Understanding EU’s Corporate Sustainability Reporting Directive (CSRD)

The European Union's Corporate Sustainability Reporting Directive (CSRD) is reshaping how companies report on Environmental, Social, and Governance (ESG) factors. While the directive initially targets larger corporations, its ripple effects are already impacting SMBs across industries.

In this article, we’ll break down what the CSRD is, who it applies to, and how SMBs can prepare for compliance to avoid business disruptions and unlock new opportunities.

1. What is the Corporate Sustainability Reporting Directive (CSRD)?

The CSRD is a European Union regulation designed to standardize and improve the quality of ESG disclosures across companies operating in EU markets.

Key Objectives of the CSRD:

• Increase transparency on ESG practices.
• Ensure consistent and comparable ESG data.
• Enhance accountability and reduce greenwashing.

Example: Think of the CSRD as the sustainability equivalent of financial reporting standards—clear, consistent, and auditable.

Key Insight: The CSRD aims to make ESG reporting as rigorous and reliable as financial disclosures.

2. Who Does the CSRD Apply To?

While the initial CSRD rollout focuses on larger corporations, SMBs are not exempt from its influence.

Applicability Criteria:

• Companies listed on EU-regulated markets.
• Companies meeting at least two of the following:some text
  • More than 250 employees
  • More than €40 million in revenue
  • More than €20 million in assets
• Indirect impact through partnerships with larger corporations.

Key Insight: Even if your SMB doesn’t directly meet the criteria, clients and partners may require CSRD-aligned data for their own reporting.

3. Key Requirements of the CSRD

The CSRD mandates detailed disclosures across environmental, social, and governance dimensions.

Core Reporting Requirements:

1. Double Materiality Assessment: Businesses must report both their impact on the environment and society and how ESG factors impact their financial performance.
2. Alignment with Reporting Standards: Follow frameworks like the European Sustainability Reporting Standards (ESRS).
3. Third-Party Assurance: Independent audits are required to ensure report credibility.
4. Digital Reporting Format: Reports must be machine-readable for regulatory and public access.

Key Insight: SMBs should start aligning their data collection processes with CSRD standards today to avoid last-minute compliance chaos.

4. Steps for SMBs to Prepare for CSRD Compliance

Step 1: Understand Reporting Obligations

Identify whether your company falls under CSRD requirements directly or indirectly.

Step 2: Conduct a Double Materiality Assessment

Evaluate how your business impacts the environment and how ESG factors influence your finances.

Step 3: Choose an ESG Framework

Adopt frameworks like GRI, SASB, or VSME to ensure alignment with CSRD requirements.

Step 4: Implement ESG Reporting Tools

Leverage software solutions to streamline data collection and reporting.

Step 5: Train Your Team

Ensure relevant stakeholders understand their roles in ESG data collection and reporting.

Key Insight: Early preparation reduces compliance costs and mitigates risks.

5. How Wardn Helps SMBs Achieve CSRD Compliance

Wardn’s ESG reporting platform simplifies CSRD compliance with:

• Automated Double Materiality Assessments.
• Seamless integration with CSRD-aligned frameworks.
• Effortless data collection and reporting tools.
• One-click audit-ready ESG reports.

Key Insight: Wardn empowers SMBs to meet CSRD requirements efficiently and confidently.

FAQs

1. What is the main purpose of the CSRD? To standardize ESG reporting across companies operating in the EU.
2. Do SMBs need to comply with the CSRD? Directly or indirectly, most SMBs will be impacted.
3. How can SMBs prepare for CSRD compliance? By conducting a Double Materiality Assessment, aligning with a framework, and using ESG software tools.
4. What happens if a company doesn’t comply with the CSRD? Non-compliance could lead to fines, reputational damage, and loss of partnerships.‍
5. Is ESG software necessary for CSRD compliance? While not mandatory, it simplifies compliance significantly.