CSRD Reporting: Navigating New EU Sustainability Mandates | Ameta

The world is changing. Businesses are no longer judged solely on their profits. Consumers, investors, and policymakers are demanding transparency and accountability when it comes to a company's social and environmental impact. This is where Corporate Sustainability Reporting Directive (CSRD) reporting enters the picture. CSRD is an ambitious EU regulation designed to improve the way businesses report their sustainability efforts. It aims to provide stakeholders with a clearer understanding of a company’s impact on the environment, social issues, and governance.

So, what does this mean for businesses? Simply put, it means stepping up their sustainability game and demonstrating it transparently through comprehensive reporting. CSRD compels businesses to assess and communicate their impact on a broader scale than ever before.

Understanding the Corporate Sustainability Reporting Directive (CSRD)

Adopted by the European Commission in November 2022, the CSRD replaces and builds on the Non-Financial Reporting Directive (NFRD). It introduces more detailed reporting requirements and expands the number of companies that must comply. The CSRD signifies a major shift from voluntary sustainability disclosures to mandatory, standardized reporting, holding businesses more accountable for their impact.

Who Needs to Comply with CSRD?

The CSRD significantly expands the scope of companies required to provide sustainability reports. It’s no longer limited to the largest companies. It now includes all large companies, whether listed or not, meeting two out of three criteria:

Over 250 employees
€40M+ in turnover
€20M+ in total assets

Additionally, listed small and medium-sized enterprises (SMEs), excluding micro-enterprises, also fall under the purview of CSRD. However, they get an extra three years to comply. Even non-EU companies with significant business activities in the EU, exceeding a net turnover of €150 million within the EU market, are obligated to comply. In essence, CSRD reporting is likely to become a common business practice. This encourages businesses of all sizes to seriously consider their sustainability impact.

Why CSRD is More Than Just a Compliance Exercise

CSRD isn't simply a box-ticking exercise. It pushes businesses to fundamentally rethink how they approach sustainability. By mandating a standardized approach to sustainability reporting, the CSRD seeks to end the inconsistency in how companies disclose environmental, social, and governance (ESG) information.

Previously, reported information could be difficult to compare. Users, including investors and consumers, often struggled to discern if this information was reliable. This ambiguity made it challenging to adequately assess a company's true environmental and social impact. The European Commission has emphasized that through “high quality and reliable public reporting by companies,” a “culture of greater public accountability” can be fostered.

The EU’s aim is clear. They intend to drive a meaningful change in business practices. They are doing this by mandating a level playing field for sustainability reporting and encouraging companies to prioritize long-term sustainability strategies. This is likely to have a cascading effect, motivating supply chains to also adopt more sustainable practices. CSRD’s aim isn’t simply better reporting but a transformation of business for a more sustainable future.

What to Include in Your CSRD Report

Preparing a CSRD-compliant report goes beyond listing sustainability initiatives. It requires a structured approach addressing all relevant aspects of a business’s impact. The information must be included in the company's annual report.

Key Reporting Areas Under CSRD:

Reporting Topic	Description
Environmental Protection Measures	Details about how the business works to lessen its environmental footprint, such as resource conservation, pollution prevention methods, and climate change mitigation plans. This should align with targets like those in the Paris Agreement, pushing for a transition to a low-carbon economy. Starting in 2025, CSRD will mandate that businesses have a Paris Agreement-aligned emissions reduction plan to reach net zero by 2050.
Social Responsibility and Treatment of Employees	A comprehensive account of practices concerning employee wellbeing, covering areas like employee health and safety, training and development programs, working conditions, diversity and inclusion initiatives, and fair wage policies.
Respect for Human Rights	Transparent disclosure of the company’s human rights policies. How the business ensures human rights are respected throughout its operations and supply chain is critical. This may include due diligence processes for identifying and mitigating potential human rights violations.
Anti-corruption and Bribery Measures	The company's proactive approach to preventing corrupt practices and bribery needs to be clearly laid out. Reporting should detail ethical codes of conduct, whistleblower protection mechanisms, internal audits, and other anti-corruption training programs in place within the company.
Diversity on Company Boards	The CSRD requires more than just token representation. Businesses are required to present a detailed analysis of board member diversity. This encompasses aspects such as gender, age, educational background, nationality, and professional experience. Ultimately, this fosters inclusive leadership.
Sustainability Risks and Opportunities	Companies are required to explain their due diligence processes in accordance with the Corporate Sustainability Due Diligence Directive (CSDDD). CSRD goes beyond solely internal reporting, companies will need to share details about the social and environmental impacts that may occur along their entire value chain. Provide clarity on the company's efforts to identify, prevent, and mitigate risks. They are also obligated to highlight any sustainability-related risks that could affect their business performance, such as climate change, resource scarcity, and social unrest. Along with these risks, they also need to highlight opportunities arising from their sustainability initiatives. These could be things like increased efficiency, new markets, enhanced brand reputation, and attracting investors drawn to sustainable businesses. This transparent assessment demonstrates the company's forward-thinking approach. Further, it highlights their willingness to proactively address these challenges while leveraging emerging opportunities.

