Effective since January 1, 2024, the “Corporate Sustainability Reporting Directive” (CSRD) sets new standards and non-financial reporting obligations, but primarily affects a larger number of companies. While companies already subject to the NFRD will be relatively well-prepared, the approximately 40,000 other affected companies will need to anticipate and assess the impacts and risks of their activities on ESG criteria.

The CSRD: Principles and Changes

Definition of the CSRD

The CSRD, or Corporate Sustainability Reporting Directive, is part of the European Union’s efforts to strengthen CSR within companies. Integrated within the framework of the European Green Deal for Europe, this directive aims to enhance companies’ sustainability reporting requirements. The objectives are varied and primarily focused on improved environmental performance:

• Establishing a consistent ESG performance evaluation standard, notably through harmonizing corporate sustainability reporting
• Enhancing the availability and quality of ESG data, to simplify and make more accurate assessments of organizations’ impacts on the environment
• Promoting sustainable business development by emphasizing transparency and accountability, thereby encouraging companies to adopt more sustainable practices and take measures in favor of sustainability
• Identifying companies committed to sustainable practices, thus allowing for a more accurate assessment of their overall environmental impact through data collected by this directive.

This initiative follows the previous NFRD directive, or Non-Financial Reporting Directive, which previously set the rules for mandatory non-financial performance reporting but only applied to a small portion of European companies (approximately 11,000).

NFRD and CSRD, what are the differences?

Until now, the NFRD required certain large companies to share their response to the social and environmental challenges of our time. However, faced with the accelerating climate change, this information has not satisfied stakeholders, particularly investors. They struggled to assess companies’ non-financial performance, partly due to the lack of uniformity in ESG disclosures. This is where the CSRD comes in, approved to establish standards and obligations that companies must include annually in a non-financial report. This means that, in addition to the financial statements, an ESG report(environmental, social, and governance) must be published.

And it’s to address these gaps that the CSRD was adopted. But what really changes?

• More companies included

While the NFRD only applied to large companies with more than 500 employees, the CSRD applies to a broader scope of companies. Here are the subjects concerned, the date from which these companies must comply, and the reporting period they must adhere to :

• More detailed and comprehensive

Similar to the NFRD, this reporting focuses on non-financial data, emphasizing non-monetary elements such as environmental, social, individual, and overall ecosystem impacts of the company. The CSRD, however, aims to increase the accuracy and reliability of the information previously gathered by the NFRD, while standardizing this information in a report that adheres to a European standard.

• Dedicated section and verified information

To ensure transparency and reliability of shared information, the sustainability report will now be included in a separate section of the management report. The latter will be disseminated in a standardized European electronic format, XHTML, and will include specific tags defined in a new digital taxonomy established by a delegated act. The accuracy of the data will be mandatory verified by an auditor or an independent third-party organization, depending on the preferences of the member states. Initially, this verification will have a “moderate” level of assurance, with a possible transition to a “reasonable” level from 2028 onwards. Furthermore, auditors must adhere to strict assurance standards, with reinforced rules for their missions, as outlined in the directive and the Audit Regulation.

• Introduction of double materiality

Double materiality is THE key concept of the CSRD. This method of company assessment considers both financial elements, such as profits, and sustainability impacts, which include economic, social, and environmental aspects. Two aspects are distinguished: simple materiality and impact materiality. If these terms are unfamiliar to you, don’t worry, we explain them in our article!

The transition from the NFRD to the CSRD is a significant step towards greater transparency and more accurate assessment of companies’ non-financial performance. With stricter standards, mandatory verification, and the introduction of double materiality, the CSRD represents a solid foundation for responsible decision-making. For companies fully committed, this represents not only compliance with new standards but also an opportunity for leadership in the transition to a sustainable and inclusive economy.

Significant changes for real benefits

The CSRD directive offers numerous advantages to companies, helping to improve their sustainability and social and environmental responsibility. These benefits include:

Transparency and trust strengthening

By requiring more detailed and standardized sustainability reporting, the initiative promotes transparency about companies’ environmental, social, and governance activities and impacts. This enhanced transparency allows stakeholders to better assess companies’ performances, aiding them in making more informed decisions. With more comprehensive and reliable information on their ESG performance, companies can strengthen trust among investors, customers, and other stakeholders. This transparency helps establish strong trust relationships between companies and their stakeholders, which can translate into long-term business benefits.

