The CSRD is part of a bigger regulatory puzzle that the European Commission has been working on for several years. Though this puzzle is quite complicated to explain in a few sentences, we’ll give it our best shot. Bear with us.
In 2020 the European Commission launched the European Green Deal, in which it has set the ambitious target to become the first climate-neutral continent by 2050. It also set the goal to significantly reduce Europe’s greenhouse gas emissions by 2030, together with several other sustainability goals. To achieve this sustainable transition, private financing is (urgently) needed: financial market participants are expected to play an important role in achieving the ambitious targets. This is why, related to the Green Deal, the ’Sustainable Finance Action Plan’ was adopted in 2018. This Action Plan contains the tools and legislation to make sure the euros of Europe’s financial market players flow into the direction of sustainable economic activities. However, to this day there are significant issues with the reliability and comparability of the sustainability information of companies to make well-informed investment decisions. Investors require a better understanding of sustainability risks and opportunities for their (potential) investments.
This is where the CSRD comes into play. The Corporate Sustainability Reporting Directive (CSRD) was born as a review and replacement of the Non-Financial Reporting Directive, which already obligated very large companies to report non-financial information, but failed to realize the comparability and reliability needed for investors. By providing a standardized and mandatory way to report E, S & G information (including on risks and opportunities) for all companies in scope, the CSRD is designed to increase transparency, reliability, and comparability of information among corporates for all of its stakeholders, but most importantly for the financial community.