to thenegative impacts, and severity and likelihood for

economic activities, organizational structures, operational

company’s operations and externally to broader

potential negative impacts. “Severity is based on

locations, and supply chains. Therefore, each company

societal and environmental concerns. Setting

factors that are scale, scope and irremediable

should develop a tailored process that fits its uniquea threshold on sustainability matters is usuallycharacter for negative impacts, and scale andcircumstances, including the depth of the assessment.

necessary to determine which topics are material

scope for positive impacts. These factors should

Professional associations that represent a specificto the company. It helps to establish the boundary

be the basis for determining the thresholds. Also,

profession in a particular sector of activities can also

beyond which sustainability impacts, risks andwhen defining the threshold, the undertaking may

play an important role in helping companies determine

opportunities (IROs) are considered material

consider the overall number of potential impacts

the full range of impacts, risks and opportunities whichand provide grounds for their inclusion in theacross environmental, social and governance.”5

are recurring for the entire sector. These are particularly

sustainability statement.

In this regard, the ESRS are aligned with the GRI

relevant in the absence of sector-specific standards inthe EU.
TO LEARN MORE ABOUT THE CONCEPT OF MATERIALITY,
CONSULT OUR GLOSSARY.

The ESRS (in particular, ESRS 1) prescribe

standards. For risks and opportunities, criteria

rules for the application of double materiality withshall be based on the magnitude and likelihood ofrespect to the evaluation of materiality of IROs.

financial effects for risks and opportunities.
5 EFRAG, Implementation guidance 1: materiality assessment

Materiality and internal supervision

33

The responsibility of supervisory bodies
and audit committees

operations and stakeholders, focusing on those thatsustainability impacts, risks, opportunities, leading to

could affect financial performance and have a significant

more effective sustainability reporting and decision-

impact on society or the environment.

making processes.

Key steps for stakeholder engagement in the materiality
assessment:

The importance of including value chain
Impacts, Risks and Opportunities■ identifying relevant stakeholders;

The sustainability statement of the company needs toenhances the accountability of a company, as it■ conducting stakeholder engagement to understandcover all significant impacts, risks, and opportunities

mandates a collective responsibility for members of(IROs) related to all its activities, including IROs

administrative, management, and supervisory bodies■ mapping out potential sustainability issues based onstemming from its business relationships across theto ensure compliance with its requirements. This

industry standards, regulations and best practices;value chain. That relationship extends beyond direct

encompasses preparing and publishing management■ assessing the significance and potential impacts ofcontractual connections. While the disclosure of value

reports with all the necessary sustainability disclosures,

these issues on the company’s operations and its

chain information is not obligatory for all datapoints,

consolidated reports, corporate governance statements,

stakeholders;

it is required when associated with significant IROs

and assurance reports according to the directive’s

beyond the company’s own operations. The materiality

specifications, including the application of electronic

assessment should identify significant IROs within theformats (e.g., digital mark-ups and tags) to relevant data

value chain, focusing on their likely occurrence acrosspoints. While the CSRD did not amend the sanction

Identifying and assessing stakeholders’ expectations

various aspects like geographies, activities, suppliers,

regime for non-compliance with the requirements of theis crucial in materiality assessment, particularly inand customers.

directive, EU Member States remain free to introduce an

Effectively managing sustainability reportingnecessitates cohesive collaboration among various
teams and stakeholders within a company, including
top management and supervisory boards. The CSRD

their concerns and expectations;■ prioritizing them based on their importance to thebusiness and its stakeholders.

terms of determining the materiality of impacts, risks

Even though topical standards (referring to theappropriate supervisory regime that includes possible

and opportunities for sustainability reporting.

disclosures on environment, social and governancesanctions. Some countries, like France, have introduced

Stakeholders may include investors, customers,

disclosures) may specify some value-chain data forcriminal sanctions for company directors who fail to

employees, suppliers, local communities, non-certain metrics, additional entity-specific disclosures,

appoint an auditor of sustainability information and forgovernmental organizations (NGOs), regulators, andincluding metrics, are necessary if a material IRO in

obstructing a sustainability audit. In Hungary, should

other parties affected by or interested in the company’s

the value chain is not adequately addressed by ESRS

undertakings fail to comply with the ESG reporting

activities. Companies should therefore understand how

requirements. If primary value-chain information or

obligations, the national Supervisory Authority forstakeholders (workers, nature, etc.) are affected by thedisclosure of material IROs cannot be collected despite

Regulated Activities may impose financial penalties.

impacts. This may require direct engagement with them,reasonable efforts, the company should estimate

especially in case of severe impacts. This inclusive

missing information using reasonable and supportable

For companies listed on stock exchanges, the directive

approach enhances the credibility and relevance of

data, including proxies and sector data. This ensures abolsters the central role of audit committees andsustainability reporting.

thorough and accurate assessment and disclosure ofextends their role to the supervision of the assurance

the company’s significant impacts, risks, or opportunities

of sustainability data. Those committees usually

across the value chain.

consist of directors (non-executive members, with

By diligently following these steps, companies
can develop a comprehensive understanding of theirMateriality and internal supervisionat least one of them being independent), will monitor
the sustainability reporting process. It includes digital
reporting and adherence to standards, while providing
recommendations to maintain the accuracy ofsustainability information and ensuring the independenceof assurance providers throughout the process. Parallel
to audit committees, corporate sustainability reporting
committees within companies or professional sectoral
associations can serve as dedicated teams, or groups
tasked with coordinating and overseeing the collection,
analysis, and reporting to stakeholders sustainability
performance data. They play an important role indefining “materiality thresholds”.
Thus, these two types of committees come at thecore of the internal companies’ supervision to meet the
new obligations introduced by the CSRD. Their roleshould be considered as a strategic opportunity to gain
a competitive advantage, in a business environment thatneeds more sustainable practices. Treating reporting asa (costly) compliance exercise alone ignores the value
reporting can bring to the company, both in terms ofidentifying ways to run a more efficient operation and to
identify new business opportunities.

