The EU CSRD, or Corporate Sustainability Reporting Directive, is a new regulation that enhances and broadens the scope of sustainability reporting requirements for companies operating within the European Union. It aims to improve transparency, standardise ESG disclosures, and ensure that businesses provide detailed and comparable information on their environmental, social, and governance (ESG) practices.

Understanding the EU CSRD

What is the EU CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a significant piece of legislation introduced by the European Union to strengthen and standardise sustainability reporting across the bloc. Building on the foundations laid by the Non-Financial Reporting Directive (NFRD), the CSRD aims to ensure that companies provide comprehensive, consistent, and reliable information about their environmental, social, and governance (ESG) impacts. This information is crucial for investors, regulators, and other stakeholders who need accurate data to assess the sustainability performance of companies and make informed decisions.

The CSRD expands the scope of reporting, requiring a broader range of companies to disclose their ESG practices. It also introduces more detailed reporting requirements, mandates the use of EU sustainability reporting standards, and requires assurance of reported data by an independent third party. These changes are designed to improve the quality and comparability of sustainability information across the EU, helping to drive the transition to a more sustainable economy.

Key Components of the EU CSRD

Expanded Scope of Reporting

One of the most significant changes introduced by the CSRD is the expansion of the scope of companies that are required to report on their ESG practices. Under the previous NFRD, only large public-interest entities with more than 500 employees were required to disclose non-financial information. However, the CSRD extends this requirement to a much broader range of companies, including all large companies and all companies listed on EU-regulated markets, regardless of size.

This means that many more businesses, including small and medium-sized enterprises (SMEs), will now need to comply with the new reporting requirements. This expanded scope is intended to increase the availability of ESG data and ensure that a wider range of companies are held accountable for their sustainability impacts.

Detailed Reporting Requirements

The CSRD introduces more detailed and prescriptive reporting requirements compared to the NFRD. Companies are now required to disclose information on a wide range of ESG topics, including their impact on the environment, social and employee matters, human rights, anti-corruption, and governance. This includes detailed information on GHG carbon emissions reporting, resource use, biodiversity impacts, diversity and inclusion policies, and the management of social risks in the supply chain.

Additionally, the CSRD requires companies to report on their sustainability risks and how these risks could impact their financial performance. This includes disclosing how climate change, resource scarcity, and social issues could affect the company’s operations, profitability, and long-term viability. By mandating these disclosures, the CSRD aims to provide stakeholders with a more comprehensive understanding of a company’s sustainability risks and opportunities.

Use of EU Sustainability Reporting Standards

To ensure consistency and comparability of ESG disclosures, the CSRD mandates the use of new EU sustainability reporting standards, which are being developed by the European Financial Reporting Advisory Group (EFRAG). These standards will provide clear guidelines on how companies should report on their ESG impacts, ensuring that the information is consistent, reliable, and aligned with EU policy objectives.

For example, companies will need to follow specific standards for GHG carbon emissions reporting, ensuring that emissions data is accurate, comparable, and aligned with EU climate goals. Similarly, standards for social reporting will help companies disclose their impact on human rights, labour conditions, and community engagement in a consistent and transparent manner.

Mandatory Assurance of Reported Data

Another key aspect of the CSRD is the requirement for mandatory assurance of reported sustainability information. Companies must now have their ESG data verified by an independent third party to ensure its accuracy and reliability. This assurance process is similar to the external audits required for financial reporting and is intended to enhance the credibility of ESG disclosures.

For instance, a company’s Supply Chain Audits or GHG carbon emissions reporting will need to be verified by an external auditor to confirm that the data is accurate and meets the required standards. This assurance process helps to build trust with stakeholders by providing them with confidence that the company’s ESG disclosures are robust and reliable.

Why is the EU CSRD Important?

Improving Transparency and Accountability

One of the main objectives of the CSRD is to improve transparency and accountability in corporate sustainability reporting. By requiring more companies to disclose detailed ESG information, the CSRD ensures that stakeholders have access to the data they need to evaluate a company’s sustainability performance. This increased transparency helps to hold companies accountable for their environmental and social impacts, driving improvements in ESG practices across the board.

For example, by mandating detailed GHG carbon emissions reporting, the CSRD ensures that companies are transparent about their contributions to climate change. This transparency allows investors and regulators to assess whether companies are meeting their climate commitments and taking the necessary steps to reduce their carbon footprint.

Supporting Sustainable Investment

The CSRD plays a crucial role in supporting the EU’s broader sustainability goals, including the European Green Deal and the transition to a more sustainable economy. By improving the quality and availability of ESG data, the CSRD helps to facilitate sustainable investment by providing investors with the information they need to make informed decisions.

