What Does CSRD reporting Mean for US Companies?

The Corporate Sustainability Reporting Directive (CSRD) is a key EU regulation aimed at enhancing and standardising sustainability reporting. It updates and replaces the Non-Financial Reporting Directive (NFRD) by broadening the scope of companies that must comply and significantly increasing the depth of the information required. The CSRD obligates companies to disclose Environmental, Social, and Governance (ESG) performance metrics in a more comprehensive, transparent, and comparable way.

While it's an EU directive, its scope extends beyond the European Union’s borders. Certain non-EU companies, including those in the US, that meet specific criteria are also required to comply. The CSRD’s primary goal is to ensure that investors, stakeholders, and regulators have access to reliable and standardised sustainability data, driving accountability and improved ESG performance across the business landscape.

Does CSRD affect U.S. companies?

Though the CSRD primarily targets EU-based companies, it also applies to non-EU companies (including US businesses) that have significant economic activity in the European market. US companies must comply with CSRD if they meet one of the following criteria:

• They are U.S. companies with securities listed on an EU-regulated market.
• They generate more than €150 million in revenue from the EU.
• They are subsidiaries of U.S. companies with securities listed on EU-regulated markets.
• If these U.S. companies have EU-based subsidiaries or branches, those entities must comply with the CSRD if they meet at least two out of the following three criteria: having more than 250 employees, a balance sheet exceeding €25 million, or an annual turnover of over €50 million.

Complying with the CSRD can enhance stakeholder trust, improve risk management practices, and align U.S. companies with global sustainability trends.

The CSRD is part of a broader shift toward greater corporate accountability in sustainability reporting, and its influence may extend beyond the EU, prompting regulatory changes in other markets.

Implications for US Companies

For US companies that fall within the CSRD’s scope, this directive represents a significant shift in reporting obligations, particularly when compared to US regulations such as the Securities and Exchange Commission (SEC) climate disclosure rules. While the SEC has proposed rules focused primarily on climate-related financial disclosures, the CSRD requires a much broader scope of reporting.

Companies need to report on all aspects of ESG performance, covering not just environmental impacts but also social factors like labour practices, human rights, and governance issues such as anti-corruption measures. Importantly, the CSRD also introduces double materiality, which mandates companies to report not only on how ESG factors impact their financial performance but also on how their activities impact society and the environment.

SEC and CSRD: What’s the difference?

While both the SEC’s climate-related disclosure rules and the CSRD aim to improve transparency in sustainability reporting, there are several key differences that US companies need to be aware of:

• Scope: The SEC rule focuses narrowly on climate-related financial risks, while the CSRD demands a holistic view of ESG, requiring disclosures on a wide range of environmental, social, and governance impacts.
• Coverage: The CSRD applies to both publicly traded and privately held large companies, whereas the SEC rule primarily targets publicly traded companies in the US.
• Reporting standards: The SEC aligns with the Task Force on Climate-Related Financial Disclosures (TCFD), while the CSRD uses the European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG).
• Auditing requirements: Under the CSRD, all sustainability reports must undergo third-party assurance, whereas the SEC’s proposed rules do not yet mandate such audits.
• Digitalisation: The CSRD requires reports to be digitally tagged in a standardised format (the European Single Electronic Format (ESEF) to ensure easier comparability across companies.

CSRD reporting requirements for U.S. companies

The reporting obligations under the CSRD are extensive and introduce several new concepts and standards that US companies may not be familiar with. . Here are the key reporting requirements:

• Comprehensive ESG reporting: Companies must disclose both financial and non-financial data across the entire ESG spectrum. This includes metrics on environmental performance (e.g., carbon emissions, energy usage), social issues (e.g., workforce diversity, labor conditions), and governance (e.g., anti-corruption policies).
• Double materiality: Companies need to report both how sustainability issues impact their financial health and how their activities affect society and the environment.
• European Sustainability Reporting Standards (ESRS): Reports must adhere to the ESRS, which outlines specific metrics that companies must report and prescribes how the data should be presented.
• Third-party audits: All sustainability reports under the CSRD must be independently audited to ensure accuracy and compliance.
• Digital tagging: Reports must be provided in a digital format using the European Single Electronic Format (ESEF) for easier data comparison and transparency across companies.
• Supply chains data: The CSRD requires companies to collect and report ESG data from their entire supply chain, meaning US-based suppliers to EU companies may also need to comply with these requirements.
• Retrospective and future reporting: Reports must contain historical and forward-thinking data.

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CSRD timeline for compliance

Not all companies need to comply with CSRD immediately. The compliance timeline is staggered based on company size and location:

January 2024 (for reporting in 2025): Companies with over 500 employees already subject to NFRD.

January 2025 (for reporting in 2026): Any large US companies listed on EU markets or subsidiaries of US companies listed on EU markets.

January 2026 (for reporting in 2027): Subsidiaries of U.S. companies that are small and medium-sized enterprises (SMEs) listed on EU markets.

January 2028 (for reporting in 2029): Large U.S. companies generating over €150 million in revenue if they have an EU subsidiary or branch that meets at least two of the following three criteria: having more than 250 employees, a balance sheet exceeding €25 million, or an annual turnover over €50 million.

Note: Companies that fall outside these criteria may still have reporting obligations based on other regulations or national requirements.

Companies failing to adhere to these reporting requirements may face penalties, damage to their reputation, and diminished trust from investors and stakeholders.

Companies should begin assessing their current sustainability reporting practices and prepare for compliance to ensure they meet the necessary requirements ahead of the deadlines. Seeking guidance from sustainability experts can facilitate a smoother transition to the new reporting framework.

How U.S. companies can prepare for CSRD

Here are some actionable steps that US companies can take to prepare for CSRD compliance:

• Evaluate current ESG practices: assess existing ESG reporting processes and identify gaps compared to CSRD requirements.
• Develop data collection strategies: implement robust data collection methods across all relevant ESG factors. Ensure that data is comprehensive, transparent, and compliant with ESRS.
• Engage third-party auditors: partner with third-party assurance providers familiar with CSRD to audit ESG data and ensure compliance with the new standards.
• Adapt for double materiality: develop a framework to assess both financial and non-financial materiality, reporting not only on business risks but also on societal and environmental impacts.
• Leverage digital tools for compliance: use digital platforms, such as Apiday, to streamline ESG data collection and reporting in the standardised ESEF format required under CSRD.

Conclusion

While the CSRD is an EU regulation, its impact reaches far beyond Europe’s borders. US companies that have significant business ties to the EU, or those preparing for future ESG regulations, should take proactive steps to comply with the CSRD.

Early adoption of robust sustainability reporting practices not only ensures compliance but also positions businesses as leaders in global ESG standards, offering a competitive edge in a rapidly evolving market.

At Apiday, we understand the complexities and challenges involved in the reporting process.

That's why our platform is designed to simplify and streamline it by:

• Identifying your specific reporting requirements
• Pre-populating ESRS templates
• Highlighting any data gaps that need to be addressed
• And providing you with a fully compliant CSRD reporting pack, complete with digital tagging and EU Taxonomy alignment, ready for audit and seamless integration into your annual reporting

So you can focus on what matters the most: driving change in your company rather than fetching and crunching data!

Take the first step towards CSRD compliance now, book a no obligations session with one of our experts!