Corporate Sustainability Reporting Directive (CSRD)

Overview of CSRD reporting obligations in 2025

The CSRD has already affected a few dozen entities in the Czech Republic in 2024. However, the pivotal year in this regard will be this year, which is a significant and burdensome year from the point of view of sustainability reporting in the EU. The first reports of these companies, whose publication is expected during the spring and summer of 2025, will serve as a benchmark for the following companies.

2025 will be the first financial year for a large number of European companies(1) for which they will be required to compile a sustainability report in accordance with the requirements of the CSRD directive.

While sustainability reporting is not completely new for many of them, and therefore this task will be much easier for them, there are also companies that have no experience with anything similar and will have to deal with it for the first time.

2025 specifically concerns large corporations that simultaneously meet two of the following three criteria(2):

a) net turnover of at least 50 million EUR,

b) more than 250 employees,

c) assets on the balance sheet exceeding 25 million EUR.

However, it is far from over by 2025. Next year, it is expected that listed small and medium-sized enterprises (LSMEs) will report for the first time. Two years later, in 2028, companies established outside the EU that meet the mandatory criteria will begin to implement.

What to expect when preparing a non-financial (ESG) report?

Preparing an ESG report that complies with all the requirements of the directive and contains mandatory elements is not an easy task. In contrast to previous years, when companies published sustainability reports with different structures and content, the regulation now specifies what an ESG report must contain. The individual elements are described below.

Double materiality analysis

A double materiality analysis is the core basis and starting point of ESG reporting. It is a process aimed at clearly identifying the topics that are material for the reporting entity and the specific data and information that the company will have to include in the corporate sustainability report.

Materiality is newly assessed from two perspectives, which is new approach for reporting entities. The company assesses the impacts of its business activities and whole value chain on people, surrounding communities and the environment, which is so called impact materiality. Next to this is so called financial materiality. As part of this step, the company considers how sustainable factors are reflected in its financial stability. If negatively, then we are talking about risks or positively, when it comes to opportunities.

Double materiality also includes mapping the value chain and stakeholder engagement.

GAP analysis of reported data and data collection settings

After processing the double materiality, the company already knows what its material impacts, risks and opportunities are, and therefore which topics and subtopics of the ESRS standards are relevant for its reporting. At this stage, it compares the requirements of individual indicators and disclosure requirements with its current reporting in order to verify whether the company is able to meet these requirements in the structure defined by the standards, or whether it will have to make changes to its reporting. It will undoubtedly reveal new data that will need to be monitored for the first time ever.

Indicators that arise from double materiality as mandatory, i.e. material, must then be collected, ideally in the form of automated collection. It is up to the company if it chooses an existing reporting tool available on the market or its own internal solution, whether in the form of manual collection or designing its own internal tool.

EU Taxonomy report

EU Regulation 2020/852(3) entered into force in July 2020 and is part of the obligations arising for entities that are required to prepare an ESG report under the CSRD Directive. The scope of the affected entities therefore goes hand in hand with the scope set for the CSRD.

EU Taxonomy is a classification system with which we can identify company's sustainable activities and thus clearly distinguish sustainable from unsustainable ones. The regulation aims to direct private investment into activities that are necessary to achieve climate neutrality and a positive impact on the environment not only in the European Union. The regulation also aims to contribute to the elimination of greenwashing by providing a clear definition of sustainability.

In order to be able to identify an economic activity as sustainable and aligned, it is necessary for it to simultaneously meet four basic conditions:

1.Contributes to at least one of six environmental objectives listed in the Taxonomy2.Does no significant harm to any of the other objectives
3.Meets Technical Screening Criteria (TSC)4.Meets Minimum Social Safeguards

The EU Taxonomy defines six environmental objectives:

1.Climate change mitigation2.Climate change adaptation
3.Sustainable use and protection of water and marine resources4.Transition to a circular economy
5.Pollution prevention and control6.Protection and restoration of biodiversity and ecosystems

Companies are required to provide an overview of the following taxonomic KPIs in their Annual Report:

  • Turnover from eligible and aligned activities,
  • CapEx from eligible and aligned activities,
  • OpEx from eligible and aligned activities.

Preparation and audit of the Sustainability Report

The final output of the entire process described above is the preparation of the Sustainability Report in the structure and scope set by applicable legislation. The Sustainability Report is a separate section of the Annual Report and is subject to audit together with the Annual Report. In contrast to the financial part, the assurance of the non-financial (ESG) part will currently be carried out only within the scope of limited assurance until 2028. Subsequently, a transition to reasonable assurance is expected.

For further information, we recommend to pay attention to the following publications, which address the mentioned tasks in greater detail.

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(1) It is estimated that there are approximately 50 thousand entities within the European Union.

(2) a) net turnover of at least 1 200 000 CZK, b) more than 250 employees, c) assets on the balance sheet exceeding 600 000 CZK

(3) Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (EU Taxonomy Regulation).

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