CSRD: Implications for Multinational Companies

Abstract:

The CSRD requires companies that are in scope to disclose high quality, reliable, and comparable non-financial information in accordance with European Sustainability Reporting Standards (ESRS).

On January 24th, 2024, elements of the EU’s Corporate Sustainability Reporting Directive (CSRD) were delayed. However, the boundaries by which companies will be affected by the regulation remain in place. Non-EU companies with operations in the EU will still be required to disclose against the CSRD in 2028, and the general disclosures for in-scope EU companies remain unchanged.  The delay grants the Commission an additional two years to finalize sector-specific and non-EU standards and should not pause efforts to align with disclosure. Read our take on this week’s announcement from the EU.

How has implementation of the CSRD changed?

The EU just announced a two-year delay in the implementation of sector-specific disclosures and reporting requirements for in-scope, non-EU companies with operations in the EU.  According to the Commission, this action allows EU companies to focus on the implementation of the first set of ESRS, which must be reported in FY2024, and eventually phases in these sector-specific standards once robust reporting mechanisms are in place. Companies can expect the Commission to adopt sector-specific ESRS disclosures and ESRS for non-EU companies meeting certain thresholds by June 30th, 2026, instead of 2024.

What do Companies do now?

Considering the news out of the EU and the fact that the Commission will not adopt ESRS standards for non-EU companies meeting certain thresholds until the 30th of June 2026, rather than 2024, there are still several “no regret actions” in-scope companies, or those that anticipate being in-scope by 2028 given their growth projections, can undertake. These include:

  • Determining which of their EU and non-EU entities are in-scope of the CSRD

  • Conducting a double materiality assessment in alignment with ESRS guidance

  • Facilitating a third-party ESG assurance readiness assessment

  • Addressing the critical gaps that exist in material disclosure topics

How do I know if I am in-Scope?

There are two main ways your company may be in scope of the impending CSRD, even if you are based outside of the EU:

  1. EU companies (including subsidiaries of non-EU parents) that fulfill two of the three criteria: more than 250 employees, turnover of more than €40 million, and total assets of €20 million. Additionally, Non-EU parent companies that generate €150 million or more in the EU and with an EU branch that generates more than €40 million in net turnover in the EU will also comply.

  2.   Companies that have securities listed on an EU-regulated market (excluding some micro enterprises) – this includes EU subsidiaries of a parent companies with more than €150 million in net turnover in the EU with listed securities on an EU-regulated exchange.

If in scope, the phase-in period of the CSRD is as follows:

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Because this is a “directive,” each EU state will need to adopt their own law that follows the EU rule. Member states must bring aligned policies into force by July 6th of this year.

In this evolving landscape, multinational corporations are compelled to adhere to the expanding regulations set forth by the EU and other emerging frameworks addressing financial and climate materiality. It is our view that the impact of CSRD will eventually cascade through the business ecosystem, prompting reporting-mandated firms to exert influence on their value chains, compelling them to furnish sustainability and other non-financial data. Entities, including private companies and small enterprises, which may have previously perceived themselves as exempt from voluntary disclosure, should no longer defer efforts to improve disclosure and advance compliance programs.

How does FSI help companies get ahead of Regulatory pressures?

Full Scope Insights is a full-service sustainability solutions partner supporting forward-thinking organizations in the development and execution of responsible business strategies. Our services include cost effective approaches to ESG regulation gap analysis, double materiality assessments, compliant and accurate Scope 1, 2, & 3 emissions inventories, and assurance readiness.

Contact us to learn more about our ESG business solutions.

Ethan Krohn, Sr. Associate – Sustainability & GHG Emissions

Mallory Rutigliano, Contributing Author