Prepare for the sustainable reporting directive (CSRD)

Running your business sustainably is no longer a nice-to-have. Customers increasingly want to know how a product was made, and governments want to battle climate change. The CSRD is a European directive that requires large companies to make sustainability reports. The new rules will only apply to large businesses in 2024 and 2025. Yet some 103,000 SMEs will also have to deal with the CSRD already. This is because large businesses will have to make clear in the report how their entire chain performs in terms of sustainability. They will therefore ask their smaller suppliers for information that they themselves need for their sustainability reporting.

The CSRD: when and for whom?

For companies that are now required to file a report under the Non-Financial Reporting Directive (NFRD), the obligation to file under the CSRD took effect on 1 January 2024. An important difference between the NFRD and the CSRD is that the CSRD will apply to many more companies than the current NFRD. From 2025, the sustainability report will also be required for large companies that do not have to report under the NFRD. A large company meets at least two of the following criteria:

1. Over 250 employees
2. Over €50 million annual turnover
3. More than €25 million on the balance sheet

Sustainability reporting for SMEs

Listed companies will have to start filing CSRD reports from 1 January 2026. Bas de Gooijer, an adviser at De Duurzame Adviseurs, expects that non-listed companies will follow shortly afterwards. He advises businesses to start reading up on the directive so they are prepared. "If you provide services or products to a large company that is required to report, you will be dealing with the CSRD indirectly", explains De Gooijer. "Large companies will become much stricter in their supplier and service provider selection processes. They will have to, if they want to meet the requirements for the sustainability report."

What should I do as an SME?

How is your product made, transported and processed? "If you have a quiet hour in your business or you are busy with administration, write down on paper how your chain is put together," advises de Gooijer. Consider where your products come from, what materials are used, and how sustainably it is done. "Some questions you may not be able to answer yourself. Then ask your supplier or importer," de Gooijer advises. There are also online tools, such as the CSR Risk Check, which you can use to check products and procurement.

CSRD: filing and checking

The CSRD regulation was adopted by the European Commission, and is now part of EU legislation. What the sustainability report should look like is determined on the basis of a number of standards: the European Sustainability Reporting Standards (ESRS). Through these standards, companies know exactly what sustainability information should be in the report. Such as information on pollution and employees. The ESRS ensures that everyone reports in the same way. This makes it easier to compare reports from different companies.

Companies have to submit the report in an online portal. An external statutory auditor, such as an accountant, checks the sustainability report. This may be the same auditor who checks the financial statements. 

European Sustainability Reporting Standards (ESRS)

The ESRS consist of two sets of standards:

• Standards for all sectors: for all businesses covered by the CSRD directive.
  These include the basic standards (ESRS 1 and ESRS 2) and the 10 standards divided into the topics environment, social, and governance.
• Standards by sector: these are not yet known.

CSDD: additional rules on sustainability

The EU wants businesses to do more than just report on their sustainability performance. Businesses must also work to reduce their negative impact on people and the environment. That is what the European legislation Corporate Sustainability Due Diligence (CSDD) is about. The law obliges businesses to detect, address, and counteract problems and violations. As with CSRD, the introduction of CSDD will be done in phases, with the largest businesses being first. The first businesses are expected to have to comply with CSDD rules by 2026.