34

Materiality and internal supervision

35

FIGURE 9 –Materiality assessment of sustainability data

Double materiality assessment

Impact on stakeholders& the environment

Sustainability
matters

Impact on the company

Impact Materiality
Positive
ActualPotential

Financial Materiality
Negative

ActualPotential

Scale
x
Scope
x
Irremediability

Scale
x
Scope

x
Likelihoodx
Likelihood

Opportunities
ActualPotential

Magnitudex
Likelihood

!

Risks
ActualPotential

Magnitudex
Likelihood

Lefebvre Sarrut’s infographic in association with GRI
and MEP Pascal Durand, CSRD rapporteur

CSRD ESSENTIALS

36

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

SMEs and the value chain
Small and Medium Enterprises (SMEs), unless listed,

compel large companies to ask SMEs within their value

customers, banks, and investors. To address this, theare not covered by the CSRD. About 1,000 listed SMEs

chains. This provision serves as an additional safeguard

EFRAG is developing a simplified, voluntary standard

will therefore have to issue a sustainability statement

against excessively burdensome reporting requirements

tailored for non-listed SMEs, so that they can respondaccording to the transposition schedule. Furthermore,

trickling down to SMEs associated with larger companies

to requests for sustainability information efficiently andthe ESRS encompass a substantial array of value-in value chains. The EFRAG called this measure theproportionately, thus facilitating their engagement in the

chain reporting obligations, prompting companies within“value chain cap”.

transition towards a sustainable economy.

the directive’s scope to seek sustainability information

Non-listed SMEs represent by far the largest number

Large companies have been granted additionalfrom their value-chain partners, particularly their SME

of SMEs in Europe and, although not mandated toflexibilities regarding specific environmental andsuppliers and customers. Essentially, large companies

comply with sustainability reporting obligations undersocial disclosure requirements, which impact reporting

will issue comprehensive information requests to SME

the Accounting Directive, they often face demands forthroughout the value chain. By extending the preparation

suppliers and customers related to their material topics.

sustainability data from various stakeholders such as

time for reporting on certain environmental and social

Recognizing the potential additional burden on SMEs,
the directive addresses the need for proportionality andrelevance in information requests to suppliers. These
requests will need to consider the scale, complexity,

SMEs and value chains supporting initiatives

capacities, and characteristics of companies within value
chains, with particular consideration for SMEs.
Still, SMEs may not yet be ready or even able to report

SMEs play a crucial role in emerging economies

cooperation with the Swiss Confederation’s State

where they act as key engines of job creation and

Secretariat for Economic Affairs (SECO), GRI

comprehensively on their sustainability performance inincome generation, contributing to up to 45% ofdelivered the Corporate Sustainability and Reporting

the first years. This is why the CSRD provides for two

total domestic employment and 33% of national

for Competitive Business7 (CSRCB) program tomechanisms to protect SMEs from excessive demands

income6. In recent years, it has become obvious

support SMEs in six countries: Colombia, Ghana,from their customers and suppliers, who are often largethat sustainability reporting is a critical competitive

Indonesia, Peru, South Africa, and Vietnam. Fromcompanies, and to support them in the collection ofdifferentiator to enter global value chains, and2016 to 2021, it trained over 2,500 entrepreneurs

reporting data.

therefore an essential tool for SMEs to improve theirfrom SMEs on sustainability reporting, throughcompetitiveness and market access possibilities.

workshops events and one-to-one meetings.

A “value chain cap”
The CSRD stipulates that standards for listed SMEs will
establish the maximum information that the ESRS can

To illustrate mechanisms to support SMEs, in
6 International Finance Corporation (IFC) annual report 2010: where innovation meets impact (Vol. 2) : IFC financials, projects, and portfolio 2010 (English).
Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/970081468331866551/IFC-financials-projects-and-portfolio-2010
7 https://www.globalreporting.org/public-policy/legislation-and-regulation/corporate-sustainability-and-reporting-for-competitive-business/

SMEs and the value chain

topics, the European Commission is also granting

company explains the efforts made to obtain the

SMEs more time to prepare for future data collection

necessary information about its value chain, therequirements. For instance, companies or groups

reasons why not all the necessary information could be

not exceeding on their balance sheet the averageobtained, and its plans to retrieve them in the future;

number of 750 employees during the financial year

■ when disclosing information on policies, actions and(on a consolidated basis, where applicable) may omit

targets, the reporting company may limit value-chain

the datapoints on scope 3 emissions and total GHG

information to those available in-house, such andemissions, for the first year of preparation of theirsustainability statement. An additional delay of one or two

publicly available information;■ when disclosing metrics, the company is not required

years has been granted for the reporting of some data

to include value-chain information, except for

related to social impacts.

datapoints derived from other EU legislation.

