CSRD Is Bound To Make An Impact In Your Business
CSRD is coming
In spring 2021, the European Commission presented its proposal for the Corporate Sustainability Reporting Directive (CSRD). CSRD is the reviewed and revised version of the Non-Financial Reporting Directive (NFRD). It supports reporting on sustainability performance by setting sustainability reporting standards.
NFRD targeted about 11.000 companies operating within the EU. The CSRD scope extends this reach to over 50.000 companies. By setting the reporting requirements it also aims at simplifying the reporting process for EU companies. Currently there is a large amount of standards and frameworks on sustainability reporting. CSRD provides a one-stop-shop backed by the larger sustainable finance plans of the EU with the EU taxonomy and the EU Green Deals.
The objective of CSRD
CSRD’s objective is to stimulate corporate sustainability by improving the existing rules on non-financial reporting. It requires companies to be transparent about their sustainability performance and contribution to climate goals. Sustainability reporting can attract investors and therefore the CSRD facilitates the transition to a sustainable economy.
This directive applies to all large companies that fall under EU law or have an establishment within an EU Member State. A large company is defined in this case if two of the three points below apply:
€40 million net sales;
€20 million on balance sheet;
So, what would we actually report on? Good question. There are several thematic aspects within the directive that, for now, are still part of the CSRD’s predecessor: the Non-Financial Reporting Directive (NFRD). It is to be expected that these thematic elements will return within the CSRD requirements.
Within the environmental theme, a company must disclose relevant information on the actual and potential impacts of its operations on the environment. Also their strategy of environmental- and climate risks that affect the company’s development, performance or position.
CSRD disclosure examples:
- Material disclosures on pollution prevention and control;
- Environmental impact from energy use;
- Direct and indirect atmospheric emissions;
- Use and protection natural resources (e.g. water, land) and related protection of biodiversity;
- Environmental impacts from transportation or from the use and disposal of products and services;
- Protection of assets at high-risk areas for e.g. heat stress and/or rising sea-levels;
- And development of green products and services.
The CSRD focuses on this ‘double materiality’ perspective. Internal perspective deals with the company’s exposure to sustainability risks and opportunities. The external perspective is about the impact of the company on society and the environment. Double materiality comes from the Paris Agreement.
Hence, a company must report on its strategy and business model, sustainability objectives and indicators. And in this, all environmental matters, social considerations, governance processes, external and internal control and risk management must be included.
When and how will the CSRD come into effect?
Strictly speaking, you must report over the year 2022, no later than the end of July 2023 in your annual report. However, CSRD will only be enforced from January 1, 2026.
The CSRD must be part of your annual report. This means that your finance disclosureS and sustainability information is reported simultaneously. Companies must make the information available digitally in the upcoming European Single Access Point (ESAP). This information must be in accordance with EU regulations. Third party verification of your disclosures will most likely become mandatory.
How can we help?
The CSRD covers the Environmental, Social and Governance elements (ESG) within your organisation. Traditional ESG data is, however, insufficient to comply with the CSRD. ESG data is extracted from publicly available reports and based on country-sector proxy sustainability data. Hence, this does not give insight into the sustainability performance of your organisation. But rather of your sector average performance in your region.
Hedgehog Company supports you in identifying your data requirements for the CSRD. Our experts model the entire environmental impact of your organisation by combining our expertise in LCA studies and GHG emission modelling. This provides your data necessities for CSRD, and if you want, to take your sustainability performance to a next level.