The EU has established a substantial set of sustainability regulations known as the Corporate Sustainability Reporting Directive, or CSRD, which impacts companies operating in and listed in the European Union.
Around 11,700 companies will be in scope of CSRD at its start in the 2024 financial year, but over time this rises to around 50,000 companies, including at least 10,000 foreign companies that have operations in the EU.
It is not just a disclosure and reporting regime. In addition to bringing sustainability reporting on par with financial reporting, CSRD is designed to drive significant changes in company behaviour to deliver a truly sustainable economy. Organisations will develop a greater understanding of their sustainability-related risks and opportunities and integrate strategies to become more resilient or to generate greater value out of their ESG exposures.
No company currently reports the volume or detail of information required to meet CSRD. But in addition to reporting, the practical application of the European Sustainability Reporting Standards (ESRS) requires communication, awareness, understanding and co-operation across an organisation, through board-level, executive management and via all meaningful corporate functions, like finance, procurement, HR, operations, sales and marketing.
At CEN-ESG, we believe such a far-reaching and transformational regulation requires 18-24 months of planning, analysis, data gathering and resourcing to complete, depending on the maturity of your current ESG programme. Our team can provide an end-to-end solution for CSRD.
What is CSRD?
CSRD is an EU directive which substantially updates the rules concerning the social and environmental information that companies have to report.
The rules are designed to:
• Harmonise sustainability information which companies report.
• Provide the information required to assess the impact of companies on people and the environment.
• Be able to assess financial risks and opportunities arising from climate change and other sustainability issues.
Companies will have to report against the European Sustainability Reporting Standards (ESRS). There are 12 standards to apply:
• ESRS 1 are general principals, not disclosure requirements.
• ESRS 2 is mandatory for all companies.
• The requirement to report against all other standards is subject to their applicability to a company, based on the results of a company’s double materiality assessment.
• Whilst reporting to an individual ESRS topic is subject to materiality, the disclosure requirements contained within each ESRS are (mostly) not voluntary.
• Required disclosures are a combination of metrics and “conceptually separable” narrative, which are precise statements designed with a specific answer in mind. This results in greater comparability across companies.
• In total, there are around 1,000 data points or indicators across the 12 ESRS, which presents a material increase in ESG disclosure.
• Further sector-specific standards are to be developed by EFRAG, the standards-setting body. 40 sector-specific standards are expected to be released in phases over the next few years.
In addition, a company’s report should be aligned to the EU Taxonomy, which provides a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate. Under CSRD, companies must report the proportion of activity (e.g., of revenue, capex, opex) that meets the EU Taxonomy, which thus outlines their exposure to sustainable economic activities.
Timing of CSRD
CSRD is applicable to EU companies and international companies with significant presence in the EU.
There is a phased roll-out for companies in scope, starting with application of the new rules for the first time in the 2024 financial year, (reporting in 2025), although the most significant timeframes are 2025 and 2028 financial years:
Companies are encouraged to seek clarification of their disclosure timing.
Implications of CSRD
• The timeframe for implementation is short, considering the requirement and especially in relation to say the introduction of IFRS accounting standards.
• In scope companies must uncover or begin measuring a lot of ESG data for the first time. The ESRS framework encompasses around 1,000 datapoints.
• The quality of ESG data should be equivalent to that of financial data, requiring consistent, comparable, and reliable data systems and processes.
• Included within the CSRD regulation is the requirement for limited assurance over the compliance with the sustainability reporting standards, the underlying materiality assessment process, and certain reported indicators. Companies failing to prepare appropriately may see challenges in obtaining non-qualified assurance opinions and compliance with the regulation.
• Greater emphasis is placed on reporting forward-looking information (i.e., targets and strategy) relative to existing ESG reporting frameworks, which tend to focus on a backward-looking review of the past year.
• Mandatory reporting will result in a far higher comparability of sustainability information than in the past, but it will also leave less place to hide.
• Your materiality assessment must be up to date, be representative of the company’s economic reality including both the financial and impact (“double materiality”) as this is the basis for determining scope of reporting.
CEN-ESG can provide an end-to-end solution for CSRD
The preparation of an ESG report that meets the requirements of CSRD requires considerable planning, analysis, data gathering and resourcing to complete.
Our team can support organizations at all levels of ESG maturity, to make the transition as smooth as possible and ensure alignment with regulations.
We bring the required technical, financial, sustainability and organisational expertise to help integrate the management of material sustainability topics in your corporate strategy and the accuracy to ensure reporting is aligned to CSRD requirements.
• Tailor-made support from our experienced corporate sustainability team
• Double materiality assessment determining scope of reporting, including financial and impact materiality.
• Gap analysis to European Sustainability Reporting Standards (ESRS) covering two general and 10 topic area standards.
• TCFD, scope 3 emissions reporting and net zero transition planning aligned to limiting global warming to 1.5C.
• Risk assessment and developing target, for non-climate related ESG exposures.
• Support for developing and collating qualitative disclosures and financial-grade ESG metrics and targets, in preparation for third-party assurance.
• Alignment to EU Taxonomy as the framework for economic activities to be classified as sustainable.
• Structuring risk-based reporting and sustainability reports to Governance, Strategy, Risk Management, Metrics & Targets.
• Marking report disclosures for mandatory electronic tagging.
Contact us
CEN-ESG helps businesses maximise their sustainability potential, performance and ESG disclosure.
Our team will be happy to discuss our process for implementing CSRD and how we can help.
Jasper Crone, Director
Roger Johnston, Director
For more information about our Sustainability Consultancy, Investor Relations, or CEN Data services and expertise, please click on Services above or go to https://www.cengroupholdings.com.
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