In practice, additional flexibility has been introduced
to minimize the reporting effort from companies,

In terms of implementation, EU Member States arerecognizing in some cases their limited capacity toresponsible for assisting SMEs through financial andcollect complex data from their supplier and customers.

organizational support measures (information programs,

The use of credible proxies has been made possible,

one-stop shops, etc.)

to help organizations overcome challenges in datacollection and reporting while still providing stakeholders
with meaningful insights into their sustainability
performance. These can be particularly relevant for
suppliers trying to provide in-scope companies witha fair response to their requests for information onsustainability matters.

Three more years
The ESRS include a transition period of three years forthe reporting of sustainability information of value-chain
partners, with the aim of easing the initial reporting forlarge companies and to help SMEs in the value chain
to prepare. During this transition period, the following
conditions apply:■ if not all the necessary information regarding its value
chain is available, it is sufficient that the reporting37

CSRD ESSENTIALS

38

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Implementing & delegated acts
Scrutiny period

EU delegated and implementing acts are considered as

elements of the primary legislation within the limits set

secondary legislation, as opposed to primary legislationby the legislator. These acts are crucial for the effective(i.e., either regulations or directives). They aim to provide

implementation of EU laws, as they provide detailed

The scrutiny period for a delegated act in thea flexible and efficient mechanism for the European

rules and technical specifications necessary to ensure

European Union is the specified timeframeCommission to adapt and execute legislative measures.

consistency and adaptability in various policy areas. The

during which the European Parliament andIn some years, secondary legislation represented up to

European Parliament and the Council have the power

the Council can review, and potentially

90% of the legislative volume produced by the European

to object to a delegated act proposed by the European

object, to the act proposed by the European

Union8.

Commission. In the European Parliament, this canCommission. Most of the delegated acts

happen through a resolution to object that needs to bestemming from the CSRD have a two-month

adopted by the majority of the Members of the European

scrutiny period, which can be extended to

Parliament composing the assembly, and not only basedfour months upon request of the relevanton the of votes expressed (majority based on half thecommittees of the Council of the EU andnumber of elected MEPs).

the Parliament. The delegated acts on the

Delegation of power to the European
Commission
In the context of EU law, the delegation of power refers
to the authority granted by the EU legislator (usually theEuropean Parliament and the Council of the EU) to the

Implementing act

assurance level have a four-month scrutiny
period.

European Commission to adopt legal acts in specific policy
areas. This delegation is outlined in primary legislation

An implementing act is a secondary legislative act

and allows the Commission to supplement or amend

adopted by the European Commission to ensure theIf the Parliament believes that the Commission has

non-essential elements of the legislation. However, thisuniform application of EU regulations or directives acrossexceeded its delegated powers or if there are concernsdelegation comes with clear limits and conditions to ensure

all Member States. Unlike delegated acts, implementing

about the legality or appropriateness of the implementing

accountability and transparency, and the Commission must

acts are not delegated by the legislator but are directly

acts, it can express its objections and potentially influence

act within the framework set by the legislator.

mandated by the primary legislation. They contain specific

the Commission’s course of action, but it has no direct

measures, such as technical details or procedural rules,

role neither in amending nor in adopting implementing

necessary for the practical implementation of EU laws.

acts. As such, Parliament’s resolutions can only exercise

While the European Commission is responsible for

an indirect influence on the Commission which is not

It is a secondary legislative act that the European

proposing and adopting implementing acts, it is required

bound by them.

Commission is empowered to adopt under the delegation

to consult with a committee composed of representativesof power from the EU legislator. Delegated acts allow

from the Member States in a process called “comitology

the Commission to supplement or amend non-essentialcommittees”.

Delegated act

8 D. Guéguen and V. Marissen, Handbook on EU Secondary Legislation, Brussels,
Pact European Affairs, 2013, p. 20

Implementing & delegated acts

39

FIGURE 10 –Secondary legislations mandated by CSRD
DA: Delegated Act
IA: Implementing Act
Category

Attribute

Formal deadline

StatusProvided to the EU Commission

CommentDA

ESRS SET 1 – Sector agnostic

June 2023

Published

EFRAG

12 standards
https://webgate.ec.europa.eu/regdel/#/delegatedActs/2111

DA

ESRS SET 2 – Sectoral standards

June 2026

Early drafting

EFRAG

Standards progressively adopted, with 6
to 11 foreseen by June 2026

DA

ESRS for listed SMEs

June 2024

Public consultation

EFRAG

on draftDA

ESRS for third-country companies

June 2026

Not started

Drafts are being finalized; possible delay
foreseen for Q1 2025 tbc

Being considered

Shall focus on sustainability impacts
reporting only

DA
DA
DA

Limited assurance standards
Reasonable assurance standards
Digital taxonomy (tagging & XBRLOctober 2026
October 2028
No formal deadline

technical standards)
IA

Equivalence with third-country

Not started
Not started
Full ESRS datapoint

Voluntary standards for SMEs

Based on technical advice by theGeneral level

CEAOB

Internal process at Directorate-Pending a favorable assessment report

General levelby the EU Commission

EFRAG & ESMA

Early draft foreseen for Q4 2024.