Better risk management

The CSRD encourages companies to assess and disclose sustainability-related risks, enabling them to better understand and manage these risks while anticipating potential future regulations. By identifying and effectively managing ESG risks, companies can protect their reputation, reduce their exposure to risks, and seize new opportunities.

Access to sustainable financing

Companies demonstrating strong ESG performance can more easily attract sustainable investments and benefit from increased access to financing with low environmental and social impacts. By meeting transparency and ESG performance requirements, companies can access a wider range of funding sources and strengthen their market position.

Business opportunities

By integrating sustainability practices into their operations and effectively communicating about them, companies can identify new business opportunities, meet the growing demand from consumers for sustainable products and services, and remain competitive in the market. Sustainability can be a driver of innovation and differentiation for companies, allowing them to stand out from competitors and capture new market share.

Alignment with sustainability goals

The CSRD helps companies align with international and national sustainability goals, such as the United Nations Sustainable Development Goals and European Union initiatives like the European Green Deal. By integrating sustainability principles into their business strategy, companies can significantly contribute to achieving these goals and strengthen their legitimacy with stakeholders.

In summary, implementing the CSRD offers companies a range of tangible benefits, from increased transparency to new business opportunities, while helping them align with long-term sustainability goals. But as companies already subject to the NFRD have been dealing with the new directive since 2024.

These two European directives could shape the future of corporate extra-financial action. How do they differ?

A look at the distinctions between the CSDD and CRSD Directives  

The adoption of the CSDD Directive in June 2023 adds to the arsenal of European legislative texts that will have a considerable impact on the way companies manage and report on their efforts to respect human rights, environmental impacts and related corporate governance reforms. Although quite distinct from each other, the CSDD and CSRD are nonetheless two pieces of legislation designed to be applied in tandem by companies to kick-start their transition plans. Let’s take a closer look at these two directives, which have the potential to shape the future of European businesses and companies interacting with the European market.  

CSDD: a reinforced duty of care

The aim of the CSDD directive is to “foster sustainable and responsible corporate behavior and embed human rights and environmental considerations” in companies’ activities and governance structures. In other words, it aims to support the EU’s transition to a green, climate-neutral economy, as set out in the European Green Deal and in line with the UN’s Sustainable Development Goals. 

To comply with the duty of care, companies must: 

• Integrate the duty of care into their corporate policies 
• Define a clear transition plan to prevent or mitigate potential impacts and put an end to actual impacts 
• Identify actual or potential negative impacts on human rights and the environment 
• Monitoring the effectiveness of vigilance policies and measures  
• Communicate publicly on the implementation of these actions 

The CSDD will apply to the activities of companies, their subsidiaries and their supply chains. This would particularly concern tech giants, whose harmful environmental and social impact from the manufacture of their IT equipment is already well known. This directive would therefore potentially be a first step towards a stronger commitment by these major companies to Responsible Digital Business and digital decarbonization. 
 
Another new feature that marks a real turning point in terms of CSR: the directive introduces the obligation for companies to set up and oversee the implementation of a precise and rigorous transition plan as part of the company’s official strategy. In addition, management is now required to consider the impacts of the company’s activities in terms of human rights and environmental impact.  

Who is concerned?

The following companies are affected by the directive:  

• All EU companies with at least 500 employees and worldwide net sales of at least €150 million  
• Companies operating in certain high-impact sectors, such as mining and quarrying, agriculture and textiles, with more than 250 employees and worldwide net sales of €40 million or more. 
• Non-European companies with sales in excess of €150 million, provided that at least €40 million of these sales are generated within the EU. 

 CSRD: a reporting tool that guarantees transparency

Published for the first time in 2021, the CRSD directive rethinks the way companies must disclose information on key sustainability topics. Thanks to this directive, companies must now provide precise and detailed information on their carbon emission reduction plans, demonstrating their commitment to decarbonization. In addition, they must implement due diligence practices to assess and mitigate the environmental and social risks associated with their operations. 
 
