Navigating CSRD: A New Era of ESG Reporting for U.S. Businesses

The European Union’s Corporate Sustainability Reporting Directive (CSRD) is reshaping the global ESG reporting landscape, significantly impacting U.S. companies with operations in the EU. With compliance phased in from 2025 to 2029, the directive will replace the Non-Financial Reporting Directive (NFRD), introducing more detailed and extensive ESG reporting requirements.

Why CSRD Matters

Introduced under the European Green Deal, the CSRD seeks to enhance transparency and sustainability reporting by aligning with the EU Taxonomy. This aims to direct public and private funding toward environmentally sustainable activities, helping Europe achieve climate neutrality. The CSRD’s new European Sustainability Reporting Standards (ESRS) provide clear guidelines for companies, focusing on material ESG risks, impacts, and opportunities.

Who Needs to Comply?

Compliance depends on factors like company size, structure, and EU presence:

• 2025: EU-based large firms and listed companies, excluding micro-entities.
• 2026: SMEs and captive insurance entities.
• 2028: Non-EU parent companies (e.g., U.S. firms) with €150M+ turnover in the EU and significant subsidiaries or branches.

Double Materiality: A Core Principle

CSRD introduces the “double materiality” concept, evaluating:

• Impact Materiality: How a company’s activities affect people, the planet, and the environment.
• Financial Materiality: How sustainability issues impact the company’s economic performance.

Both perspectives must be considered, ensuring comprehensive disclosures.

Key Reporting Requirements

CSRD mandates detailed ESG reporting in a separate section of the management report. Companies must provide:

• Governance, strategy, and risk management disclosures.
• Data on sustainability risks, impacts, and opportunities.
• Third-party limited assurance for all reports, with potential future requirements for reasonable assurance.

Next Steps for Companies

To prepare for CSRD compliance, businesses should:

1. Identify entities under the CSRD scope and decide on a reporting approach (e.g., global or consolidated reporting).
2. Conduct a double materiality assessment to pinpoint ESG risks and impacts.
3. Address data gaps and align reporting processes with ESRS standards.
4. Prepare for limited assurance by third-party verifiers.

Looking Ahead

The CSRD represents a significant shift in sustainability reporting, requiring proactive planning and robust data collection. U.S. firms operating in the EU should act now to assess the directive’s impact and ensure compliance to stay ahead in the evolving ESG landscape.

For detailed guidance and support, reach out to Enexion Consulting to navigate the complexities of CSRD compliance and elevate your sustainability reporting.