Internal process at Directorate-

Led by the European Commission

released
No formal deadline-

reporting regimes
Guidelines

Internal process at Directorate-

General level
June 2024

-

EFRAG

Drafts are being finalized; possible delay
foreseen for Q1 2025 tbc

Guidelines

Supervision of sustainability

No formal deadline

-

ESMA

reporting for listed companies
Guidelines

Procedures for assurance

Public consultation ended on March 15,
2024

-

-

CEAOB

Guidelines to be developed by July
2024, for adoption by Q4 2024

CSRD ESSENTIALS

40

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

National implementation & penalties
The CSRD provides a harmonized framework for

Scope and applicability: Member States must ensureof auditors, and the independence of auditors andcompanies on transparency, accounting and audit, whilethat the directive’s requirements apply to the specified

Independent Assurance Service Providers.

allowing flexibility for Member States to implement its

companies, including public-interest entities (PIEs)

provisions in their national legal systems.

and others meeting certain size criteria. They are also

National Competent Authority (NCA) to monitor possible

responsible for ensuring that companies comply withbreaches of these provisions (e.g. in case of failure or

the prescribed content and format of annual financial

ethical misconduct), and to impose penalties including

and sustainability statements, including any electronicfines or other disciplinary measures. The fine amount mayreporting requirements.

vary depending on the severity of the violation. In case of

The directive shall be transposed by all Member States
into their national law by 6 July 2024.
Member States do not have much flexibility regarding
the content of the reporting standards, as they are set at
EU level; however, they are still required to incorporate

Each Member State shall therefore empower aserious misconduct, auditors could have their registration

the directive’s provisions into the national legal framework,

Compliance oversight: to ensure compliance withwithdrawn, which means that they could lose the authori-and to publish the administrative provisions necessary toreporting requirements, Member States are required tozation to conduct statutory audits. In addition to, or instead

comply with the CSRD. When it comes to penalties fordesignate National Competent Authorities (NCAs) respon-of, financial penalties, NCAs may require audit firms andnon-compliance, the directive is not very prescriptive andsible for the oversight of the CSRD implementation. Under

independent assurance service providers to take corrective

leaves it to Member States to define enforcing measures.

the previous NFRD framework, these authorities were typi-measures to address identified deficiencies in their audit

cally financial regulators or relevant bodies, but their super-

processes, quality control, or compliance with professional

Indeed, the CSRD does not introduce any new penalties tovisory powers were limited to listed companies. With thestandards. Similar requirements should apply to Indepen-

the existing provisions of the Accounting Directive (article

integration of financial and sustainability information into

dent Assurance Service Providers going forward.

51). Just like under the previous regime, Member Statesa unified management report, the supervisory measures

shall establish effective, proportionate, and dissuasive

applicable to listed entities should now be extended to

Public oversight and transparency: the directives

penalties for infringements of the directive, which now

sustainability reporting. However, Member States retainemphasize the importance of transparency and may

includes sustainability disclosures. They are also in

the flexibility to decide whether to extend administrativerequire NCAs to make certain information related tocharge of providing adequate resources for supervisory

supervision by NCAs to non-listed companies, to opt forpenalties publicly available, while respecting businessauthorities that may control corporate sustainability

another competent body, or to leave the handling of com-confidentiality. In that regard, the Committee of European

reporting practices. For instance, France has introduced

pliance checks to the judicial system.

Auditing Oversight Bodies (CEAOB) is in charge ofcriminal sanctions for company directors that would fail tocoordinating national audit oversight bodies at EU level,appoint an auditor of sustainability information and for the

Auditing requirements: the directive includes provisions

including on certain aspects of cross-border enforcement

obstruction of a sustainability audit. A further instance isrelated to the audit of financial and sustainability

and penalties. The CSRD also mandates the ESMA

Hungary: should undertakings fail to comply with the ESG

statements. Member States are responsible forto issue guidelines on the supervision of sustainability

reporting obligations, the national Supervisory Authority for

implementing rules on the statutory audit of annual

reporting by national competent authorities.

Regulated Activities may impose financial penalties.

and consolidated accounts, including the appointment

CSRD ESSENTIALS

41

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

Glossary
Disclaimer: The following definitions aim to clarify,

Assurance (external assurance): the process byassigns the relevant digital tags to each piece of data insimplify, and explain key concepts of the briefings.

which an independent third party assesses and provides

its financial and sustainability statements. These digital

They do not replace legal acts, or definitions included

assurance on the accuracy, reliability, or compliancetags provide a standardized way of identifying andin guidance materials produced by EFRAG.

of information or processes based on agreed-upon

describing those elements, facilitating consistency andassurance standards. This can include audits, reviews,

comparability in financial reporting.

or certifications conducted by external parties to validate
Adverse impact: an adverse impact refers to athe credibility and trustworthiness of an organization’s

Double materiality: the concept underpinning the CSRD,

negative or detrimental effect that a particular action,

activities, reports, or systems. The CSRD requires thewhich states that companies need to consider and report

decision, policy, or event has on individuals, groups,

sustainability reporting to be audited by a statutory auditor

both their impacts on the world and how sustainability

organizations, or the environment. These impacts

or an Independent Assurance Service Provider. The

issues impact the financial well-being of the company.

include human-rights issues such as forced andrequired audit corresponds to an assurance service, andThe European Commission and EFRAG are developingchild labor, inadequate workplace health and safety,

it has two levels of engagement: limited or reasonableadditional guidance on materiality assessment.

