The Corporate Sustainability Reporting Directive (CSRD) will start coming into force in 2025, affecting the first round of companies that ready their reports on their 2024 financial performance. The initiative seeks to enhance and standardize sustainability reporting across the European Union, essentially adding extra layers of accountability and, transparency.
The availability of standardized, CSRD-compliant annual reports will enable stakeholders to compare companies more easily and may also impact the ratings of sustainability rating providers. This comparability may increase competition among companies to achieve higher sustainability ratings.
What is the CSRD?
Under the regulatory framework, companies must report according to the European Sustainability Reporting Standards (ESRS) which were adopted in July 2023. They require detailed disclosure on Ten Environmental, Social and Governance (ESG) topics alongside their annual financial report. This requires corporates to provide a comprehensive breakdown of their energy consumption including fossil, nuclear, and renewable sources, as well as their CO2 emissions and measures to increase renewable energy use.
This mandatory directive expands reporting requirements, covering more companies under its remit annually, ensuring greater transparency and comparability of ESG data while aligning with the EU Green Deal and sustainable finance initiatives.
The CSRD replaces the Non-Financial Reporting Directive (NFRD), which was introduced in 2014. All companies subject to the NFRD must comply with the CSRD for their 2025 reporting, covering the 2024 financial year. The CSRD’s broader scope is expected to impact around 50,000 companies, up from an estimated 11,000 under the NFRD, and eventually include large non-European firms with EU-based subsidiaries. Non-compliance penalties, determined by each EU member state, can include hefty monetary fines.
Who will be impacted?
The CSRD roll-out will occur in waves, progressively expanding its scope to include a broader range of companies. Compliance timelines will depend on company size, turnover and assets, these are highlighted on the table below. Initially, the directive will apply to companies with over 500 employees that were already subject to the NFRD, marking the first wave of impacted organisations. Over time, the subsequent waves will bring smaller companies into remit of the directive. The timeline of companies affected by the CSRD is shown in the table below.
What will be reported, and how would this impact PPAs?
Traceability in the CSRD is paramount as, in order for companies to be able to report any form of energy consumption from renewables in their activities, the origin of the renewable energy must be clearly stated. This will ensure the transparency and legitimacy of renewable energy use. Importantly, the ESRS stipulate that “The undertaking shall only consider these energy consumptions as deriving from renewable sources if the origin of the purchased energy is clearly defined in the contractual arrangements with its suppliers (renewable power purchasing agreement, standardised green electricity tariff, market instruments like Guarantee of Origin)”.
This strict accountability creates a direct link between CSRD compliance and PPA procurement, as companies must disclose the contractual arrangements underpinning their renewable energy usage. For renewable energy to be counted as part of their consumption they will be required to demonstrate a clear contractual basis, such as PPAs and GoOs, during audit processes, though specific contractual details may not necessarily be disclosed in public reports. This contrasts with the NFRD legislation which gave no formal standards, instead preferring to give companies flexibility in their reporting.
A further implication of the CSRD is that companies must submit sustainability data in a standardized digital format, a move designed to streamline ESG disclosures. The draft for these is pictured below. The initiative addresses the current lack of uniformity in sustainability reporting, where diverse and inconsistent formats have hindered clarity and comparability between companies.
How will the CSRD align with corporate sustainability goals?
Many of the corporates that will be impacted by the CSRD are already part of voluntary initiatives like RE100, which requires members to commit to sourcing 100% renewable electricity, and SBTi, which drives emissions reductions aligned with science-based targets. CSRD aligns mandatory disclosure requirements with these voluntary goals, this is expected to accelerate demand for PPAs for these companies.
Even companies leading the charge in renewable energy procurement will need to overhaul their reporting strategies to comply with the CSRD. For example, Tesco PLC has reported sourcing 100% of its electricity from renewable sources since 2020 but does not provide clear details on the origins of these renewables—such as whether they are self-generated or how much of their purchased or acquired electricity comes from renewable sources. They also do not disclose the contractual arrangements underpinning their reporting. While contractual details are not required in public reports, companies must ensure they can provide verifiable evidence to demonstrate compliance during audits.
Similarly, companies nearing their RE100 targets for 2025, including Vodafone, Infineon, Nestlé, and Chanel, state the proportion of renewable electricity in their consumption but fall short of specifying the details mentioned above.
On the other end of the scale, Carrefour Group provides another illustrative example: in its 2023 report, the retailer disclosed that renewables accounted for only 3.7% of its electricity consumption but offered no insights into the source of these renewables. However, the company has since accelerated its renewable energy strategy, signing over 500 MW of PPAs in 2024 to power its European operations, while they won’t be required to explicitly report these, it indicates a shift toward more robust compliance measures.
These examples underscore a key challenge for even the most sustainability-focused corporations: the CSRD’s stringent traceability and disclosure requirements demand a level of granularity and contractual clarity that many leading firms have yet to achieve. As the directive’s implementation approaches, companies must adapt swiftly to avoid reputational risks and potential penalties for non-compliance.
The availability of standardised, CSRD-compliant annual reports will enable stakeholders to compare companies more easily and may also impact the ratings of sustainability rating providers. This comparability may increase competition among companies to achieve higher sustainability ratings.
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