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In 2021, the European Commission introduced the Corporate Sustainability Reporting Directive (CSRD), to standardise non-financial reporting by companies, improving the consistency and quality of publicly available data. CSRD will impact a wide range of companies and organisations that operate in Europe, with it coming into effect on 1st January 2024.
It’s a complex area, so we’ve broken down the key bits you need to know.
At its core, CSRD seeks to encourage more sustainable business models throughout Europe. It does this by setting European Sustainability Reporting Standards (ESRS) for comprehensive reporting across Environment, Social and Governance (ESG).
It replaces the current Non-Financial Reporting Directive (NFRD), expanding its remit in both scope and sophistication.
The European Commission sets the reporting requirements, including 12 ESRS covering environmental, social and governance issues. The depth to which you need to report on these standards depends on the results of a double materiality assessment.
The reporting is complex and you won’t be perfect first time. If your organisation fits into any of the below categories, you should be getting to grips with what CSRD reporting means for your organisation now:
There are some opt-outs to bear in mind:
Not every company needs to start reporting from 2024 though, the European Commission is taking a phased approach, with the current timeline being:
(Limited and reasonable assurances are explained at the bottom of the page.)
Overall, companies are required to disclose any significant sustainability-related impacts, risks, and opportunities, how these are managed, how they affect its strategy and business model, and the financial implications.
All in-scope companies will need to start by looking at the Cross-Cutting Standards. These standards set out what you need to report and how you should do that. This is done via a double materiality assessment.
This means that different reporting requirements are triggered by the outcome of your double materiality assessment. The double materiality assessment looks at the impact on the company, and the impact of the company.
The European Financial Reporting Advisory Group (EFRAG) has released draft implementation guidance for double materiality assessments.
Let’s take a look at how it would work if your double materiality assessment triggered ESRS 4, biodiversity and ecosystems:
Then repeat similar steps for each ESRS under the environment, social and governance categories that your double materiality assessment triggered. Once put together, this will make up the required elements of your sustainability reporting.
If you fall into any of the in-scope categories, now’s the time to start getting familiar with these topics. Figure out which teams will need to work together, what the next steps for your team are and if you need support doing so.
The legislation, its requirements, and data needed to inform those requirements are complex. It will take time for an organisation to develop responses that reflect best practice. Also, much like climate reporting, expectations of best practice are not static. For those caught by the scope of this regulation, it is important to start preparing now. This will ensure that you are well positioned amongst peers when external stakeholders begin scrutinising reports in 2025.
Limited assurance: nature, timing and extent of procedures performed by 3rd party are limited compared to reasonable assurance (i.e. nothing came to our attention to indicate x is misstated)
Reasonable assurance: test to evaluate accuracy and completeness of the information, this can include examining documentation, records, interviews etc. as set out by auditor (i.e., based on procedures we believe x is reasonably stated)
Identify where you should prioritise your efforts, understand your nature impacts and dependencies, disclose to stakeholders and take action.
See how it works...