In other words, one of the main objectives of the CSRD is to create a common framework for sustainability reporting, with the aim of making companies more transparent and accountable for their environmental and social footprint by improving the way sustainability information is communicated.  

One of the cornerstones of CSRD remains “double materiality” analysis: this implies a new approach to the responsibility of companies with regard to their ESG performance, taking into account both their financial relevance and their impact on society and the environment. 

Who is concerned?

The CSRD directive as it is written today concerns the following companies:

• Small and medium-sized companies listed on a European market. 
• Large unlisted companies that meet the following criteria: 
• Total assets in excess of €20 million or net sales in excess of €40 million. 
• More than 250 employees. 

In addition, non-European companies are also affected if they meet the following conditions: 

• They generate sales in excess of 150 million euros in the European Union. 
• They have at least one European subsidiary that is listed or meets the definition of a “large company”. 
• They have at least one European branch generating sales in excess of 40 million euros. 

A directive about to be weakened?

Faced with the forthcoming restrictions, however, lobbies have exerted a great deal of pressure. In particular, they have called for a reduction in reporting standards and the removal of certain obligations, including in terms of biodiversity protection. As a result, the Commission is likely to scale back its ambitions with regard to the sustainability indicators defined by Efrag. We’ll know in a few months’ time what will really happen to the CSRD in its practical application.  

Penalties for non-compliance

In the case of CSDD, failure to comply with the directive exposes companies to significant sanctions, which can be applied by national supervisory authorities. These sanctions can take the form of fines of up to 5% of the company’s worldwide net sales, and in some cases can lead to a ban on participation in public procurement contracts within the EU. The amount of these fines can vary according to the seriousness of the violation and national regulations. 
 
In the case of CSRD, companies that fail to comply with non-financial reporting requirements may be subject to financial penalties. The amount of these sanctions can be set according to various factors, such as the size of the company and the seriousness of the violation. In addition to financial sanctions, regulatory authorities may take administrative measures against non-compliant companies, such as formal warnings, restrictions on activities or temporary bans. 

Transformation levers: the convergences of European directives towards a corporate transition plan

The CSDD and CSRD directives are designed to be implemented in tandem by companies. In a nutshell, the CSDD establishes the due diligence obligations that companies must exercise with regard to human rights and environmental impacts along their supply chains. As for the CSRD directive, it plays a central role as a reporting tool enabling companies to account for their relevant sustainable development initiatives.  
 
Many companies potentially see these directives as too restrictive, difficult to understand and apply, or consider that they don’t have the resources to meet them. However, sustainable development departments now have the legal leverage to release funds to implement concrete actions. Meeting the requirements of these directives also enables companies to improve their ESG performance by developing a solid, long-term transition plan. Finally, as Anniina Kristinsson, Managing Director of Nordic Sustainability, pointed out at the Nordic Global Compact 2022 meeting:  

“You have the opportunity to use these guidelines as a lever for change, going beyond a simple obligation to fulfill. They offer you the opportunity to put forward new priorities and improve your current strategies for a more sustainable economy.” Anniina Kristinsson, Managing Director, Nordic Sustainability 

The transition plan made mandatory by these European directives must include a Responsible Digital approach: digital is one of the most significant sources of carbon emissions for a large number of companies, particularly in the tertiary sector. That’s why you can take the lead by entrusting your digital decarbonization strategy to a trusted third-party expert in the field, such as fruggr, to measure your impacts and improve them over the long term.

The impact of the REEN law on ETIs and large companies

What is the REEN(“Reducing the Environmental Footprint of the Digital Sector”) Law ?

Implemented in France in 2021, this law aims to combat the environmental impact of digital technology. In particular, it imposes obligations to reduce the environmental footprint of companies offering digital services in France, including large companies and ETIs (Entreprise de taille intermédiaire)  

The obligations of large companies and ETIs

Large and mid-sized companies are subject to more stringent obligations when it comes to reducing their environmental footprint. They must measure their environmental footprint every year, and implement actions to reduce it. This environmental footprint includes the energy consumption of digital equipment, the impact of data centers, electronic waste management, etc. 

