Highlights
To support companies in scope of the Corporate Sustainability Reporting Directive (CSRD), the European Commission (EC) has issued 90 frequently asked questions covering:
- which companies are in scope of the CSRD;
- details around the assurance of CSRD disclosures; and
- practical arrangements for publishing CSRD disclosures.
Why has the European Commission released these FAQs?
The EC is responsible for developing the CSRD and its ongoing maintenance. It asked the European Financial Reporting Advisory Group (EFRAG) to develop European Sustainability Reporting Standards (ESRSs) on its behalf.
The EC has released these FAQs to clarify the content already included in the CSRD. The FAQs provide guidance – without expanding the requirements – to help companies and their stakeholders to apply the requirements. They complement the implementation guidance and FAQs published by EFRAG on ESRSs.
What do you need to know?
Scoping
The guidance summarises the requirements in the CSRD for scoping and timing of reporting by individual companies, consolidated groups and ultimate non-EU parent companies.
When and to whom will the CSRD apply?
The CSRD applies for years beginning on or after 1 January 2024 (reporting in 2025). Phased introduction starts with Public Interest Entities (PIEs) and companies with listed securities on EU-regulated markets that are large and have more than 500 employees (e.g. those already subject to reporting requirements under the Non-Financial Reporting Directive).
Ultimately, ESRSs will be applied by companies, such as:
- large EU companies1
- most companies with listed securities on EU-regulated markets (irrespective of whether they are based in the EU2); and
- ultimate non-EU parent companies4 with a combined group level turnover in the EU of more than EUR 150 million for each of the last two consecutive financial years.
Assurance
The FAQs provide detailed guidance on the practicalities for assurance including:
- who can provide assurance and the structure of the assurance report;
- how EU non-audit service restrictions are impacted; and
- that a combination of reasonable and limited assurance is permitted.
The FAQs confirm that companies which voluntarily comply with the CSRD are not required to obtain an assurance conclusion.
Assurance practitioners are required to express a limited assurance conclusion on whether:
- the sustainability statement, including the process to identify the information reported complies with:
- ESRSs,
- the requirement to digitally tag the information; and
- the requirement to provide disclosures under the EU Taxonomy Regulation5; and
- ESRSs,
- the outcome of the process has resulted in the disclosure of all material sustainability-related impacts, risks and opportunities in accordance with ESRSs.
The European Securities and Markets Authority highlight that companies need to have robust governance, processes and controls over their sustainability reporting.
Practicalities
The FAQs confirm practical details about
- the language, location and timing of publication, including when the ‘reporting entity’ does not publish a management report or financial statements;
- digital tagging requirements;
- interaction with the EU Taxonomy Regulation, including for non-EU parent undertakings;
- what constitutes ‘reasonable effort’ in obtaining information from the value chain before relying on using estimates; and
- when standards for SMEs can be used.
What’s next – Key actions for companies
- Read the FAQs to see if they answer your key questions.
- Track the transposition of the CSRD into legislation in the countries where you may be in scope. This will help you to understand if there are country-specific issues to consider.
- Discuss the assurance requirements with your assurance provider to make sure you are ready.
- See our ESRS Today page for information about implementing ESRSs.
1 Large companies are those that, on the balance sheet date, exceed two of the following three criteria (including EU and non-EU subsidiaries): 250 employees, net revenue of EUR 50m (formerly EUR 40m) or total assets of EUR 25m (formerly EUR 20m). The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY 2023.
2 Exemptions apply, for example, for micro-undertakings (companies that do not exceed two of the following three criteria (including EU and non-EU subsidiaries): 10 employees, net revenue of EUR 900,000 (formerly EUR 700,000) or total assets of EUR 450,000 (formerly EUR 350,000) and for certain debt listings. The new thresholds take effect from FY 2024. EU member states can choose to adopt them early from FY 2023.
3 Separate standards will be developed for SMEs and non-EU parent companies.
4 Small and non-complex institutions and captive insurers are treated like listed SMEs (the option to opt out until 2028 does not apply unless they also meet the definition of an SME).
5 Regulation (EU) 2020/852 (EU Taxonomy Regulation) is the EU’s framework to facilitate sustainable investment.
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