Unlocking corporate sustainability: Demystifying ESRS/CSRD for UK companies

Over the past few years, the European Union (EU) has taken significant strides in establishing sustainable reporting standards for companies operating within its member states. The primary objective of this endeavor is to regulate and enhance Environmental, Social, and Governance (ESG) practices while combating the problem of greenwashing. Notably, on December 14, 2022, the Corporate Sustainability Reporting Directive (CSRD) entered into force, after overwhelming support from the European Parliament and the member states. Thus, member states have been given a period of 18 months to incorporate the directive into their respective national legislations, leading to its enforcement in 2024. Will the impact of these regulations affect UK-based companies?

The EU’s CSRD

The EU’s CSRD is a new directive mandating companies to both report on and audit their ESG impact, ensuring transparency in their sustainability practices and performance. Under the CSRD, the European Sustainability Reporting Standards (ESRS) provide specific guidelines on how a company demonstrates their sustainability impact (impact materiality) and how it influences their development, performance, and position (financial materiality), double materiality. Sustainability standards for non-EU companies and SMEs are also under development.

EU member state companies are required to integrate the CSRD into their reporting standards by June 2024. Importantly, the scope of CSRD reporting encompasses the entire company, including its operations outside the EU, rather than solely focusing on subsidiaries or branches based within the EU.

Implications of the CSRD for UK-based Companies

Due to the broad scope of the CSRD, UK-based companies could be affected by the CSRD in three different ways, which would lead to different levels and timelines of ESRS reporting.

  1. First, UK-based companies with significant business activities in the EU will need to publish sustainability information that encompasses their entire operations, if they fall into one of the following categories:
    • Listing – They are listed on a regulated market in the EU.
    • Revenue from the EU – They have an annual revenue in the EU exceeding €150 million and an EU branch with net revenue over €40 million.
    • Large EU subsidiary – They possess an EU subsidiary that qualifies as a large company, meeting at least two of the following criteria

      • Having over 250 employees based in the EU.
      • Generating local revenue of more than €50 million in net sales.
      • Possessing a balance sheet total exceeding €25 million.

        EU listed companies will need to prepare their report based on the ESRS. While CSRD includes a cascading timeline to be implemented, the first batch of companies will need to issue their report already in 2025,  with reporting data from 2024.

        The sustainability standards for non-EU companies that either have a branch or a subsidiary in the EU that meets the above thresholds will need to report based on sustainability standards that will be published by mid-2026. These companies will need to first report according to those standards in 2029, with reporting data from 2028.

  2. Second, large EU subsidiaries of UK-based companies, whether listed or not, could be in scope of the CSRD and will have to publish CSRD-compliant sustainability reports on their own if they qualify as a large company (see thresholds above).

    These companies will need to issue their sustainability report based on the ESRS. As previously mentioned, the first reports will need to be published in 2025, with reporting data from 2024.

  3. Third, SMEs listed on a EU regulated market, which are subsidiaries of UK-based companies, may be in scope of the CSRD and will have to publish CSRD-compliant sustainability reports on their own if they reach two of the following thresholds:

    • Having between 50 and 250 employees.
    • Net turnover of between €10 million or €50 million.
    • Possessing a balance sheet of between €5 million and €25 million.

These companies will need to issue their sustainability report based on SMEs standards that are currently developed. Listed SMEs will first need to report in 2027, with reporting data from 2026. However, they can opt-out from reporting in the first two years.

Position Green’s advice for UK-based companies affected by the CSRD

Position Green advises UK-based companies affected by the CSRD to first evaluate how their company will be impacted, and what the road to compliance could look like. This can be achieved by conducting an assessment that compares the company’s current material topics with the CSRD’s double materiality requirements, and identifying gaps between current reporting and ESRS-aligned reporting. Obtaining reliable, transparent, and comprehensive data is crucial for complying with the CSRD.

If your company is affected by the CSRD, we at Position Green recommend taking proactive measures to prepare. Our full-cycle CSRD and ESRS solution is designed to help companies achieve compliance and drive their sustainability agenda by providing actionable insights.

Read more about our CSRD and ESRS reporting solution.

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