Green light for the application of the CSRD and ESRS at the EU level

In their vote on 18 October, MEPs confirmed the gradual application of the CSRD (Corporate Sustainability Reporting Directive) from January 2024. In addition, by the vote of 17 October 2023, the European Commission adjusted the thresholds for the classification of companies defined by Directive 2013/34/EU ("Accounting Directive") to establish a definitive timetable for the application of the Directive according to the following deadlines: 

By 2029 at the latest, 50,000 European companies will have to comply with the standards set out in the ESRS published this summer, and more specifically:

• The analysis of double materiality (from the point of view of the impact of the company on its ecosystem and the potential financial impact of the ecosystem on the company) 
• The requirement for extra-financial communication based on materiality analysis (qualitative and quantitative) - 1178 data points in total
• Estimation of the financial effects related to environmental risks and opportunities (e.g. biodiversity, climate or pollution)
• The Scopes 1, 2 and 3 carbon footprint and the decarbonization trajectory (if considered material based on the double materiality analysis result)
• The EU Taxonomy (calculation of the eligibility and alignment of the company’s revenues, Capital Expenditure and Opex, with the 6 objectives of the EU Taxonomy) 
• Other indicators from EU legislation – e.g. SFDR's Principle Adverse Impacts (PAI), Pillar 3 or Green Assets ratio for Credit Institution

In their initial cost/benefits analysis, EFRAG estimated the following one-off and recurring costs of implementation of the CSRD*

“…largest cost in absolute value (both one-off and recurring) is faced by NFRD listed undertakings. (…) They expect to face, on average, a total of EUR 287 000 as a one-off cost of reporting and about EUR 320 000 on annual basis (of which EUR 173 000 for own costs equivalent to between 2 and 2.5 FTEs on average). 

Non-NFRD non-listed undertakings incur the lowest administrative costs (…) Their costs are expected to reach about EUR 36 000 on a one-off basis and EUR 40 000 on a recurring basis.”

On the one hand, additional costs will be borne by companies for the implementation of these standards (costs of collecting, verifying and disclosing ESG data), the training of staff and the investments necessary to transform the company's value chain towards more sustainability.

On the other hand, significant benefits for companies will emerge in the medium term, starting with the standardisation of data and extra-financial reports at the European level, the implementation of proactive risk management, innovation driven by new challenges and more responsible corporate governance to ensure a climate of trust with stakeholders and investors. 

Corporate Social Responsibility and related extra-financial reporting can be costly but these costs are more than compensated by extensive benefits to the companies.