The EU is introducing new sustainability reporting rules which will increase the transparency of Environmental, Social and Governance (ESG) matter for larger businesses both in the EU and further afield.
What is the CSRD?
Corporate Sustainability Reporting Directive (CSRD) is the new EU legislation requiring large companies to issue regular reports on their environmental and social impacts.
The Corporate Sustainability Reporting Directive (CSRD) extends the Non-Financial Reporting Directive (NFRD). The changes recognise the information currently shared is insufficient for investors and stakeholders to be fully aware and confident when it comes to sustainability-related risks.
Sustainability information must be comparable year over year, ideally coming from an authentic source. Therefore, accurate calculations must be based on granular details.
Through CSRD, financial markets are provided with greater transparency about environmental, social, and governance issues, which will facilitate the transition to a green economy, one of the key elements of the EU Green Deal. EU rules and guidelines aim to accelerate the transition to a sustainable economy. CSRD intends to make sustainability reporting as transparent as financial reporting.
The EU’s new regulations are forcing sustainability reporting forward that includes non-EU businesses in so doing contributing towards a global sustainability reporting standard. One can see the association with other frameworks such as risk assessments e.g., the UK’s Task Force on Climate-related Financial Disclosures (TCFD) and also aligned with Science Based Targets Initiative (SBTi).
Key points identified by the Carbon Trust
- NFRD applies to large public-interest companies with more than 500 employees, covering around 11,000 businesses across the EU. CSRD expands on that, increasing the scope to almost 50,000 companies, including all large companies (categorised by certain criteria) and listed companies, listed SMEs and qualifying non-EU companies.
- Under CSRD, sustainability reporting will need to be more detailed than NFRD. For example, including strategy, policies and – crucially – a ‘double materiality assessment’ which means reporting will have to cover how sustainability issues impact an organisation as well as how the organisation impacts the planet and the people. Sustainability information will also have to be included in a company’s management report.
- Where third-party assurance of reporting was not compulsory under NFRD, CSRD requires a mandatory level of accredited auditing against sustainability reporting standards.
- These new standards are being developed primarily by the European Financial Reporting Advisory Group (EFRAG), shaped to EU policies, but also building on global initiatives. The European Commission will consult EU bodies and Member States on the current draft standards, before adopting the final standards as delegated acts in June 2023.
- CSRD has changed the way companies share their sustainability reporting information, requiring companies to submit their reports to a digital database.
The new rules timetable:
Which differs from the Commission’s initial proposal will be as follows:
- 1 January 2024– for companies already reporting in line with NFRD (reporting in 2025 on 2024 data).
- 1 January 2025– for large companies that are not currently subject to NFRD (reporting in 2026 on 2025 data).
- 1 January 2026– for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 on 2026 data).
- 1 January 2028– reported in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
What changes should businesses undertake?
Businesses need to consider where they are, as they progress towards lower emissions. In addressing the changes businesses need to
- Conduct a gap analysis.
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- Critically assess your current sustainability reporting against the CSRD requirements.
- Focus on the missing requirements identified by the analysis.
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- These could either be completely new requirements or old ones that need to be updated for compliance with CSRD.
- Start conversations internally.
- Form a team to assess what data is/is not available.
- The team will likely be drawn from multi-disciplined areas of the business
- Whilst the initiative may well be headed up by a business’s ‘sustainability lead. It is highly unlikely to be only centred here.
Where Benchmark comes in:
Benchmark is a bespoke global commercial and climate consultancy for the world of packaging. Using actual data or science-based data, we help organizations identify granular commercial and environmental costs, allowing informed scope 3 decisions to be made. Since we have no vested interests, we are authentic. Providing target feasibility assessments, Gap Analysis, Life Cycle Assessment and supplier engagement initiatives.
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