The reporting obligations for companies will change – but where is the journey heading?
On 21 April, the European Commission presented a proposal for a Corporate Sustainability Reporting Directive – CSRD for short – which aims to change the requirements for so-called “non-financial” corporate reporting in line with the EU’s current ambitions in sustainable finance.

Accordingly, sustainability-related information would have to be reported on the basis of uniform, mandatory standards in the future. The proposal is now with the European Parliament and the Council. While the Directive is generally welcomed by many, the devil, as always, is in the detail. In particular, the extension of the scope of application is likely to cause heated discussions, especially in view of the rapporteur now assigned in the European Parliament: the MEP Pascal Durand, previoulsy Green/EFA, now from the liberal Renew Group, is responsible for the dossier.

The CSRD as a result of the NFRD review

The CSRD-proposal is the result of the review of Directive 2014/95/EU on Non-Financial Reporting (NFRD) which, since 2017, applies to large public interest entities with an average number of employees of more than 500.

By replacing the current NFRD, the CSRD would also amend the Accounting Directive, the Audit Directive, the Audit Regulation, and the Transparency Directive.

The current framework roughly covers 11,700 companies which fall within the scope of the NFRD, requiring them to report on how sustainability issues affect their performance, position, and development (the “outside-in” perspective), as well as the impact of their activities on people and the environment (the “inside-out” perspective). This dual approach is described as the principle of “double materiality”.

However, there currently are no uniform standards for reporting. This concern was also the main argument for amending the Directive put forward during a public consultation from February to June 2020.

With the title of the CSRD, the Commission makes it clear that there must no longer be a hierarchical differentiation between financial information and sustainability information. In future, sustainability-related information should also be called such; the reference to “non-financial” information is considered misleading:

Many stakeholders consider the term ‘non-financial’ to be inaccurate, in particular because it implies that the information in question has no financial relevance. Increasingly, however, the information in question does have financial relevance. Many organisations, initiatives and practitioners in this field refer to ‘sustainability’ information. It is therefore preferable to use the term ‘sustainability information’ in place of ‘non-financial information’.

Overall, the proposed directive aims to improve the quality of reporting in favour of those who actively use sustainability reports as a source of information, including NGOs, but also credit institutions and investors. Ultimately, information should be appropriate, reliable, comparable, and accessible, because this – so the Commission’s argument goes – has not been the case so far.

CSRD vs. NFRD – The most important changes

The proposed amendments focus on creating mandatory standards for sustainability reporting that apply uniformly across the EU. Corresponding standards are to be developed by a non-governmental expert body, the European Financial Reporting Advisory Group (EFRAG).

Specifically, these standards would cover the following areas while taking into account the principle of double materiality mentioned above:

  • Business model and strategy, including plans and implementation;
  • Sustainability objectives and progress towards achieving them;
  • The role of management and oversight bodies in relation to sustainability;
  • Policies related to sustainability factors;
  • Due diligence processes for operations and supply chains;
  • Key risks and interdependencies;
  • Indicators relevant to the measurement of all of the above;
  • Intangible assets, including intellectual, human, social and relationship capital; and
  • Processes performed to identify the information disclosed.

Furthermore, the CSRD would establish audit requirements with limited assurance (with a prospective extension to reasonable assurance) as well as specifications on the reporting format. A full integration of sustainability reporting into companies’ management reports should also emphasise its relevance value, and the provision of information in an electronic, machine-readable format should simplify its overall use.

The expansion of the scope of application

However, the CSRD’s most controversial change is the extension of its scope of application. Whereas previously only very large public interest entities with a workforce of more than 500 persons were obliged to report, reporting obligations are now to be extended to all listed companies – except for micro-entities – and to all corporations and limited partnerships that are considered “large” in an accounting sense.

Since this would also oblige SMEs listed on regulated markets, the number of companies in Germany subject to reporting requirements would increase 30-fold from the current 500; across Europe from just under 12,000 to 50,000.

Against this background, the Commission proposes to develop standards for large companies and separate appropriate standards for SMEs, whereby unlisted SMEs can apply standards on a voluntary basis.

In this regard, the Commission has repeatedly argued that there is already a trend towards increased demand for sustainability-related information, with which many smaller companies are also confronted, which is why they are prepared to report accordingly on a voluntary basis.

To accommodate newly obliged SMEs, the CSRD Directive suggests that a ‘phasing-in’ period of three years should be introduced, during which listed SMEs could successively transition and receive dedicated support for their reporting requirements.

A sore point from the perspective of companies and SMEs

According to the comments made by affected stakeholders, the CSRD presents a major challenge from a business perspective. Both the envisaged implementation deadline, according to which the standards to be developed would already have to be implemented in the 2023 reporting period, and the extension of the CSRD’s scope of application have raised significant concerns.

For example, the German Machine and Plant Engineering Federation (Verband Deutscher Maschinen- und Anlagenbau e. V.). (VDMA) assumes that an entirely new position would have to be created per company to meet the reporting requirements. The Parliamentary Group of Small and Medium-sized Enterprises Europe (PKM Europe) of the CDU/CSU group in the European Parliament argues

“For example, the Commission assumes that the preferred option will incur one-off initialisation costs of around EUR 24,000 plus annual recurring costs of EUR 72,000 per company. This compares with estimated annual cost savings of between EUR 24,000 and EUR 42,000 per company if the envisaged standards eliminate additional information requests. In fact, this is a losing proposition for every company. (…) This is especially true for the medium-sized companies that will be newly affected by the reporting requirements.”

and calls for a moratorium on new, additional reporting obligations and requirements for companies with less than 500 workers.


If the proposed Directive on the Corporate Sustainability Reporting is adopted in its current form, the NFRD framework would remain in force until 2023. The Commission plans to adopt the relevant Delegated Acts on the introduction of binding standards for large companies by 31 October 2022, so that these would apply for the first time for the reporting year 2023.

After publication by the Commission, the proposal is now with the European Parliament and the Council. Here too, heated discussions are inevitable, and the Frenchman Pascal Durand, the MEP Pascal Durand, previoulsy Green/EFA, now from the liberal Renew Group, has taken over the role of Rapporteur for the file.

The Commission will accept comments on the CSRD proposal until the 14 July.