The CSRD: A Passport for the Future

Nov 15

By François Villatte, PhD

François Villatte holds of a Master’s degree in Ecology from the University of Bourgogne and a PhD in Biology from the University of Paris 6. He began his career at the Institute of Technical Biochemistry of Stuttgart (Germany) in 1999 as a research officer. During these years, he authored and co-authored numerous scientific articles on water pollution and environmental DNA (eDNA). Promoted to Industrial Research Project Leader at the Institute after founding a biotechnology startup, where he filed a patent recognizing his work, he also taught DEA students and supervised young phd candidates. During this time, he also spoke at several international conferences.

After a period in regulatory documentation for the life sciences industry, Dr. Villatte is currently a consultant advising companies on environmental issues. He is the co-founder of Expertise-2772, a professional group bringing together specialized financial and non-financial expertise to assist companies in preparing their sustainability reports in compliance with the CSRD.

A current topic, the CSRD is generating as much discussion as it is drawing attention. A godsend for some, or a bat emerging from the hell of bureaucracy for others, it divides opinions and evokes strong emotions. Many things are being said and written about it. Let’s try to clarify.

WHAT IS THE CSRD?

The CSRD (Corporate Sustainability Reporting Directive) refers to the European Parliament and Council Directive (EU) 2022/2464 of December 14, 2022, supplemented by the delegated regulation 2023/2772 of the European Commission of July 31, 2023. These texts require certain companies to publish a non-financial report, known as “sustainability reporting,” on the same scope as their financial report, covering specific areas (social, environmental, and governance) and adhering to precise reporting standards. The cornerstone of this text is “double materiality,” meaning the description of the company’s impact on certain areas (e.g., biodiversity and ecosystems), as well as its financial dependence on these same areas.

It should be noted right away that the CSRD texts are binding legislative decisions, published in the EU Official Journal, and not casual discussion topics. France has transposed the directive into its national legislation on time, but several member states are dragging their feet. The European Commission has now sent them a formal notice, marking the first step in a legal dispute that could end up before the Court of Justice of the EU. While some are indeed discussing the possibility of renegotiating the scope of the companies concerned in Brussels, statements like “we will scrap the directive” are pure nonsense.

WHY?

The requirement to publish the requested information stems from Brussels’ desire to redirect capital toward sustainable business models, improve financial risk management triggered not only by climate disruption but also by resource depletion, environmental degradation, and social issues, and finally, promote transparency in economic activities. To achieve this, it is essential that:

Companies make relevant information available.
This information is standardized to allow for comparison between companies in terms of CSR performance.

WHEN?

The implementation timeline for the directive is as follows:

2025 (for fiscal year 2024): Companies meeting two of the following criteria: > 500 employees, > 50 million € in revenue, > 25 million € in total assets.
2026 (for fiscal year 2025): Companies meeting two of the following criteria: > 250 employees, > 50 million € in revenue, > 25 million € in total assets.
2027 (for fiscal year 2026): Listed SMEs (except entities with < 10 employees, total assets ≤ 450,000 €, or net revenue ≤ 900,000 €).
2029 (for fiscal year 2028): Large non-European companies with > 150 million € in European revenue over two consecutive years and a subsidiary/branch based in France with > 40 million € in revenue.

HOW?

Delegated Regulation 2023/2772 specifies reporting requirements through various standards known as ESRS (European Sustainability Reporting Standards). Some standards are general, while others may apply depending on the nature of the company’s activities (environmental, social, and governance standards). These requirements are relatively detailed, but a wide degree of flexibility is still given to companies in deciding whether to report on a specific standard. Additional sector-specific standards are under development.

MANDATORY AUDIT

A report audit by an accredited auditor (statutory auditor or independent third-party body accredited by the High Authority for Audit (H2A)) is now mandatory. The procedure for appointing this auditor, who will issue a compliance opinion (unqualified, qualified, or non-compliant), mirrors that of the statutory auditor. The idea is to ensure the same level of reliability for sustainability information as for financial information. Both the H2A and the Accounting Standards Authority have issued guidelines for the audit procedure. In the absence of an audit, the company’s management may face a fine of 30,000 euros and up to two years of imprisonment (Article L. 821-6 of the Commercial Code).

ERRARE HUMANUM EST…

This directive unquestionably marks a crucial milestone. For centuries, natural resources were not considered in the economy because they were not seen as limiting at the time. The classic equation “production = capital + labor” thus dominated minds for a long time. However, the planet’s limits, both in terms of resources and waste absorption capacity, have now entered the equation. Continuing to ignore these factors guarantees a flawed calculation. The introduction of the CSRD is precisely motivated by this realization. Its spirit is twofold: it seeks to increase transparency in economic activities (stakeholders such as investors have the right to know what the risks are) and promote in-depth reflection within management about the sustainability of their business models. This reflection is crucial: the physical world is evolving, leading to resource contraction. The economic effects, often underestimated but certainly recurring, entail a very high level of risk. This risk must be addressed.

… PERSEVERARE DIABOLICUM

However, the demands associated with the CSRD are often seen as an additional administrative burden. This perception is based on an outdated view of the economic world, governed by an equation whose expiration date is long past. While it is indeed difficult to change mindsets, it is essential. Ultimately, for companies, this is not so much an exercise in compliance but a question of addressing the factors that threaten their very existence. It is worth noting here that hallway discussions colored by emotion about the vast number of “data points” to be reported are unfounded: almost no company will have to address all the information on all sub-sections of every standard. It would be useful to read the text before discussing it.

A CHANGING FINANCIAL CONTEXT

The financial sector has jumped on board: CSR issues are now front and center when it comes to financing companies. Capital is being directed towards entities capable of proving their response to these issues, which amounts to demonstrating their ability to face future challenges. Investors are therefore eager for information on the sustainability of business models to avoid assets destined for obsolescence. This is precisely the objective of the sustainability report in compliance with the CSRD. The report is no longer a “nice-to-have”; it is a financing tool, a key means of discrimination allowing investors to separate the wheat from the chaff. It is therefore essential to draft this report with the seriousness it deserves. For instance, the recent note from the European Securities and Markets Authority emphasizes the importance of the sustainability report’s compliance with the specifications of the regulation.

A LOT OF WORK AHEAD

Indeed, writing the report involves significant preparation that should not be overlooked. The entire process must be organized, determining which ESRS are relevant, assessing the level of financial dependence and impacts for each, identifying risks and opportunities, and establishing a management policy. The mistake to avoid is underestimating both the expertise and the workload required to produce a quality report. Therefore, it is essential to start early to have enough time and avoid rushing. In this context, professional support can be decisive.