Detailed disclosure guidelines for CSRD reports have been developed by EFRAG, an independent body composed of various stakeholders. These stakeholders include the previously named European Financial Reporting Advisory Group (EFRAG). EFRAG also helped develop the European Sustainability Reporting Standards (ESRS), the technical guidelines used within the CSRD framework.

Preparing for CSRD Reporting

Meeting these requirements is not something that can be done overnight. Businesses must start preparing now to avoid compliance issues. In doing so, they will also fully realize the benefits of this new legislation. While implementing internal data collection processes to meet the standards might seem daunting, preparing for CSRD is ultimately an opportunity. For companies, it is a chance to take their Corporate Sustainability Reporting Regulations seriously and demonstrate their commitment to a more sustainable future.

Practical Steps Businesses Can Take:

Start Early: Familiarize yourself with the CSRD legislation, relevant reporting standards like the ESRS, and the reporting timeline that applies to your company. This means engaging legal experts to interpret the legislation, sustainability specialists to map out your reporting journey, and data teams to start structuring your data collection processes. Getting started ahead of time will allow your business to prepare without unnecessary stress.
Data Collection: Put systems in place for collecting and tracking ESG data. This could involve developing new internal procedures for data gathering. You might consider incorporating relevant data points into existing systems like your enterprise resource planning (ERP) platform, or working with specialized sustainability data management providers. Having accurate and accessible data will simplify the reporting process.
Materiality Assessment: This crucial step helps focus your efforts on the sustainability aspects that truly matter. It means determining which environmental and social issues have a substantial impact on your business operations, value chain, and stakeholders. This approach ensures your CSRD report addresses the most significant issues relevant to your business. Thus, you avoid a one-size-fits-all approach. Many consulting firms and specialized providers can help you conduct a materiality assessment. Tools, such as implementation guidance for materiality assessment from EFRAG, can help you begin mapping the journey. Remember, your financial reporting taxonomy might influence this process.
Gap Analysis: Identify where your existing sustainability efforts align with CSRD requirements. What are the reporting gaps you need to address? Are there internal procedures or policies that require adjustment? You need to ensure your business complies with CSRD guidelines. By conducting this self-assessment early on, your business will be in a good position to allocate resources. You can then create an effective action plan for addressing potential gaps. You can read articles and whitepapers on financial reporting that offer tips on compliance and gap analysis.
Seek Professional Help: Don't go at it alone. External advisors, like KPMG, offer specialized services to guide your CSRD reporting process. They can help prepare your ESG reports in line with CSRD mandates. These services consider crucial aspects like the EU Taxonomy and Task Force on Climate Related Financial Disclosures (TCFD) guidelines. They offer deep expertise to streamline the process. Involving sustainability and reporting consultants early on can simplify compliance and strengthen your overall sustainability strategy. Their assistance can be invaluable in identifying potential challenges and streamlining the entire process.
Invest in Training: Upskilling your team is vital for long-term sustainability success. This might involve specialized training on data collection and analysis for ESG reporting, workshops to fully grasp the European Sustainability Reporting Standards (ESRS) requirements, and courses to understand materiality assessments, stakeholder engagement, and reporting methodologies. Well-trained staff can better handle data collection, report compilation, and ensure the consistency and accuracy of the reports. Remember, the European Commission itself has a lot of information to share to help businesses get off to a good start with all the changes.

Staying Updated on CSRD Developments

CSRD implementation is an ongoing process, with new developments constantly unfolding. In February 2024, for example, the European Council and Parliament agreed to delay reporting requirements for specific sectors and non-EU companies by two years. These amendments are meant to provide businesses more time to fully comprehend the legislation’s expectations.

The dynamic nature of the legislation highlights the need to actively follow news updates, expert analysis, and any official guidance issued by the European Commission. Subscribing to publications like the PwC Newsletter and other sources such as press releases and portals on sustainability reporting will help businesses stay ahead. Attending webinars and workshops by expert bodies and sustainability consultants is also key. Doing so ensures continuous awareness about the changes and complexities related to CSRD. Companies need to commit to continuous learning.

An interesting development occurred in November 2023. EFRAG released their first version of the ESRS adapted for European SMEs not affected by the CSRD. It also sheds light on how sustainability principles are impacting a larger pool of organizations beyond those legally required to follow CSRD mandates. For example, financial markets and capital markets are being impacted. Regulations around things like digital finance, financial data, and financial services are changing to align with this new focus on sustainability. The European Union is leading the way on these regulatory changes. The hope is that it will help with financial supervision, and the health of the markets union, including the capital markets union.

The Path Forward

Navigating the intricate landscape of CSRD reporting requires a proactive, informed, and strategic approach. This goes beyond simply ticking boxes. It involves reimagining how businesses consider their environmental and social responsibilities. While meeting these demands may require a significant investment of time and resources, viewing CSRD as an opportunity rather than a burden will help businesses adapt. They will prosper and build trust with stakeholders in this evolving landscape. This shift isn't merely about generating a CSRD-compliant report. It’s about making conscious choices. This means pursuing sustainable business practices that benefit both a company's bottom line and a sustainable future for our world.

Ready to navigate the CSRD landscape with confidence? Let’s discuss how Ameta can help you streamline your sustainability reporting and meet new EU mandates. Reach out today for a consultation and see how our solutions can drive sustainable change for your business.

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