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Highlights
- The European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD) requires sustainability data to be aligned with the quality of financial data
- CSRD builds on existing regulations and places more responsibility on companies.
- Businesses will need to ensure transparency and harmonisation of the information provided.
On this page
What is CSRD?
The EU CSRD: What does it mean for you?
At the beginning of 2024, the EU CSRD came into force. It requires sustainability data to be aligned with the quality of financial data and involves the use of a new EU reporting standard that builds upon—and overlaps with—other global standards.
CSRD amends the EU’s 2014 Non-financial Reporting Directive and expands what and how companies report on sustainability. It is a part of the EU’s Green Deal, which aims to help Europe become the first climate-neutral continent by 2050.
CSRD applies to companies if they are listed on a stock exchange in the EU, regardless of where they are based. It also applies to EU companies that meet at least two of the following criteria:
- €40 million net turnover
- €20 million on the balance sheet
- 250 or more employees
Finally, companies based in third countries—outside the EU—are also in scope for CSRD if they generate €150 million annually in revenue in the EU or have a branch in the EU generating €40 million in net turnover.
To comply with CSRD, companies must fulfil the following requirements:
- Ensure transparency and harmonisation of the information provided: Report using the European Sustainability Reporting Standards (ESRS) established by the European Financial Reporting Advisory Group (EFRAG).
- Align data quality for sustainability and financial reporting: Ensure auditability or traceability with external assurance. An ESRS for assurance is in development. Until the standard is issued, companies are required to procure limited assurance of their relevant disclosures.
- Drive capital to sustainable companies: Use financial data to assess alignment with EU sustainability objectives through EU taxonomy reporting.
Existing standards
CSRD builds upon and works with existing sustainability standards.
CSRD builds on the requirements of existing sustainability reporting standards such as GRI and TCFD, which have been absorbed into the evolving sustainability standard.
CSRD does not provide detailed disclosure requirements; instead, it requires EFRAG to develop a standard that builds on what already exists. This measure, the ESRS, was issued in July 2023.
1. ESRS
The first 12 ESRS approved by the European Commission are outlined below:
European Sustainability Reporting Standards (ESRS)
Here are the first 12 European Sustainability Reporting Standards (ESRS) approved by the European Commission
European Sustainability Reporting Standards (ESRS)
Your business must determine which of these standards apply to you by conducting a double materiality assessment. Double materiality differs from single materiality—the normal process for sustainability reporting, or what is required for other sustainability standards—in that it covers both of the following aspects:
- How your company impacts people and planet (similar to impact materiality as defined by GRI)
- How environmental, social, and governance (ESG) issues create financial risks and opportunities, impacting your business model and profitability (similar to what is required for the sustainability standard)
Double materiality therefore covers the external impacts of your operations as well as the impacts or risks presented by climate change, demographic changes, and issues in the supply chain. In assessing double materiality, you need to look at not just the topic of each of the ESRS modules, but also the sub-topics and sub-sub-topics addressed in each area.
What is notable about ESRS is that it is much more comprehensive than other sustainability standards, with the existing 12 ESRS modules including well over 1,000 data elements. ESRS is also still in progress and is not yet complete. EFRAG is continuing to develop additional standards specific to certain industries and special standards for assurance.
2. EU taxonomy
The EU taxonomy is part of the EU’s sustainable finance action plan and another important part of the EU’s Green Deal. It is a common classification of economic activities that substantially contribute to the following six environmental objectives:
a) Climate change mitigation
b) Climate change adaptation
c) Sustainable use and protection of water and marine resources
d) Transition to a circular economy
e) Pollution prevention and control
f) Protection and restoration of biodiversity and ecosystems
Since January 2022, companies in scope of CSRD have been required to report on the percentage of operating expenditures, capital expenditures, and revenue or turnover that are in alignment with these six objectives.
This is to help determine how sustainable a company’s economic activity is and provide investors with the information needed to make sustainable investment choices, thereby driving capital to sustainable businesses.
For an economic activity to be deemed as sustainable in alignment with the EU taxonomy, it must make substantial contributions to at least one of these objectives and have no detrimental effect on the other five.
3. The International Financial Reporting Standards Foundation (IFRS)
Many companies in scope for CSRD, both in the EU and in third-party countries, have stock exchange listings in other jurisdictions. This means that many need or want to also report using the sustainability standards from IFRS.
These are:
- IFRS S1: General requirements for disclosure of sustainability-related financial information
- IFRS S2: Climate-related disclosures
These standards largely overlap with the ESRS climate module. However, IFRS and ESRS use different materiality lenses, with IFRS using only financial (and not impact) materiality. The IFRS sustainability standard will continue to build out, with more topics in coming years. There is an intent to maintain a high degree of interoperability with ESRS.
4. Corporate Sustainability Due Diligence Directive (CS3D)
On March 19, 2024, the EU adopted CS3D. This directive established requirements for some—but not all—companies subject to CSRD to assess the management of adverse impacts regarding human rights and the environment in their supply chains. There is also a requirement to disclose relevant information about a company’s suppliers and management or oversight of risks in the supply chain.
As part of ESRS E-1, companies need to disclose their Scope 3 emissions, or the emissions generated within their supply chain. CS3D goes a step further, requiring companies to report information about how suppliers are dealing with climate impacts.
Reporting and its challenges
The importance of assuring and verifying your information.
CSRD puts more focus on the quality of the information companies report, and this should be verified through external assurance in the same way as financial reporting. Initially, limited assurance is required, but the intention is that by 2028, this will change to reasonable assurance.
- Limited assurance: This most common type of assurance for sustainability information is less thorough and robust. The outcome produces a negative finding from the assurance provider, stating that they have not found anything that is a cause of concern.
- Reasonable assurance: Essentially, this is the same level of assurance that companies procure for the financial information they disclose. Reasonable assurance results in a positive finding of confidence in the data reported.
Moving towards reasonable assurance governance will require companies to improve the systems and processes they have been using for their ESG or sustainability data.
How TCS can help
Here’s how you can ensure successful compliance with sustainability regulations.
As a multinational company with a large European footprint, TCS is subject to CSRD, along with several of our large subsidiaries based in the EU. While complying with the regulations ourselves, we are also working with clients to help enhance their data for CSRD reporting.
Our four-stage process is as follows:
Step 1. Double materiality assessment: We can help you determine what you need to measure, manage, and disclose in terms of a double materiality assessment.
Step 2. Discover and assess: We will analyse your data source mapping, identify gaps in your data, and highlight opportunities for automation. This will reduce errors and ensure that your data is kept up to date. We can then design a ‘to-be’ architecture and assess which ESG tool is best suited to your needs.
Step 3. Implementation: The phased implementation of ESG data infrastructure begins with a detailed design and agile implementation process, followed by enterprise integration. We will then test the solution to verify its operation before handover.
Step 4. Support: After handover, we provide ongoing technical support to ensure that your solution adapts as your business needs—or the regulations—evolve.
We leverage our experience in all phases of the CSRD journey to fast-track implementation so that you can be sure you have the data and tools to comply with regulations.