Improving the digital footprint with the REEN Act

The REEN law is designed above all to have a positive impact on the digital footprint of large companies and ETIs. It encourages them to adopt eco-friendly practices by reducing their energy consumption and promoting the use of greener equipment.  

There are many ways for companies to take action, starting with the use of digital tools to measure and optimize their energy consumption. Indeed, monitoring tools can be used to track the energy consumption of digital equipment and identify the most energy-hungry devices. Virtualization tools can be used to consolidate servers and reduce the number of physical machines required. In this way, they can save energy while optimizing their digital performance.  

Companies have every interest in taking action to reduce their environmental footprint: it can generate significant economic and environmental benefits. By reducing their energy consumption, they can cut their electricity bills and reduce their carbon footprint. What’s more, by adopting more ecofriendly equipment and optimizing their energy consumption, they can improve their brand image and appeal to their customers and partners. In short, it’s a win-win situation! 

Five fields of action have thus been defined :

1. Raising awareness 📢

This core action involves raising awareness of the environmental impact of digital technology among a wide audience.  

This field of action includes education, by raising awareness of the environmental impact of digital tools from the earliest age (schools, middle schools and high schools are concerned.) Courses dedicated to eco-design will also be taught in computer engineering schools.  

To raise awareness of the environmental impact of digital technology, an “observatory on the environmental impact of digital technology” has been set up. It is placed under the auspices of ADEME and ARCEP. This observatory “analyzes and quantifies the direct and indirect impacts of digital technology on the environment”.   

2. Limiting terminal renewal ♻️

The production of terminals in France alone accounts for 70% of the environmental impact of the digital sector. The REEN law aims to combat programmed obsolescence and software obsolescence, in particular by providing consumers with certain information on device updates. 

3. Promoting environmentally-friendly digital uses 🌱 

In order to set the criteria for ecologically sustainable digital uses, a general eco-design reference framework for digital services will be published in 2024.  

It should be noted that another standard was published on November 29, the RGESN, accompanied by NumEcoDiag, a new digital impact analysis tool. This reference framework was drawn up independently, and not as an application of this law.  

4. Promoting energy-efficient datacenters and networks🗄️

Although datacenters are already subject to certain environmental restrictions, the Reen law provides for these conditions to be tightened. Compliance with these stricter rules will enable datacenters to benefit from a reduction in the domestic tax on final electricity consumption. In other words, good environmental management will be rewarded!  

At the same time, electronic communications operators will be required to publish key indicators highlighting their commitment to the ecological transition.  

5. Implementing a responsible digital strategy in territories 🏙️

The final part of the law focuses on local authorities: they will be required to draw up a responsible digital strategy as soon as they have more than 50,000 inhabitants, and this will start in 2025. Some local authorities, such as the La Rochelle conurbation, have already begun work on this issue. In partnership with Suez and Digital4Better, the La Rochelle conurbation has analyzed its digital impact on the environment, an initiative that deserves to be recognized. 

The limits of the law

Although it had been included in the proposed law, the extension of the warranty on digital equipment from two to five years was not retained. The same applies to the requirement for manufacturers to differentiate between “comfort” and “security” system updates.  

At the same time, although a “green tax” was to have benefited refurbished products, enabling them to benefit from a reduced VAT rate of 5.5%, it was ultimately not adopted by Parliament. What’s more, the refurbished sector is no longer entitled to the exemption for private copy levies that it enjoyed until now. As a result, consumers who prefer to buy second-hand products will have to pay an additional tax of 10 euros on their purchases. 

In conclusion 

  It has to be said that the Reen law could have been more ambitious and binding than it is today. Some of the proposed measures were not adopted, which could have strengthened the final decisions. However, it is important to emphasize that this law is **innovative** and a **forerunner in this field**. 

The implementation of this law encourages companies to adopt more environmentally-friendly practices and use digital tools to improve their energy performance.  

By using innovative solutions such as fruggr, companies can go even further in measuring and optimizing their data consumption to reduce their overall environmental impact. It is therefore essential for companies to adapt to the requirements of the REEN law and continue to reduce their environmental footprint, using effective digital tools such as fruggr.