Legal Alerts/30 Nov 2022

The CSRD Has Been Adopted – a New Directive Reforms Corporate Sustainability Reporting in the EU

The Council of the European Union adopted the final text of the EU Corporate Sustainability Reporting Directive (the “CSRD”) on Monday 28 November 2022. It will enter into force 20 days after its publication in the EU’s Official Journal and must be implemented into the Member States’ national laws within 18 months.

The CSRD revises and strengthens the existing reporting rules introduced by the Non-Financial Reporting Directive (the “NFRD”) in 2014. It brings significant changes by creating new sustainability reporting requirements and standards, expanding the scope of reporting and introducing a standardised digital reporting format. While providing more transparency to the public on companies’ sustainability motives and efforts, it is also expected to give investors and other stakeholders an additional and easily accessible tool for evaluating and comparing the non-financial performance of companies.

Which companies are within the scope?

The CSRD significantly expands the scope of companies subject to mandatory sustainability reporting. While the NFRD only covered approximately 11,700 large public interest entities, now more than 50,000 companies operating in the EU will be gradually within the scope of the new directive. For example, all large companies will be subject to reporting (the former threshold of 500 employees applicable under the NFRD is abolished). The companies under the scope of the CSRD are:

  • All large public-interest companies (companies listed on regulated markets, credit institutions and insurance companies)with more than 500 employees, already subject to the NFRD;
  • Large companies, i.e., entities that exceed at least two of the following criteria on their balance sheet dates:
    • a balance sheet total of EUR 20 million;
    • a net turnover of EUR 40 million, and/or
    • 250 employees on average during the financial year;
  • All EU and non-EU companies listed on the EU’s regulated markets, including SMEs (which will be allowed to report on simpler standards) but excluding listed micro-companies with less than ten employees or with a turnover below the EUR 20 million threshold, and
  • Third-country companies with substantial activity in the EU market (EUR 150 million in annual turnover and with at least one subsidiary or branch in the EU).

What are the main obligations?

The CSRD requires companies to provide detailed consolidated disclosures on multiple ESG topics. The concept of double materiality already incorporated in the NFRD and now in the CSRD means that companies must have both the “outside-in” view, i.e. the impact of sustainability matters on their financial performance, and the “inside-out” perspective, i.e. the impact of sustainability matters on all stakeholders.

Required disclosures include:

  • a brief description of the company’s business model and strategy;
  • a description of the time-bound sustainability-related targets and a specification whether those are based on scientific evidence;
  • a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters;
  • a description of the company’s policies in relation to sustainability matters;
  • information about the incentive schemes linked to sustainability matters;
  • a description of the company’s
    • due diligence process implemented with regard to sustainability matters;
    • actual or potential adverse impacts connected with the company’s own operations and with its value chain;
    • actions taken to identify and track these impacts and other adverse impacts;
    • any actions taken by the company to prevent, mitigate, remediate or bring an end to actual or potential adverse impacts;
  • principal risks to the company related to sustainability matters and how those are managed;
  • performance metrics relating to all of the above.

The European Financial Reporting Advisory Group (the ”EFRAG”) is developing sustainability reporting standards which define, together with the Taxonomy Regulation, the detailed requirements of the reporting. The EFRAG submitted the first set of draft sustainability reporting standards to the European Commission on 23 November 2022. These reporting standards will eventually be adopted as delegated acts by the European Commission.

Audit, assurance and sanctions

The CSRD introduces the requirement for reporting to be audited by an accredited, independent auditor or certifier who must ensure that sustainability information provided complies with the sustainability reporting standards developed by the EFRAG.

However, while we are waiting for the adoption of such standards, the CSRD sets out a progressive approach with a limited assurance requirement in terms of compliance of sustainability reporting. At first, a limited assurance (which is less costly) will be sufficient, but in the long run reasonable assurance is anticipated to be required, so that there will be a similar level of assurance for financial and sustainability reporting.

In addition, audit committees are assigned with certain tasks with regard to the assurance of sustainability reporting, such as monitoring of the sustainability reporting process, including an explanation of the audit committee’s contribution to the integrity of sustainability reporting and its role in that process.

The Member States must also establish a sanctions regime for noncompliant companies. While penalties must be sufficiently proportionate and dissuasive, the exact nature will remain determined by the Member States.

What is the timetable?

The provisions will take effect in four stages between 2024 and 2028 as follows:

  • From 1 January 2024: large public-interest companies already subject to the NFRD – first reporting in 2025;
  • From 1 January 2025: large EU companies not currently subject to the NFRD and non-EU companies listed on the EU regulated markets – first reporting in 2026;
  • From 1 January 2026: listed SMEs and other undertakings – first reporting in 2027 (with a possibility to opt-out until 2028); and
  • From 1 January 2028: third-country companies with substantial activity in the EU market – first reporting in 2029.

How to prepare for these changes?

The CSRD aims to harmonise corporate sustainability reporting in the EU. Undoubtedly, companies will need to revise their disclosures in light of the big changes to the required level of sustainability information, reporting and processes.

Forthcoming obligations require commitment from the management, risk management and financial teams of the companies. Companies are getting prepared for increased transparency and have initiated discussions with their auditors. In Finland, the CSRD is expected to be implemented into national legislation primarily by amending the Accounting Act and the Auditing Act.

The Borenius lawyers named below are more than happy to answer any legal questions you may have regarding the upcoming requirements. Please do not hesitate to contact us for more information.

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Additional information

Aksu Tuominen


Helsinki, London

Mia Mokkila



Päivi Kuitunen