CSRD 2023: Fostering Sustainable Business Practices in the EU
The Corporate Sustainability Reporting Directive (CSRD) marks a decisive step in European corporate regulation. This directive aims to increase the transparency and reliability of sustainability information published by companies. The emphasises the concept of dual materiality, which highlights the importance of both financial and environmental and social aspects.
What is CSRD and why is it important?
Expanding on the Non-Financial Reporting Directive (NFRD), the CSRD obliges a broader range of companies to disclose information regarding their environmental and societal impacts. This directive's goal is to offer investors and other stakeholders a transparent view of companies' sustainability performance. By doing so, it fosters sustainable corporate governance and aids companies in actively participating in the transition towards a more sustainable economy.
What are the European Sustainability Reporting Standards (ESRS) and what are their impact?
Crucial for the implementation of the CSRD, the European Sustainability Reporting Standards (ESRS) set out specific requirements for sustainability reporting. Comprising two cross-cutting and ten topic-specific standards, they form the backbone of reporting obligations. These standards can be broken down into several key dimensions: "Governance", "Strategy", "Impact, Risks and Opportunities" (IRO) as well as “Policies”, “Actions” and "Metrics & Targets", each playing a distinct role in shaping comprehensive sustainability reports.
- Governance: This is about the way in which sustainability aspects are integrated into corporate management and decision-making processes.
- Strategy: This dimension addresses the company's long-term orientation and approach to sustainability. Companies are expected to explain how their strategy is aligned with the achievement of sustainability goals and the management of climate risks.
- Impact, risks and opportunities (IRO): Companies must assess and report on their impact on the environment and society, as well as the associated risks and opportunities. This includes a double materiality analysis of how these factors can influence the company's performance and its stakeholders.
- Policies: Companies are asked to elaborate on their established policies, specifically in what way the policies define a strategy for a material sustainability matter and how the policies guide decision-making.
- Actions: Companies need to establish action plans to achieve defined targets and to address material impacts, risks and opportunities (IROs).
- Metrics & Targets: This area comprises the qualitative and quantitative indicators and targets that companies must define and pursue in order to make their sustainability performance measurable.
What is the concept of Double Materiality in the context of CSRD?
The concept of Double Materiality in the context of CSRDWith the introduction of the CSRD, companies must now assess the significance of various sustainability issues. This assessment, officially known as a Double Materiality Assessment, is a mandatory part of the process and plays a crucial role in formulating the future sustainability strategy and implementing the requirements of the CSRD. Double materiality requires an analysis that takes into account both the impact of the company's activities on the environment and society ("impact materiality" or inside-out perspective) and the influence of sustainability issues on the company itself ("financial materiality" or outside-in perspective).
The involvement of internal and external stakeholders in this identification process is of crucial importance in order to ensure a comprehensive and representative assessment. In addition, the analysis must take a holistic view of the entire value chain, including effects on the customer or in the supply chain. The results of this analysis are a fundamental step in setting the course for the sustainability strategy and ensuring compliance with CSRD requirements.
Current developments and news on CSRD
Recently, there have been significant developments in the area of CSRD, including the expansion of reporting obligations and the refinement of reporting standards, e.g. with a first draft of the ESRS datapoint list or the draft of the "Implementation Guidance for Materiality Assessment". These developments have a significant impact. The increased updating and specification of EU requirements challenges companies to remain agile and adaptable in their CSRD implementation.
Challenges and opportunities of CSRD for companies
The implementation of CSRD poses a challenge for many companies, particularly in terms of data collection and consolidation. Data collection in particular requires the support of various departments, such as Procurement or HR. At the same time, however, the CSRD also offers opportunities by encouraging companies to rethink their sustainability strategies and position themselves as pioneers in terms of sustainability. The CSRD is an essential part of the EU's efforts to promote sustainable business practices. It not only provides a basis for transparent and reliable sustainability reporting, but also incentivises companies to invest in a more sustainable future. The further development of the CSRD will be crucial to strengthen the role of companies in a sustainable economy.
We accompany our clients on the path to transparent and sustainable non-financial reporting.
Also we help you to ensure CSRD compliance and effectively integrate sustainability strategies. If you would like to know more about it, we would be delighted to help. Please get in touch with our experts.
Helene Schnelle
Kai Pawelka
