As autumn begins, businesses may start increasing their preparations for their first Corporate Sustainability Reporting Directive (CSRD) disclosure. But what is the CSRD and what does it means for real estate?

CSRD explained

Part of the EU’s Fit for 55 legislative package for climate action, the CSRD is an amendment on the Non-Financial Reporting Directive (NFRD), effectively replacing it. The aim of CSRD (together with the EU Taxonomy, the Sustainability Finance Disclosure Directive, and the Accounting Directive) is to help increase the flow of finance towards companies that are more sustainable and create trust in green investments. CSRD will contribute to this by enabling the standardisation and transparency of companies’ sustainability reporting and activities.  

To deliver this harmonised approach to reporting, an independent body (EFRAG) produced the draft European Sustainability Reporting Standards (ESRS) which were formally adopted on 31 July 2023 in delegated act under the Accounting Directive. These indicate the actions and information to be collected in 2024 in anticipation of CSRD reports being published in 2025. In the first instance it applies to large companies or listed companies currently subject to NFRD but will quickly expand over future years to cover many EU companies, including SMEs and non-EU companies with EU undertakings that meet the criteria. 

What do you need to do now?

Here are some pointers for getting ready: 

1. To determine what to disclose, you will first need to carry out a Double Materiality Assessment. While we are expecting further detail to be published on this topic, we know: 

• It will cover both impact and financial materiality and when a sustainability matter meets the criteria for both financial and impact materiality it will be considered material. 
• Impact materiality will have a wider scope, looking at direct and indirect impacts on the environment and people and include supply chain activities.  
• If your activities are classified under NACE code Sections A to H or L (i.e. Acquisition and ownership L68) you are now also in a group labelled High climate impact sectors, which means there will be sectoral guidance coming that will help identify impacts, risks and opportunities that are likely to be material for the sector.

2. For those matters that are material, policies, actions and targets will need to be disclosed - to do this, there is extensive guidance, including minimum disclosure requirements. But of course, targets implies that data can be collected and monitored, an area where real estate still has imperfect coverage and something to focus efforts on. 

3. While the wording technically allows for optional materiality of climate change (covered under ESRS E1) for high climate impact sectors we can expect it to be material by default. Here we see alignment with other frameworks with the inclusion of:  

• Greenhouse gas emissions reporting, including Scope 3 emissions; 
• Risks and opportunities associated to financial, transitional and physical climate change risks.  

It is hoped that after the initial grudging resentment at having to reassess and reorganise what, for many is existing reporting, the standardisation will quickly allow best practice to shine through and set some much-needed accelerant into the transition to a sustainable economy.

Further information

Contact Elena Lutterkort or Daisy Ash

The new environmental reporting measures affecting real estate in 2023