7 Dec 22

Preparing for the Corporate Sustainability Reporting Directive (CSRD)

CSRD-blogThe European Council has formally adopted the EU Sustainability Reporting Directive CSRD. It captures significantly more companies than previous EU regulations have and introduces new mandatory standards. Some non-EU businesses will also be affected. Below we highlight some of the key details to help companies captured under the regulation prepare:

 

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is the latest EU Regulation regarding Environmental, Social and Governance (ESG) and non-financial reporting, aiming to speed up EU progress on reaching Net-Zero. It is a step up from the current EU Regulation the Non-Financial Reporting Directive (NFRD), expanding the number of mandatory reporting companies from 11,600 to 49,000. The CSRD requires mandatory reporting and therefore holds companies accountable for their ESG actions and policies, encouraging a push for sustainability. The new legislation works in harmony with the GRI Standards and expands on the current EU Sustainable Finance Taxonomy.

 

Which companies are affected and when?

The final text was adopted by the EU on the 28th of November 2022 and will be implemented into member state national law within the next 18 months. There are a series of timelines depending on the company size:

As of January 1st 2024: all EU companies already subjected to the NFRD as well as non-EU companies that are listed on EU-regulated markets with over 500 employees. This means data from FY2024 must be reported.

As of January 1st 2025, reporting FY25: any EU company with 2/3 of the below –

  • Over 250 employees
  • Greater than €40 million in turnover
  • Greater than €20 total assets
  • All large non-EU companies listed on an EU-regulated market

 

As of January 1st 2026, reporting FY26: all small and medium-sized companies (SMEs), non-EU included, which exceed 2/3 below:

  • 10 employees
  • €700,000 turnover
  • €350,000 total assets

 

What needs to be reported?

All information necessary to understand how climate change will affect the business, as well as the impact the business has on people and the planet must be reported. The CSRD will focus on the concept of double materiality between economic and ESG performance and introduces the EU Sustainability Reporting Standards (ESRS). The ESRS are a set of standards that outline the mandatory concepts and principles with which companies reporting under the CSRD must align their sustainability statements.

 

Mandatory reported information includes:

  • Double materiality – impact and financial
  • Upstream and downstream information supply chain information i.e. Scope 3 emissions
  • Sustainability due diligence (relating to the upcoming Corporate Sustainability Due Diligence Directive (CS3D))
  • Risks and opportunities arising from ESG
  • E: climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy
  • S: own workers, workers in the value chain, affected communities, consumers and end-users
  • G: governance, risk management and internal control, business conduct

For further detail on what is required see below for ESRS 1 and ESRS 2:

ESRS1

Download ESRS 1 here.

ESRS2

Download ESRS 2 here.

 

If reports do not meet the requirements of the CSRD there is the possibility of sanctions being imposed, it is unknown when these may come into effect. These have not been formalised by the EU, it is likely it will depend on the member state.

The ESRS requires the ESG reporting period to be the same as the financial reporting period to allow for reference between the 2 reports. For the first time, it will be mandatory for the report to be verified with a limited level of assurance from a third party, marking a significant positive change in the ESG landscape.

 

How to prepare for CSRD disclosure

Due to the nature of the new regulation, there will be a number of companies captured that have not been mandated to report on areas of ESG performance previously. If this situation applies, the company will need to take steps now to start addressing these needs and to collect the required information from across all operations.

FY2024 is fast approaching, therefore processes for reliable sustainability data collection must be put into place as soon as possible. Reviewing the requirements of the CSRD and undertaking a gap analysis will help to determine which non-financial areas are not currently covered by existing reporting processes. Management must commit to increased transparency regarding ESG policy and initiate discussions with third-party auditors.

 

How Greenstone’s solutions can help

Greenstone’s suite of ESG software solutions enables companies to collect, manage and report all the ESG data, KPIs and metrics required to comply with regulations, including CSRD. Our team of ESG reporting experts are always at hand to advise and support our clients to ensure they are aligning their reporting with global regulation, frameworks and standards.

 

To find out how Greenstone might be able to support your company’s ESG reporting journey, talk to us.

 

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