Corporate sustainability reporting is gaining prominence worldwide, driven by increasing demands from shareholders and stakeholders for improved transparency and accountability on environmental, social and governance (ESG) concerns.
In response to this growing need, the European Commission has put forward the Corporate Sustainability Reporting Directive (CSRD).
This article will explore the essential elements of CSRD, and examine its key requirements, benefits, and challenges.
The Corporate Sustainability Reporting Directive (CSRD) is a crucial step towards promoting sustainable practices and ensuring transparency in reporting for companies operating in the EU.
The Directive applies to companies meeting one or more of the following criteria:
The CSRD will be mandatory for all large and publicly traded corporations listed on EU-regulated markets, except for micro-enterprises. Small and medium-sized enterprises (SMEs) listed on EU-regulated markets will also need to comply but on an extended timeline.
Non-EU-based corporations with subsidiaries in the EU and companies with securities listed on EU-regulated markets will need to meet additional CSRD compliance requirements.
The proposed audit requirement aims to enhance the credibility of sustainability data submitted by companies operating in EU-regulated marketplaces.
The European Commission has allowed for a gradual approach to the audit requirement.
Initially, auditors will provide an opinion based on a "limited assurance" involvement with the sustainability reporting's compliance with the CSRD's criteria, including relevant reporting standards.
This will help companies adapt to the new sustainability reporting requirements and ensure compliance.
The audit requirement will evolve to a "reasonable assurance" at a later date.
After the publication of the sustainability criteria and a review by the European Commission within three years of the CSRD taking effect, the "limited" guarantee will be changed to a "reasonable assurance".
This will provide companies with greater clarity and accountability in their sustainability reporting practices.
The CSRD aims to enhance the credibility and reliability of sustainability data disclosed by companies operating in EU-regulated marketplaces through third-party assurance processes.
Companies will also need to digitise and identify their sustainability information to make it accessible via the EU's European Single Access Point (ESAP) database.
This initiative will improve the accessibility of sustainability data for stakeholders and assist in promoting transparency and comparability.
To enhance the efficiency of sustainability reporting practices, companies will need to tag important data and give it a digital label.
This will enable algorithms to read the data more quickly and allow stakeholders to evaluate and compare data across different companies.
The CSRD requires companies to disclose information on:
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Under CSRD, companies are expected to provide information at three different levels, for comprehensive and meaningful reporting:
These disclosures have already been specified by the European Financial Reporting Advisory Group (EFRAG) in the cross-cutting European Sustainability Reporting Standards (ESRS). They cover a range of ESG factors, including climate standards that are mandatory for all companies.
The CSRD includes a requirement for companies to report on specific mandatory standards based on their industry sector. These sector-specific standards, initially expected to be published as a Delegated Act in June 2024, have now faced a revised timeline.
As of February 2024, the Council of the European Union and the European Parliament agreed to delay the adoption deadlines for these standards by two years, with the new target for adoption now set for June 30, 2026.
While the updated adoption deadline is 2026, it remains to be clarified whether the sector-specific standards will still be published in 2024 or if publication will also be postponed. We can expect further announcements soon.
This level of reporting allows companies to disclose information on issues they consider important but have not been covered in the rest of the sustainability report.
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The CSRD encompasses a wide range of environmental, social, and governance (ESG) criteria that companies are required to report on.
In particular, the first set of European Sustainability Reporting Standards (ESRS) reviewed on November 2022 address the following 10 ESG topics:
The CSRD offers guidance on several crucial concepts that companies must consider when reporting. These guidelines cover various areas, such as
Since the finalisation of the ESRS by EFRAG in November 2022, several significant developments have occurred, particularly regarding the structure and implementation of these standards:
The final version of the ESRS has significantly reduced the number of disclosure requirements from 136 to 84, alongside a decrease in the number of quantitative and qualitative data points from 2,161 to 1,144. This streamlining aims to simplify the reporting process for companies while ensuring the necessary rigor for effective sustainability disclosures.
The ESRS were officially adopted by the European Commission on 31 July 2023 and came into effect for approximately 50,000 businesses starting from January 2024. This marked a critical step towards enforcing comprehensive sustainability disclosures across the EU, extending to many non-EU companies as well.
On 8 November 2023, EFRAG announced a partnership with CDP (formerly the Carbon Disclosure Project) aimed at enhancing the adoption of the ESRS. This collaboration includes aligning CDP's disclosure platform with the ESRS and providing technical guidance and training to companies on how to comply with these new reporting requirements.
In October 2023, EFRAG introduced the ESRS Q&A platform designed to address unresolved technical questions related to the ESRS. This initiative aims to support companies in the implementation process by offering clear explanations and guidance.
The CSRD will require companies to adopt more robust sustainability reporting practices which may have implications for business strategy and operations.
Companies will need to collect and manage sustainability data, establish stakeholder engagement processes, and provide regular updates on sustainability performance.
This may require significant investments in resources and infrastructure.
The CSRD may be challenging for companies to comply with, particularly smaller companies with limited resources.
There are also concerns about the potential cost of compliance and the burden of reporting.
However, the CSRD has the potential to improve transparency and accountability, enhance risk management, and increase stakeholder engagement.
It will also make it easier for investors to compare the sustainability performance of different companies and encourage companies to adopt more sustainable practices.
If your company must comply with the CSRD, you should begin immediately.
The deadline is rapidly approaching, and the consequences of noncompliance can be significant.
At Apiday, we understand the complexities and challenges involved in the reporting process.
That's why our platform is designed to simplify and streamline it by:
This allows you to focus on what matters the most: driving change in your company rather than fetching and crunching data!
Take the first step towards CSRD compliance now!
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If your company must comply with CSRD, you should begin immediately!
Our cutting-edge tool is here to guide you on the right compliance track, gathering data and automating the creation of disclosure reports. With everything you need to be fully compliant in a single platform, take the first step towards CSRD compliance now!
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Take action and empower yourself with the knowledge, tools, and strategies to navigate CSRD successfully!
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