The Key Things You Need to Know About CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a major regulatory change set to transform how businesses disclose their sustainability performance. It aims to elevate sustainability reporting to the same level as financial reporting, ensuring greater transparency and accountability for environmental, social, and governance (ESG) matters. Here’s a guide to help your organisation understand and prepare for the CSRD.

1. What Is the CSRD?

The CSRD is a European Union directive that significantly expands the requirements for sustainability reporting, replacing the existing Non-Financial Reporting Directive (NFRD). It aims to provide more consistent, reliable, and comparable ESG data, helping investors, consumers, and other stakeholders make well-informed decisions.

The directive is a response to growing demands for corporate accountability on issues such as climate change, human rights, and ethical governance. It is part of the EU’s broader agenda to achieve a more sustainable and inclusive economy, aligning with initiatives such as the European Green Deal.

2. Who Is Affected by the CSRD?

The CSRD has a wider reach than the NFRD, affecting:

• All large companies (whether listed or not) that meet at least two of these criteria: over 250 employees, a turnover of more than €40 million, or total assets exceeding €20 million.
• Listed small and medium-sized enterprises (SMEs), though they will be given a transitional period with simplified reporting requirements.
• Non-EU companies with substantial operations in the EU (annual revenues exceeding €150 million) will also be required to report on their ESG impact.

This means that over 50,000 companies across Europe, and even non-EU businesses with significant EU operations, will be affected.

3. What Needs to Be Reported?

Companies subject to the CSRD must report on sustainability matters following the European Sustainability Reporting Standards (ESRS). These standards cover a wide range of ESG issues, including:

• Environmental impacts: Greenhouse gas emissions, energy usage, pollution, resource efficiency, and effects on biodiversity.
• Social issues: Employee working conditions, diversity, equal opportunities, and respect for human rights.
• Governance: Corporate ethics, anti-corruption measures, and risk management practices.

A key aspect of the CSRD is double materiality, which means organisations must report both on how sustainability issues impact their business (financial materiality) and how their operations affect people and the planet (environmental and social materiality).

4. The Connection to the GHG Protocol

A critical component of the CSRD is the alignment with global sustainability standards like the GHG Protocol. Companies will need to account for and disclose their carbon emissions across Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (all other indirect emissions along the value chain). This is particularly relevant for businesses exporting to Europe, as comprehensive carbon reporting will be essential for compliance.

For more on carbon accounting standards, visit the GHG Protocol website.

5. When Does the CSRD Take Effect?

The CSRD will be phased in gradually:

• 2024: Reporting begins in 2025 for companies already subject to the NFRD.
• 2025: Large companies not previously covered by the NFRD must start reporting in 2026.
• 2026: Listed SMEs, small and non-complex credit institutions, and captive insurance firms will begin reporting, with the option to defer until 2028.

Organisations need to start preparing as soon as possible to ensure they are ready for these deadlines.

6. How to Prepare for CSRD

Preparation for CSRD compliance requires a strategic approach. Here are some steps to consider:

• Conduct a gap analysis: Review your current reporting processes to identify areas for improvement.
• Set up data collection systems: Ensure that you can gather accurate and auditable ESG data. Consider using solutions like Emerald Power for streamlined and automated sustainability reporting.
• Engage with stakeholders: Sustainability data will often come from across your organisation and supply chain. Effective communication and collaboration are crucial.
• Stay informed: The CSRD and its reporting standards are evolving, so keep up to date with the latest developments.

For detailed information about the CSRD requirements, check the European Commission’s CSRD page.

7. The Benefits of Compliance

Although complying with the CSRD may seem daunting, it also brings significant advantages:

• Increased transparency: Build trust with stakeholders by providing clear and consistent ESG information.
• Improved risk management: Identify and mitigate sustainability-related risks to your business.
• Competitive edge: Businesses that demonstrate a strong commitment to ESG are increasingly favoured by investors, customers, and talent.

Conclusion

The CSRD ushers in a new era of corporate accountability. By integrating sustainability into core business practices, organisations can not only meet regulatory requirements but also position themselves as leaders in ESG performance.

If you are looking for ways to simplify your CSRD reporting, solutions like Emerald Power can provide the necessary tools and insights to make the process efficient and effective.

If you have any questions or need advice on your sustainability strategy, don’t hesitate to get in touch.