Prepare for the sustainable reporting directive (CSRD)

How does your business impact the world? Many large organisations have to asnwer that question in a mandatory sustainability report. The report needs to contain information on how companies affect the environment and human rights, for example. This is laid down in the Corporate Sustainability Reporting Directive (CSRD), a new European directive. The new rules only apply to large businesses in 2024 and 2025. However, 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?

The CSRD applies to companies that were previously required to file a report under the Non-Financial Reporting Directive (NFRD). The CSRD replaces the NFRD. From 2025, the sustainability report will also be required for large companies that did 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

For SMEs listed on the stock exchange, the CSRD will take effect on 1 January 2026.

Sustainability reporting for SMEs

Even though SMEs do not have to file a sustainability report yet, you can expect to get questions from larger companies that you supply with goods. For example, about how your product is made and by whom. And whether this happens in a fair and conscientious way. Bas de Gooijer, adviser at De Duurzame Adviseurs, explains: "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?

Make sure you can answer your customers' questions. Otherwise, they may choose to do business with a competitor who can. "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. "Where do my 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," the adviser says. There are also online tools, such as the CSR Risk Check, which you can use to check products and procurement.

CSRD: the contents

Do you want to know what type of questions you can expect your customer to ask? Take a look at the requirements for the sustainability report. This 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.

There will be separate standards for SMEs: the so-called voluntary sustainability themes. These are less complicated than the standards for large companies. They will help you as an SME to answer the questions of large companies that have to report under the CSRD. It is expected that the voluntary sustainability themes will be published by the end of 2024. 

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.