The Corporate Sustainability Reporting Directive (CSRD) is relatively new legislation in the European Union that requires, elevates, and standardizes ESG reporting like never before.
The CSRD broadens who must report, standardizes what they report, and expands the scope of reporting to include the full value chain. For some, this is good news: It will reduce the noise of multiple reporting frameworks and help companies focus. But for many companies, this will require them to do things they haven’t yet begun thinking about, placing pressure on them to deliver transparency and accountability to investors, the environment, and society. Notably, it broadens the scope of companies required to report, ensuring accountability for a wider range of businesses. Additionally, the directive standardizes metrics and disclosures, improving the clarity and comparability of ESG performance. Furthermore, it expands the reporting scope to encompass the full value chain, providing stakeholders with a comprehensive view of a company’s sustainability efforts.
This directive may present an opportunity for compliance and competitive advantage for some companies, while others face challenges due to inadequate preparation for ESG impacts.
Failure to meet CSRD requirements can lead to reputational and financial risks. The CSRD defines three categories of companies that must report and emphasizes double materiality and a comprehensive view of a company's ESG impacts and their effects on the company and stakeholders.
CSRD fundamentally changes the way all companies must think about their impact, the visibility they have into their supply chains, and the technology needed to meet the requirements. Essentially, nearly 50,000 companies will be required to do what only leading companies are currently doing.
The Corporate Sustainability Reporting Directive unifies existing frameworks. Companies report on strategy, governance, implementation, and performance in specified topics. It ensures consistency for stakeholder evaluation.
The Corporate Sustainability Reporting Directive (CSRD) emphasizes value chain reporting, mandating companies to evaluate and disclose their impact throughout their supply chains. The concept of double materiality is employed, encompassing the company's influence on society and the environment, as well as how external factors affect the business.
Measure and report greenhouse gas emissions
Set targets and strategies to reduce them
Invest in renewable energy and efficiency
Evaluate supply chain labor practices and conditions
Ensure fair pay, safe work, and labor law compliance
Support worker well-being and skill development
Assess environmental impact of raw materials
Promote sustainable sourcing
Support conservation and biodiversity
Publish regular sustainability reports using recognized standards.
Share sustainability performance with stakeholders.
Engage with stakeholders for feedback and improvement.
Continuously improve sustainability.
Regularly update targets and strategies.
Implement a feedback loop.
Collaborate with stakeholders to tackle sustainability challenges.
Participate in sustainability initiatives and partnerships.
Support sustainable research and innovation.
The EU Non-Financial Reporting Directive (NFRD) mandates companies to report on their 2024 financial year. Large non-NFRD companies have one additional year before starting disclosure, while SMEs have two more years, requiring reporting for the 2026 financial year. Sector-specific guidance is still being developed, so a fully baked approach for CSRD reporting is not yet possible. Advance preparation is recommended, given the available tools and resources used by leading companies.