exploitation of workers, environmental impacts

assurance.
Due diligence: the concept of environmental and human-(greenhouse gas emissions, pollution), or biodiversity
loss and ecosystem degradation. However, rather

Branch: in EU law, a branch refers to an establishment

rights due diligence can be described as the practicalthan specifying the adverse impact by way of new

set up by a company in a Member State, but outside its

steps to help companies identify, prevent, mitigate,

definitions or criteria, the European Commission has

main place of business. Essentially, it’s like a satellite

account for and bring to an end the actual and potential

taken the approach of referring to various instruments ofoffice or facility of a company operating in another country

adverse human-rights and environmental impacts. This

conventions and guidelines. The identification of impacts

within or outside the EU. Branches allow companies toregards their operations, value chains and other businessas adverse is usually driven by an analysis carried

expand their presence and conduct business in various

relationships. The concept of due diligence is alsoout by the company on the severity of the impacts,

EU countries while still being part of the same legal entity.

embedded in the recommendations of the International

which includes the scale of damage to the environment

Labour Organisation (ILO) Tripartite Declaration ofand of affected or potentially affected individuals, theCaptive insurance companies: a wholly owned

Principles, concerning multinational enterprises andirremediability and the likelihood of the negative impact

subsidiary created to provide insurance to its non-social policy, and was specified and further developed inon human rights and the environment.

insurance parent company (or companies). Captives are

the OECD Guidelines for Multinational Enterprises anda form of self-insurance.

OECD Guidance on Responsible Business Conduct.

Annual management report: a document that provides

The European Union has agreed on a joint text ofa summary of a company’s performance, activities

Digital tag: a specific label or identifier assigned to a

the Corporate Sustainability Due Diligence Directive

challenges and future plans, over the course of a fiscal

single piece of financial or sustainability information.

(CSDDD), which sets obligations for large companies

year.

When a company reports its information using XBRL, it

based and operating in the EU regarding actual andGlossary42

potential adverse impacts on human rights and thethe national level when it comes to implementing thefrom an impact perspective when it pertains to theenvironment, with respect to their own operations, thoseamendments to the Accounting Directive.

company’s actual or potential, positive or negativeof their subsidiaries, and those carried out by theirimpacts on people or the environment over the short-,

business partners. The directive was formally adopted by

European Single Electronic Format (ESEF): themedium- and long-term. Material sustainability matters

European policymakers in April 2024.

regulatory framework introduced by the European

include impacts caused or contributed to by the company

Securities and Markets Authority (ESMA) as part of theand impacts which are directly linked to the company’s

Company downstream from the reporting company:

European Union’s efforts to enhance transparency andoperations, products, and services through its business

any company (for instance, distributors, customers) thataccessibility of financial information. The ESEF requires

relationships.

receives products or services from the the company.

companies listed on EU regulated markets to prepare theirannual reports in a specific electronic format, known as

Impact: the effect the company has or could have

Company upstream from the reporting company:

Inline XBRL (eXtensible Business Reporting Language).

on the environment and people, including effects on

any company (for instance, suppliers) which provides

Inline XBRL combines traditional human-readable financial

human rights, connected with its own operations andproducts or services that are used in the development ofstatements with machine-readable XBRL data, allowing for

upstream and downstream value chain, including

the reporting company’s own products or services.

easier analysis and retrieval of financial information.

through its products and services, as well as through its

Net turnover: it refers to the total revenue generated by

European Single Access Point (ESAP): a single digital

contribution, negative or positive, to sustainable

a company after deducting certain items, such as sales

point of access to public financial and non-financial

development over the short, medium or long term.

rebates and value added tax and other taxes directly

information about EU companies and investment

linked to turnover.

products. It will provide for a single digital platform for the

Independent Assurance Services Provider (IASP): a

centralized collection, storage and access to information

firm other than the usual auditors of financial information

EFRAG: a public private organisation that provides

already published in accordance with existing Europeanthat is allowed by Member States to audit sustainability

technical expertise and advice to the European

legislation, as well as future European directives andinformation. Depending on the local legal frameworks,

Commission on accounting matters, particularly on theregulations. This includes financial regulations and ESG-IASPs can be sustainability specialists, certification

development and endorsement of International Financial

related disclosure regulations such as the SFDR and thebodies, lawyers, or any other entity that received an

Reporting Standards (IFRS) and the development of

CSRD. The ESAP platform should be available from Q3

accreditation to provide sustainability assurance.

European Sustainability Reporting Standards (ESRS).

2027 and gradually phased in.

European Directive / European Regulation: legal

Financial materiality: a sustainability matter is material

disclosures in the ESRS that capture companies’ impacts,

instruments issued by the European Union that set out

from a financial perspective if it generates risks orrisks and opportunities.

specific objectives that all Member States are required

opportunities that do, or could reasonably affect, theto achieve and/or implement. Unlike a regulation, which

company’s financial position, performance, cash flows,

Key intangible resources: non-physical resources

has a direct and immediate legal effect, a directive

access to finance or cost of capital - over the short,which, either alone or in conjunction with other physicalprovides a framework for Member States to develop theirmedium or long term.

or non-physical resources, can generate a positive or abusiness relationships. Impacts indicate the company’s

