EU Sustainability Reporting – Comparison of Draft CSRD to NFRD Requirements

Scope

Listed companies
 
All large companies, defined as those meeting two out of the following three criteria:

• More than 250 employees

• More than EUR 40m turnover

• More than EUR 20m total assets

This includes all companies, including subsidiaries of non-EU groups.

Exemption for EU subsidiaries of non-EU parent companies, subject to the non-EU parent preparing a consolidated sustainability report which is in accordance with EU requirements and is subject to limited assurance.

Exemption for EU subsidiaries of non-EU parent companies, but only if the parent discloses sustainability information that is provided individually for each consolidated entity.
 
Requirements apply to non-EU companies that sell goods or services in the EU.
 
SMEs are not required to prepare a sustainability report, but high risk sectors might be brought in scope later (following a European Commission review in 2026)

Effective date

Years ending 31 December 2023 year ends onwards
Listed SMEs: 31 December 2026 year ends onwards

Large Public Interest Entities that have more than 500 employees:
31 December 2024 year ends onwards
 
All large companies, defined as those meeting two out of the following three criteria:

• More than 250 employees

• More than EUR 40m turnover

• More than EUR 20m total assets

31 December 2025 year ends onwards
 
Listed SMEs, small and non-complex institutions, and captive reinsurance and insurance undertakings
31 December 2026 year ends onwards

All large companies, defined as those meeting two out of the following three criteria:

• More than 250 employees

• More than EUR 40m turnover

• More than EUR 20m total assets

31 December 2024 year ends onwards
 
SMEs which use simplified SME standards
31 December 2026 year ends onwards
 
Possible extension of scope to SMEs in high risk sectors. European Commission to report to the European Parliament and EU Council by 31 December 2026.

Sustainability Reporting Standards

European Sustainability Reporting Standards (ESRS) to be developed by EFRAG. EFRAG exposure drafts may be accessed here.
 
Adoption by the European Commission by delegated act provided there is no objection from the EU Council (2 month period) and the European Parliament (a further two month period after the EU Council’s 2 months)
 
Before the adoption of ESRS, a requirement to consult with the Member State Expert Group on Sustainable Finance and a number of EU organisations. An opinion to be obtained from ESMA within 2 months.
 
First set of standards to be prepared by 31 October 2022, with a second set by 31 October 2023.
 
Take into consideration the work of global sustainability standard setters, and existing standards and frameworks.
 
Review the standards every 3 years to take account of international developments.

Before the adoption of ESRSs, the European Commission would be required to consult the Accounting Regulatory Committee and obtain an opinion from the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).

Add text to require consideration ‘to the greatest extent possible’

European Commission to consult, on an annual basis, the Member State Expert Group on Sustainable Finance and the Accounting Regulatory Committee, on EFRAG’s work.

Delegated power to the European Commission for a period of 4 years (renewable).

External assurance

Limited assurance required

If the statutory auditor provides assurance over sustainability information, the related assurance report is required to be included in the audit report.

Member State option to permit assurance over sustainability information to be provided by an assurance services provider that is not the statutory auditor or an audit firm. Conditions include:

• The assurance service provider must be subject to similar independence and other requirements as financial statement auditors; and

• The sustainability assurance report must be published at the same time as the audit report.

 
National assurance standards apply. The European Commission can develop EU assurance standards in future.

Limited assurance required initially, with a move to reasonable assurance when the European Commission adopts an assurance standard (to be not more than 6 years after the effective date of the CSRD).
 
If the statutory auditor provides assurance over sustainability information, there is a Member State option to require the sustainability assurance report to be in a separate section of the audit report.
 
If assurance over sustainability information is provided by an audit firm, designation of a key sustainability partner with appropriate skills and resources is required.

An assurance services provider that is not the statutory auditor or an audit firm is required to comply with requirements that are equivalent to those set out in the Audit Directive (e.g. ethics, independence, training, continuing professional education, quality assurance)
 
Independence of an assurance services provider that is not the statutory auditor to be monitored by the audit committee (this can be assigned to another committee).

Statutory auditor and any firm in the same audit network are prohibited from providing assurance services over the entity’s sustainability information.

An assurance services provider that is not the statutory auditor or an audit firm is required to comply with requirements that are equivalent to those set out in the Audit Directive (e.g. ethics, independence, training, continuing professional education, quality assurance), provided that in addition those requirements result in the same level of quality of assurance of sustainability information.

European Commission to adopt assurance standards for limited assurance by 1 October 2023, and for reasonable assurance by 1 January 2026.