For instance, investors who prioritise ESG factors in their investment strategies can use the detailed disclosures required by the CSRD to assess the sustainability performance of potential investments. This helps to channel capital towards companies that are leading the way in sustainability and away from those that are lagging behind.

Aligning with Global Reporting Trends

The CSRD is part of a broader global trend towards more rigorous and standardised sustainability reporting. As sustainability becomes increasingly important to investors, regulators, and consumers, there is growing demand for consistent and comparable ESG data. By aligning with these global trends, the CSRD ensures that EU companies are at the forefront of sustainability reporting and are well-positioned to meet the expectations of global stakeholders.

For example, the CSRD’s requirements for detailed and standardised reporting on Supply Chain Audits align with international expectations for transparency in supply chain management. This alignment helps EU companies demonstrate their commitment to global sustainability standards and enhances their competitiveness in the international market.

How to Comply with the EU CSRD

Preparing for Expanded Reporting Requirements

Companies that fall within the scope of the CSRD need to start preparing for the expanded reporting requirements. This includes conducting a Materiality Assessment to identify the ESG issues that are most relevant to their business and stakeholders. The results of this assessment will guide the selection of reporting standards and the focus areas of the sustainability report.

For example, a company that identifies GHG carbon emissions reporting as a material issue will need to develop the necessary processes and systems to collect, report, and verify this data in accordance with the EU sustainability reporting standards.

Implementing Robust Data Collection and Reporting Systems

To comply with the detailed reporting requirements of the CSRD, companies will need to implement robust data collection and reporting systems. This includes developing processes for gathering accurate and reliable ESG data, ensuring that this data is aligned with the EU sustainability reporting standards, and preparing the required disclosures.

For instance, companies will need to implement systems for Supply Chain Audits that allow them to monitor and report on the social and environmental impacts of their supply chains. Similarly, they will need to develop processes for GHG carbon emissions reporting that ensure emissions data is accurate and meets the required standards.

Engaging with External Auditors

Given the CSRD’s requirement for mandatory assurance of reported data, companies will need to engage with external auditors to verify their ESG disclosures. This involves selecting a qualified third party to conduct the assurance process and working closely with them to ensure that the data meets the required standards.

For example, companies might engage external auditors to verify their GHG carbon emissions reporting or the results of their Supply Chain Audits. This verification process helps to ensure that the company’s ESG disclosures are accurate, reliable, and credible.

The Benefits of Complying with the EU CSRD

Enhancing Corporate Reputation

By complying with the CSRD, companies can enhance their corporate reputation by demonstrating their commitment to transparency, sustainability, and ethical practices. This enhanced reputation can help to attract investors, customers, and employees who prioritise sustainability and social responsibility.

For instance, a company that provides transparent and verified GHG carbon emissions reporting is likely to be viewed more favourably by environmentally conscious stakeholders. Similarly, companies that conduct and report on comprehensive Supply Chain Audits can build trust with customers and partners who value ethical sourcing and supply chain transparency.

Mitigating Regulatory Risks

Compliance with the CSRD also helps companies mitigate regulatory risks by ensuring that they meet the EU’s stringent sustainability reporting requirements. By staying ahead of these regulations, companies can avoid potential fines, penalties, and legal disputes related to non-compliance.

For example, by adhering to the CSRD’s detailed requirements for GHG carbon emissions reporting, companies can reduce the risk of regulatory scrutiny and ensure that they are aligned with EU climate policies.

Supporting Long-Term Sustainability

Finally, compliance with the CSRD supports long-term sustainability by encouraging companies to integrate ESG considerations into their business strategies. By providing detailed and transparent ESG disclosures, companies can demonstrate their commitment to sustainable growth and position themselves as leaders in the transition to a more sustainable economy.

For instance, by setting and achieving ambitious goals for GHG carbon emissions reduction, companies can contribute to global efforts to combat climate change and build a more sustainable future for all.

Why Choose ESG Pro Limited?

At ESG Pro Limited, we specialise in helping companies navigate the complexities of the EU CSRD and achieve compliance with its rigorous reporting requirements. Our team of expert ESG consultants will guide you through every step of the process, from data collection to third-party verification.

• Comprehensive support in implementing EU sustainability reporting standards
• Expertise in GHG carbon emissions reporting and Supply Chain Audits
• Strategic guidance to ensure compliance with the EU CSRD

Our team at ESG Pro Limited is committed to helping businesses of all sizes enhance their ESG performance and reporting. With our support, you can meet the requirements of the CSRD, build trust with stakeholders, and position your company as a leader in sustainability.

• Proven track record in delivering EU CSRD-compliant reports
• Customised solutions to meet your industry-specific needs
• Ongoing support to ensure continuous improvement in your reporting