Companies across Europe will soon face new European Sustainability Reporting Standards (ESRS). How prepared are they?
The Corporate Sustainability Reporting Directive (CSRD), which aligns with the European Sustainability Reporting Standards (ESRS), is rapidly approaching.
From fiscal year 2024, many organisations will need to comply with the requirements of the CSRD, and demonstrate their sustainability performance, cementing sustainability at the forefront of corporate responsibility.
Understanding the CSRD (Corporate Sustainability Reporting Directive)
The CSRD is an EU directive.
It aims to enhance and standardise corporate sustainability reporting, ultimately improving sustainability performance across the board. The new directive will replace the current Non-Financial Reporting Directive (NFRD) requirements, mandating comprehensive sustainability disclosures from a broader range of companies. Consequently, businesses will be better positioned to assess their environmental impact and societal role.
The directive necessitates detailed reporting on sustainability risks for short-term, medium-term, or long-term – and companies’ strategies for mitigating these risks. It underscores the need for clear, forward-looking information on how sustainability issues translate into financial terms.
Key Objectives of the CSRD
The Corporate Sustainability Reporting Directive (CSRD) plays a crucial role in promoting clear, reliable, and consistent sustainability reporting for businesses. By setting new rules, it encourages companies to commit to sustainability beyond just following regulations.
The main goal of the directive is to standardise how companies report on sustainability.
Transparency is key to the CSRD, emphasising the importance of fully disclosing sustainability risks and opportunities.
This transparency helps businesses make better strategic decisions, adopt sustainable practices, and positively impact the environment and society.
In the end, the CSRD aims to create a unified approach, helping businesses understand the importance of sustainability and encouraging a greener, more responsible economy.
Timelines for CSRD Compliance
The CSRD (Corporate Sustainability Reporting Directive) introduces a step-by-step approach for compliance, giving businesses enough time to adjust.
Compliance starts from 2024, based on company size.
Larger public-interest companies with over 500 employees need to comply by January 2024. Small and medium-sized enterprises (SMEs) listed on regulated markets have until January 2026.
Organisations must align their reporting systems with these timelines to avoid penalties. As these deadlines near, preparing, training, and integrating sustainable practices into business strategies will be essential for compliance. Companies should act quickly to meet the CSRD’s schedule.
Primary Requirements for CSRD Compliance
The CSRD requires detailed sustainability reporting to improve transparency and accountability across the European Union.
Introduced in 2021, the directive covers not just environmental issues but also social and governance factors, aiming for complete corporate reporting.
For example, a company must report on its efforts to reduce carbon emissions (environmental), its initiatives to promote diversity and inclusion within the workplace (social), and its policies to ensure ethical business practices and transparent decision-making (governance). This comprehensive reporting keeps stakeholders informed about the company’s overall sustainable practices.
Larger companies need to meet these requirements by 2024, while smaller ones have until 2026, allowing for a gradual adoption.
Additionally, companies must have their reported GHG emissions independently verified, ensuring the data is accurate and trustworthy.
CSRD’s Carbon Reporting Requirements
The CSRD emphasises carbon reporting to improve transparency and accountability of corporate emissions.
Organisations must report detailed information on their greenhouse gas (GHG) emissions, including Scopes 1, 2, and possibly Scope 3. This involves precise measurement, management, and mitigation strategies to fully understand their carbon footprint.
Companies need to align their emissions data with international standards, using methodologies like the Greenhouse Gas Protocol for standardised and comparable reporting.
Meeting the CSRD’s carbon reporting requirements may require significant effort and investment. However, accurate emissions reporting not only ensures compliance but also promotes sustainability and helps businesses identify areas for carbon reduction, enhancing long-term resilience and competitiveness.
Who Does the CSRD Apply To?
The CSRD applies predominantly to large companies across the European Union, as well as non-EU organisations with significant EU operations. These include listed and unlisted companies alike.
Regardless of their sector, these companies must meet specific criteria.
To be subject to the directive, firms must surpass at least two of the following three thresholds:
A net turnover of €40 million
Total assets of €20 million
Employ 250 or more people.
Further, smaller enterprises listed on regulated markets will also fall under the CSRD’s purview, albeit with extended deadlines for compliance. This extensive outreach ensures a broad spectrum of organisations adhere to ambitious sustainability practices, fostering greater environmental and social responsibility within the business landscape.
Impact on Large Enterprises
The CSRD (Corporate Sustainability Reporting Directive) brings major changes for large companies, requiring them to completely update their sustainability reporting.
These companies must follow the new rules carefully to pass strict reviews.
The directive will make businesses re-evaluate their current sustainability strategies, creating a strong framework for transparency and accountability, which will build trust with investors and stakeholders.
. Failure to comply can result in heavy penalties, damage to their brand, and loss of stakeholder confidence. While challenging, the CSRD offers a great chance for large companies to show their commitment to sustainability, strengthen their resilience, and improve long-term profitability.
Effect on SMEs and Non-European Companies
The Corporate Sustainability Reporting Directive (CSRD) also affects small and medium-sized enterprises (SMEs). These businesses need to follow new sustainability reporting standards, especially if they are part of larger supply chains.
SMEs must enhance their sustainability practices, which can improve efficiency and competitiveness.
Non-European companies operating in the EU must also comply with the CSRD to maintain market access.
The directive pushes global sustainability standards, and meeting these requirements can give companies a competitive advantage.
Independent Verification of GHG Emissions
Independent verification of greenhouse gas emissions builds trust, improves accuracy, and shows a company’s commitment to transparency and environmental care.
This process reduces the risk of errors in reporting. Third-party verification involves hiring environmental experts and auditors, such as Carbonology®, to ensure compliance with strict reporting standards.
By using independent verification, companies not only confirm their emissions data but also show they are serious about fighting climate change and meeting global standards.
This diligence sets companies apart, builds stakeholder trust, and promotes ongoing sustainable development.
Preparing for CSRD Compliance
Organisations aiming for future success must focus on preparing for CSRD compliance. This starts with understanding the directive’s wide-ranging effects and ensuring their strategies are aligned. Preparation involves creating dedicated sustainability teams who know the regulatory requirements.
It’s also important to invest in strong data management systems. These systems will help accurately track and report on environmental, social, and governance (ESG) metrics.
Organisations should review and update their current reporting practices to meet the new standards. By taking a structured approach that includes teamwork, technology improvements, and a commitment to transparency, they can become leaders in sustainability.
Benefits of Adhering to the CSRD
Following the CSRD offers many benefits for companies aiming for sustainable excellence. So, what are the key advantages of this directive and why should organisations adopt it?
Since 2016, sustainability reporting has become more important to investors and the public. This directive boosts a company’s credibility by showing their commitment to sustainable practices, in line with the European Sustainability Reporting Standards (ESRS).
It’s not just about protecting the environment; it’s also about gaining a competitive edge. Companies that follow the CSRD can attract and keep socially conscious investors and clients, improving their market position.
Additionally, meeting these high standards helps companies avoid environmental regulation risks, improve operational efficiency, and create a strong foundation for future growth.
In the end, following the CSRD elevates the organisation, creating positive changes within industries and communities.
In conclusion, the CSRD (Corporate Sustainability Reporting Directive) sets new standards for sustainability reporting, impacting businesses of all sizes. By requiring detailed disclosures on environmental, social, and governance factors, it promotes transparency and accountability.
Companies must align their reporting with these standards to avoid penalties and build trust with stakeholders. Independent verification, such as services provided by Carbonology, ensures accuracy and demonstrates a strong commitment to sustainability. Embracing these changes not only ensures compliance but also enhances long-term resilience and competitiveness.