The Corporate Sustainability Reporting Directive (CSRD) is a game-changer in the ever-evolving field of corporate governance, changing how companies report on their sustainability initiatives. Ten key CSRD components are clarified in this blog post, which organisations should understand as they prepare for this revolutionary change.
Understanding the Basics - What is CSRD?
CSRD is the European Union's solution to the demand for standardised sustainability reporting is CSRD, which was adopted on June 21, 2021, became law on 5 January 2023, and the rules will start applying from this year (2024) and 2028. The Corporate Social Reporting Directive (CSRD), which replaced the Non-Financial Reporting Directive (NFRD), applies to all major private and public EU corporations and public interest institutions.
Navigating CSRD Reporting Requirements - Who Does It Apply To?
Businesses that satisfy two of the three requirements listed below must abide by the CSRD:
- A net turnover of €40 million
- Assets of €20 million
- A workforce of 250 people or more.
- Companies from outside the EU that generate more than €150 million in revenue within the EU will also need to comply.
The CSRD also applies to non-listed SMEs, provided that their securities are listed on regulated markets. Other than that, non-listed SMEs are not subject to additional reporting requirements under the CSRD.
Simplifying Sustainability: The Path to Unified Reporting with CSRD
Harmonised Reporting Standards:
By expanding on current guidelines like the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD), CSRD seeks to expedite sustainability reporting. This harmonisation makes the reporting process simpler, more transparent, and more consistent across industries.
Integration with Sustainable Finance:
In order to align sustainability reporting with financial disclosure, CSRD interacts with the EU's Sustainable Finance Disclosure Regulation (SFDR). This integration supports sustainable finance practices and well-informed investment choices by ensuring that investors have a thorough grasp of a business's sustainability performance.
Wider Reach:
In contrast to its predecessor, CSRD includes significant enterprises that are both listed AND unlisted. This wider capturing guarantees a deeper comprehension of sustainable practices in a broader range of industries, making for a more complete reporting approach.
Materiality Matters:
Materiality is heavily emphasised by CSRD, which mandates that businesses report on sustainability issues that are most important to their operations and stakeholders. This means that businesses must include and create positive action around topics which are of ‘material importance’ to their sustainability performance first and foremost.
Digital-First Approach:
Adopting a "Digital First" reporting approach, CSRD embraces the digital age. As a result, businesses must release their sustainability reports online, improving data comparability, accessibility, and searchability. This also allows for greater transparency.
Climate Disclosures:
CSRD imposes particular requirements relating to climate disclosures to recognise the importance of taking action on climate change. In line with international initiatives to combat climate change, companies must give information on how issues related to climate change influence their business.
Enforcement Mechanism:
A robust enforcement mechanism is introduced by CSRD, which penalises non-compliant corporations. These fines highlight the importance of following sustainability reporting guidelines, guaranteeing accountability and encouraging businesses to take their reporting responsibilities seriously.
Transparency Priority:
Transparency is a significant component of CSRD, to give stakeholders an accurate and transparent picture of a company's sustainability performance. Establishing trust between businesses and their stakeholders - investors, clients, staff, and the community at large - implicates such transparency.
Implementation Timeline:
Businesses need to get ready for the CSRD to be implemented gradually, and ideally would have started gathering information and documentation in the fiscal year 2023. This incremental approach helps firms to navigate the changing sustainability reporting landscape and gives firms time to adjust to the new reporting obligations.
Conclusion: Embracing CSRD for Sustainable Success
As CSRD becomes increasingly prominent in corporate reporting, companies must become acquainted with its subtleties. Proactive and early adoption will guarantee regulatory compliance while also bolstering a company's reputation and adaptability in a constantly changing commercial landscape, not to mention improving its investment appeal.
Having the right personnel in place who understand the intricacies of the policy and the relevant timelines to be adhered to is vital. Innopharma Education’s Level 7 Certificate in Operational Excellence and Sustainability in Supply Chain offers a broad understanding and technical insights to upskill business leaders in sustainability, supply chain, operational excellence and quality management. This part-time and blended micro-credential programme is ideal for working professionals who wish to lead businesses towards a more resilient and sustainable future.
Kathleen Moore lectures in Sustainability on Innopharma Eduation’s Certificate in Operational Excellence and Sustainability in Supply Chain, and BSC in Process Digitalisation.