Impacts, Risks and Opportunities (IRO): specificown national laws to meet the directive’s objectives. In
the case of the CSRD, little flexibility has been given tonegative effect on the value of the company in the short,
Impact materiality: a sustainability matter is material

medium and long term. In practical terms, intangibles

Glossary

43

usually refer to human, intellectual, and social capital of

based on the financial statements or the sustainability

provided by the company, it would be too complex anda company, such as trademark(s), brand/logo, customer

reporting of the company.

costly. Therefore, a level of professional judgment isdirectory, reputation, etc. The CSRD adds a qualification

required, based on competence and experience. Thereof “key intangible”, which refers to a level of dependency

Materiality threshold: in the context of double materiality

will always be a few uncertainties, or inherent limitationsof the company’s business model to these intangible

reporting, it refers to the criteria (qualitative and/or

due to subjective elements such as estimates, hence theresources.

quantitative) used both internally to the company’s

wording “high”, but not “absolute”.

operations and externally to broader societal and
Limited assurance: the level of assurance in relation toenvironmental concerns. Setting a threshold on

Proxy: it refers to a substitute or indicator used to

information that is disclosed based on the ESRS. Whensustainability matters is therefore necessary to determine

represent a specific aspect of sustainability performance

auditors provide limited assurance, they are stating that,which topics are material to the company. It establishes

or impact when direct measurement or data collection

based on their procedures and assessments, nothing

the boundary beyond which sustainability impacts, risks

is difficult or impractical. For example, in environmental

has come to their attention that indicates the informationand opportunities are considered material and provide

sustainability reporting, a company might use electricity

reviewed is materially misstated. A risk assessment based

grounds for their inclusion in corporate reporting. In EU

consumption as a credible proxy for carbon emissions,on limited assurance focuses on the detailed assurance

law, materiality thresholds shall be determined by severity

when these cannot be measured directly. Similarly, in

activities on topics or data that have a higher risk of error

for actual negative impacts and severity and likelihood forsocial sustainability reporting, metrics like employee

or omissions, and/or are of significant interest to thepotential negative impacts.

turnover rate or employee satisfaction scores mightuser or stakeholder. As the workload for auditors is lessserve as credible proxies for overall employee well-being

for limited assurance than for reasonable assurance,

Opportunities: sustainability-related opportunities withor engagement. The credibility of a proxy depends on

and more reliance is placed on inquiry and analytical

positive financial effects.

several factors, including its relevance to the sustainability

procedures, there is an increased risk that errors or

issue being measured, the reliability of the data source,omissions in the report will not be discovered. As a

Preparers: an individual or a company responsible forthe accuracy of the proxy in reflecting the underlying

result, the assurance provider issues a conclusion withpreparing and presenting financial or sustainability reports

phenomenon, and transparency in how it is selected andthe “double negative” wording that nothing has come toeither voluntarily or legally.

applied in reporting.

presented, in accordance with the reporting criteria. In

Reasonable assurance: the level of assurance

Risks: potential or actual sustainability-related negative

the case of limited assurance, the assurance provider will

describing a higher level of confidence in the ESRS-

financial effects arising from environmental, social oroften undertake sampling of underlying source data on

based reported information. When auditors provide

governance matters that may negatively affect thebusiness sites - but the sample will be smaller than forreasonable assurance, they are stating that, based oncompany’s financial performance.

reasonable assurance.

their audit procedures and assessments, the financial

his/her attention to indicate the information is not fairly

statements are free from material misstatement.

Small and non-complex institutions: banks which do

Material information: any information that could

It requires the provider to undertake an initial risk

not exceed certain thresholds, such as a total asset value

influence the decisions of users, including investors andassessment and then perform an in-depth investigation,of less than EUR30 billion and/or a low ratio of cross-other stakeholders. Information is material where its

collecting sufficient evidence to be able to give a high, butborder assets in more than one Member State, and whichomission or misstatement could reasonably be expected

not absolute, level of assurance in the form of a positively

usually do not receive direct public financial assistance.

to influence decisions that users of that information make,worded “clean opinion”. Auditors don’t check every detailGlossary

44

Stakeholder: those who have an interest in the company,

Sustainability reporting: the process of mandatorily or

Value chain: the full range of activities, resources andand who can affect or can be affected by the company’s

voluntarily reporting information related to sustainability

relationships involved in the creation and delivery ofactivities. There are two main groups of stakeholders:matters, in accordance with the ESRS).

the products or services of the company. A value chain■ Affected stakeholders: individuals or groups whose

Sustainability reporting format: the specifications of athe company uses and relies on to create its products

interests are or could be affected – positively or

single electronic reporting format and the format, structureor services from conception to delivery, consumption

negatively – by the company’s activities and its direct andand language of the management report.

and end of life. The value chain includes companies (orencompasses the activities, resources and relationships

indirect business relationships across its value chain;■ Users of sustainability statements: primary users

suppliers) upstream and downstream from the company.
Transition plan for climate change mitigation: a planof general-purpose financial reporting (existing andthat outlines the structured roadmap for a company topotential investors, lenders and other creditors,

convert its environmental goals into actionable steps

including asset managers, credit institutions, insurance

and investment strategies, with the aim of shifting its

companies), as well as other users, including theoperations toward a greener, lower-carbon model.

company’s business partners, trade unions and

The plan should align with global warming targets

social partners, civil society and non-governmental

set by the Paris Agreement and the goal of achievingorganizations, governments, analysts and academics.

climate neutrality by 2050, as outlined in the European

Some stakeholders may belong to the two groups.

