Many businesses are already reporting their climate-related targets and plans but, for the companies in scope to report, the Corporate Sustainability Reporting Directive (CSRD) requires more rigour and additional information; both qualitatively and quantitatively, on a wide range of environmental, social and governance (ESG) topics.
Time is of the essence
While transitional phase-in arrangements are in place to initially lighten the reporting load, astute business leaders will not wait to act. Time is of the essence; a cultural shift may be required within some corporates to locate, gather, interrogate and report on the new level of information required.
The CSRD is part of a broader suite of policies designed to help the bloc meet its climate commitments. CSRD replaces and extends the Non-Financial Reporting Directive (NFRD) and is setting the bar high to improve the quality of information businesses disclose to better meet the needs of investors and stakeholders.
To translate the high-level rules and objectives of the directive into structured reporting requirements, the European Commission has tasked EFRAG, the European Financial Reporting Advisory Group, with developing the detailed reporting standards known as the European Sustainability Reporting Standards, or ESRS.
Timelines and coverage
Businesses must be ready to meet the approaching deadlines. Disclosure obligations commence in 2024 requiring reports to be published in 2025. Approximately 11,000 large public-interest EU companies already subject to the NFRD will be impacted. The scope of the directive will extend over the following four years to include more companies and its reach is significant – in total it is expected to cover 50,000 firms.
It is not only EU companies that need to take note. There are more than 100,000 non-EU multinational companies that operate in Europe and the reach of the CSRD encompasses EU-based subsidiaries of a non-EU company, as if they were a European company. Also, from 2028, a non-EU company must report in line with CSRD for the consolidated global group.
CSRD disclosure requirements call for business information on all sustainability matters relating to their own operations and full ‘value chain’, including such issues as employee matters, human rights, dealings with governemnts and business relationships, both up and downstream. It requires that qualitative and quantitative sustainability information is provided on both a forward-looking and retrospective basis, based on scientific evidence, where appropriate. And disclosed data must be assured by a neutral, trusted and experienced third party.
CSRD mandates the application of the double-materiality principle. This means a company must report not only on the inward sustainability and financial risks it faces but also the outward impacts the company may have on people and the environment, as well as broader impacts on ESG objectives.
Prepare for opportunities
While many organisations will find reporting for CSRD a daunting prospect, taking a data-driven approach to meeting requirements brings opportunity to gain insights that are strategically valuable to a business. The CSRD provides a wake-up call to businesses. Companies that act now to prepare for what’s to come will fare well and be best positioned to benefit from opportunities arising from the transition to a low-carbon economy. Change is imminent and action is required, now.
- Download the latest in our series of transition risk business briefing papers, ‘Corporate Sustainability Reporting Directive – what you need to know’.
- Other papers which are part of the Risilience Transition Risk Series include: ‘Securities and Exchange Commission climate risk disclosure – what you need to know’ and ‘Why a science-led TCFD report is good for business’.
- Dr Andrew Coburn, CEO Risilience, and Andy Garraway, Senior Climate Policy Analyst Risilience, are hosting a roundtable titled ‘Getting ready for CSRD. What are the challenges and how are businesses tacking the wider scope of CSDR including both climate and nature?’, at the Climate Innovation Forum 2023, the flagship event of London Climate Week.