Corporate Sustainability Reporting Directive (CSRD) - What is it?

Baseline

The CSRD, or Corporate Sustainability Reporting Directive, is a new European Union directive that aims to increase transparency and accountability in the area of sustainability reporting. It requires companies to disclose information on their environmental, social, and governance (ESG) performance in their annual financial reports.

What happened

• 🆕 EU Parliament (10.11.22) & Council (28.11.22) approved CSRD
• EFRAG approved and delivered the new drafts to the EU Commission (Nov 2022)

The CSRD requires

• Large public-interest companies (with over 500 employees) that are already subject to the non-financial reporting directive, to report according to the new regulations from 1 January 2024, with reports due in 2025
• Companies with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets that are not presently subject to the non-financial reporting directive to comply with the new reporting requirements from 1 January 2025, with reports due in 2026

Quick timeline overview of the CSRD - based on the Nov. 2022 update

The new reporting requirements of CSRD

The CSRD is special in two key aspects: 

First, it will require all companies to establish a double materiality assessment. Materiality assessments are an established concept. Used in the context of regulation on sustainability disclosure, it provides a solid answer to the major criticisms around ESG. Discover more on this topic in our next posts.

Second, companies will have to disclose not only certain ESG KPIs but also a number of other aspects of their ESG strategy such as:

• Targets: Measurable and outcome-oriented goals that the company aims to achieve based on the findings of the materiality assessment.
• Policies: These are defined by the CSRD as a set of general objectives detailing the implementation of the company’s strategy regarding a material sustainability topic.
• Actions: A detailed action plan that outlines how they plan to reach their targets.
• Metrics: Quantitative & qualitative indicators to track progress towards targets & objectives of new policies.

Source: ESRS 1 - General requirements

This is just the tip of the iceberg, and we will be unwrapping the CSRD further in our upcoming posts.

With CSRD, establishing sustainability-specific strategies will move from "nice-to-have" to "must-have" as companies will have to report on both the status quo as well as the concrete actions of implementation and their improvements.

This is a massive step forward, which goes beyond the simplifications we saw over the past years e.g. “Measure your emission => off-set => business as usual”.

By providing a clear timeline and an obligation to report, the EU helps companies set the right priorities and establishes sustainability as a must-have. The new regulation requires companies to allocate specific resources to sustainability, including responsible people and budgets.

How companies can prepare for the CSRD requirements

Companies should now start reviewing their sustainability practices and perform a solid double-materiality analysis. This will help them identify areas for improvement and determine the outcome-based key performance indicators that are most important for them to track. The goal of the EU is to bring sustainability information at the same level of importance and disclosure with financial data. Translating ESG information into the day-to-day business intelligence will be a complexe but necessary part of the process. Companies should therefore consider implementing systems and processes that help them monitor and report on their sustainability performance. This focus will enable them to effectively craft and implement strategies that enhance their sustainability efforts.

Working with more than 40 companies on their sustainability strategy, we understand how satisfying reporting requirements can be turned into a competitive advantage through sustainability strategies. We’d be happy to discuss how we can help you tackle the increasing complexity of sustainability requirements and have some fun in the process!

Sources:

European Parliament News (2022) Retrieved from https://www.europarl.europa.eu/news/en/press-room/20221107IPR49611/sustainable-economy-parliament-adopts-new-reporting-rules-for-multinationals

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