Climate Law. By engaging in this company-wide
process, companies can mitigate strategic and financial

Relevant activities, resources and relationships include:■ those in the company’s operations, such as humanresources;■ those along its supply, marketing and distribution
channels, such as materials, service sourcing, productand service sale and delivery;■ the financing, geographical, geopolitical and regulatoryenvironments in which the company operates.

Supply chain: the full range of activities or processes

risks associated with the transition, identify businesscarried out by suppliers upstream from the reporting

opportunities, and enhance transparency for investors

Users: (of sustainability statements) are primary users ofcompany, which provide products or services used in theand financial markets. While the EU has not yet provided

general-purpose financial reporting (existing and potential

development of the reporting company’s own productsa legal definition for transition plans, frameworks like theinvestors, lenders and other creditors including asset

or services. This includes upstream suppliers with which

CSRD and the ESRS offer detailed guidelines.

managers, credit institutions, insurance companies), as

the reporting company has a direct relationship (often
referred to as a first-tier supplier), or an indirect businesswell as other users, including the company’s businessTransition plans encompass various elements, such as:

relationship.

partners, trade unions and social partners, civil society
and non-governmental organizations, governments,■ greenhouse-gas reduction targets;analysts, and academics.

Sustainability matters: environmental, social, economic■ decarbonization strategies;

and employee matters, respect for human rights, anti-■ investment plans tied to the EU environmental

XBRL: XBRL-tagged data is machine-readable, making it

Taxonomy-aligned Key Performance Indicators;

easier for stakeholders to access, analyze, and integrate

corruption and anti-bribery matters, as well as otherspecific entities’ governance matters. These topics are
more precisely defined in the European Sustainability■ alignment with overall business strategies and financial
planning;

Reporting Standards (ESRS) – e.g., diversity policies■ internal and external approval processes;

or child labor when it comes to governance and human■ monitoring of implementation progress andrights respectively.

assessment of emissions.

sustainability information into various platforms andsystems.

CSRD ESSENTIALS

45

WITH
THE DEFINITIVETHE SUPPORTGUIDEOF MEP
TO THE
PASCALEU CORPORATEDURAND, CSRD RAPPORTEURSUSTAINABILITY REPORTING DIRECTIVE

References
European legal references:supervision of credit institutions, amending Directive■ Directive (EU) 2022/2464 of the European Parliament■ Directive 2013/34/EU of the European Parliament and2002/87/EC and repealing Directives 2006/48/EC andand of the Council of 14 December 2022 amendingof the Council of 26 June 2013 on the annual financial

2006/49/EC

Regulation (EU) No 537/2014, Directive 2004/109/EC,

statements, consolidated financial statements andhttps://eur-lex.europa.eu/legal-content/EN/TXT/HTML/

Directive 2006/43/EC and Directive 2013/34/EU, asrelated reports of certain types of companies, amending?uri=CELEX:32013R0575&from=EN

regards corporate sustainability reporting, Corporate

Directive 2006/43/EC of the European Parliament and■ Council Directive 86/635/EEC of 8 December

Sustainability Reporting Directive (CSRD).

of the Council and repealing Council Directives 78/660/

1986 on the annual accounts and consolidated

https://eur-lex.europa.eu/legal-content/EN/

EEC and 83/349/EEC, Accounting Directive.

accounts of banks and other financial institutions,

https://eur-lex.europa.eu/legal-content/EN/

https://eur-lex.europa.eu/legal-content/EN/

TXT/?uri=CELEX%3A32013L0034

ALL/?uri=celex%3A31986L0635

TXT/?uri=CELEX%3A32022L2464■ Directive 2009/138/EC of the European Parliamentand of the Council of 25 November 2009 on the■ Council Directive 91/674/EEC on the annual accounts■ Regulation 765/2008 of the European Parliamentand consolidated accounts, https://eur-lex.europa.

and of the Council of 9 July 2008 setting out thereinsurance, Solvency II (recast).

eu/legal-content/EN/TXT/?uri=CELEX%3A0199

requirements for accreditation and market surveillance

https://eur-lex.europa.eu/legal-content/EN/

1L0674-20060905

relating to the marketing of products and repealing■ Regulation (EU) 2019/2088 of the European

Regulation (EEC) No 339/93, Accreditation and market

taking-up and pursuit of the business of insurance andTXT/?uri=celex%3A32009L0138■ Directive 2004/109/EC of the European Parliament

Parliament and of the Council of 27 November 2019

surveillance relating to the marketing of products.

and of the Council of 15 December 2004 on theon sustainability-related disclosures in the financial

https://eur-lex.europa.eu/legal-content/EN/

harmonization of transparency requirements in

TXT/?uri=CELEX%3A32008R0765

relation to information about issuers whose securities

services sector.
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/■ Regulation (EC) No 1606/2002 of the European

are admitted to trading on a regulated market andParliament and of the Council of 19 July 2002 on theamending Directive 2001/34/EC, Transparency

application of international accounting standards.

Directive.

and of the Council of 26 June 2013 on prudential

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri

requirements for credit institutions and amending?uri=CELEX:32002R1606&from=EN?uri=CELEX:32019R2088&from=EN■ Regulation 575/2013 of the European Parliament

Regulation (EU) No 648/2012, Prudential requirements■ Regulation (EU) 2021/1119 of the European=OJ:L:2004:390:0038:0057:EN:PDF■ Regulation (EU) 2020/852 of the European

for credit institutions and investment firms.

