Corporate Sustainability Reporting Directive (CSRD) is an EU directive active from the beginning of 2023 [1], which strengthens the requirements on listed companies concerning ESG (Environment, social, and governance) matters and reporting. CSRD was implemented in Swedish law in July 2024, and will be a requirement for large listed companies from the first fiscal year starting by July 1:st 2024 or later [2]. CSRD is implemented as part of the European Green Deal [3], which is an EU initiative for ensuring a sustainable society and economy by 2050.

After the entry of CSRD in law, companies will have to report on ESG matters as part of their annual report, with the intention to equate sustainability and financial matters at corporate level. CSRD will replace NFRD (Non Financial Reporting Directive), and the intention is to give the financial sector and other interested parties better insight in how companies affect and are affected by ESG matters [4]. Another intention is to make it easier to compare how sustainable different companies are. This is to be achieved by the new European standards for what is considered sustainable business - the ESRS (European Sustainability Reporting Standards) [5].

The ESRS is a set of standards which controls how the CSRD reporting is to be done. As a result of the entrance of CSRD, affected corporations will have less freedom in how they report on sustainability matters. The company ESG work and reporting will be governed by the twelve ESRS standards, which are divided into four groups - ESRS (general), ESRS E (environment), ESRS S (social), ESRS G (governance). For the CSRD report, a double materiality analysis is to be done. This analysis is to sort out how the business affects and is affected by the environment, to find out what ESRS standards are essential for the business. Only ESRS2, which shall describe how the double materiality analysis was done, is required to apply and report by CSRD. Examples of other standards are ESRS E1 (Climate change), and ESRS S1 (Own workforce). ESRS E1 is distinguished from the other non-required standards in terms of CSRD reporting requirements. If climate change is not considered essential for the business, an explanation is required [6].

What companies are affected by CSRD? The EU directive [7] says that the reporting requirement will be transposed for corporations of different magnitudes step by step during financial years starting by the beginning of 2024, 2025 and 2026. Slightly simplified, the companies who will have to report beginning from the 2025 annual report are those which are large in the meaning of [8], which is of public interest and additionally has on average more than 500 employees during the fiscal year. Large companies have to report according to CSRD from the 2026 annual report, and small and medium sized companies of public interest and small and non-complex financial institutions [8] from the 2027 annual report. Other interpretations of what companies are covered by CSRD can be found for example in [9, 4].

CSRD and ESRS are regulations based on the EU Taxonomy, which is a classification of what economic activities are considered sustainable [10].

References
[1] https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en. Accessed September 18, 2024.
[2] Civilutskottets betänkande 2023/24:CU23, p.6.
[3] https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en. Accessed September 18, 2024.
[4] CSRD / On Demand. Course by Ny Teknik Education. https://www.nyteknikeducation.se/produkt/corporate-sustainability-reporting-directive-csrd-on-demand/.
[5] https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en. Accessed September 18, 2024.
[6] ESRS / On Demand. Course by Ny Teknik Education. https://www.nyteknikeducation.se/produkt/european-sustainability-reporting-standards-esrs-on-demand/.
[7] DIRECTIVE (EU) 2022/2464 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL. Article 5.
[8] DIRECTIVE 2013/34/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL. Article 3.
[9] CSRD - En grundläggande genomgång. Tove Ahlström. Just Sustainable AB.
[10] EU Taxonomy. https://www.europarl.europa.eu/topics/en/article/20200604STO80509/eu-taxonomy-green-investments-to-boost-sustainable-finance. Accessed September 19, 2024.