Parliament and of the Council of 30 June 2021

Parliament and of the Council of 18 June 2020 on thehttps://eur-lex.europa.eu/legal-content/EN/

establishing the framework for achieving climate

establishment of a framework to facilitate sustainable

TXT/?uri=celex%3A32013R0575

neutrality and amending Regulations (EC) No

investment, and amending Regulation (EU)401/2009 and (EU) 2018/1999, European Climate Law

2019/2088, Taxonomy Regulation.

and of the Council of 26 June 2013 on access tohttps://eur-lex.europa.eu/legal-content/EN/

https://eur-lex.europa.eu/legal-content/EN/

the activity of credit institutions and the prudential

TXT/?uri=CELEX%3A32021R1119

TXT/?uri=celex%3A32020R0852■ Directive 2013/36/EU of the European ParliamentReferences■ Regulation 1606/2002 of the European Parliament and46■ Regulation (EC) No 1221/2009 of the European■ Regulation (EU) No 1095/2010 of the Europeanof the Council of 19 July 2002 on the application of

Parliament and of the Council of 25 November 2009

Parliament and of the Council of 24 November

international accounting standards.

on the voluntary participation by organisations in2010 establishing a European Supervisory Authority

https://eur-lex.europa.eu/legal-content/EN/

a Community eco-management and audit scheme(European Securities and Markets Authority),

ALL/?uri=celex%3A32002R1606(EMAS), repealing Regulation (EC) No 761/2001 andamending Decision No 716/2009/EC and repealing

Commission Decisions 2001/681/EC and 2006/193/EC.

Commission Decision 2009/77/EC, Establishing

17 July 2020 supplementing Regulation (EU) 2016/1011

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/ESMA.

of the European Parliament and of the Council as?uri=CELEX:32009R1221&from=en

https://eur-lex.europa.eu/legal-content/EN/■ Commission Delegated Regulation (EU) 2020/1816 ofregards the explanation in the benchmark statement of■ Directive (EU) 2019/1937 of the European Parliament

TXT/?uri=CELEX%3A32010R1095

how environmental, social and governance factors are

and of the Council of 23 October 2019 on the protection

reflected in each benchmark provided and published.

of persons who report breaches of Union law?

Parliament and of the Council of 16 April 2014 on

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/

specific requirements regarding statutory audit of?uri=CELEX:32020R1816&from=EN?uri=CELEX:32019L1937&from=en

public-interest entities and repealing Commission■ Commission Delegated Regulation (EU) 2020/1817 of■ Commission Delegated Regulation (EU) 2018/815 of■ Regulation (EU) No 537/2014 of the European

Decision 2005/909/EC.

17 July 2020 supplementing Regulation (EU) 2016/1011

17 December 2018 supplementing Directive 2004/109/of the European Parliament and of the Council as

EC of the European Parliament and of the Council

regards the minimum content of the explanation onwith regard to regulatory technical standards on the■ Directive 2014/65/EU of the European Parliament andhow environmental, social and governance factors are

specification of a single electronic reporting formatof the Council of 15 May 2014 on markets in financialreflected in the benchmark methodology.

(ESEF).

instruments and amending Directive 2002/92/EC andhttps://eur-lex.europa.eu/legal-content/EN/TXT/HTML/https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/

Directive 2011/61/EU (recast).

?uri=CELEX:32020R1817&from=EN?uri=CELEX:32019R0815&from=EN

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/■ Commission Delegated Regulation (EU) 2020/1818 of■ Directive (EU) 2017/1132 of the European Parliament

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32014R0537&from=EN?uri=CELEX:32014L0065&from=EN

17 July 2020 supplementing Regulation (EU) 2016/1011

and of the Council of 14 June 2017 relating to certainof the European Parliament and of the Council asaspects of company law (codification), Company law

small and non-complex institutions and its applicability

regards minimum standards for EU Climate Transition

Directive.

to SSM significant institutions (consolidation 2022).

Benchmarks and EU Paris-aligned Benchmarks.

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https://www.eba.europa.eu/single-rule-book-qa/qna/

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32020R1818&from=EN■ Directive 2003/87/EC of the European Parliament

TXT/?uri=celex%3A32017L1132■ Directive 2006/43/EC of the European Parliament and■ Regulation (EU) No 575/2013 (CRR), Definition ofview/publicId/2022_6335■ Commission Delegated Regulation (EU)of the Council of 17 May 2006 on statutory audits ofsupplementing Directive 2013/34/EU of the European

and of the Council of 13 October 2003 establishingannual accounts and consolidated accounts, amending

Parliament and of the Council as regards sustainability

a scheme for greenhouse gas emission allowance

Council Directives 78/660/EEC and 83/349/EEC

reporting standards, Delegated act on the ESRS.

trading within the Community and amending Council

and repealing Council Directive 84/253/EEC, Audit

https://eur-lex.europa.eu/legal-content/EN/

Directive 96/61/EC.

Directive.

TXT/?uri=pi_com%3AC%282023%295303

https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/https://eur-lex.europa.eu/legal-content/FR/?uri=CELEX:32003L0087&from=EN

TXT/?uri=CELEX:32006L0043

References

47

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initiatives-related-business-humanimpact (Vol. 2) : IFC financials, projects, and portfolio

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