How Companies Can Prepare for the CSRD (Corporate Sustainability Reporting Directive)
The Corporate Sustainability Reporting Directive (CSRD) represents a significant shift in the way companies across the European Union (EU) are required to report on their sustainability efforts. As businesses navigate an evolving regulatory landscape that increasingly prioritises environmental, social, and governance (ESG) considerations, the CSRD is set to play a pivotal role in shaping corporate transparency and accountability.
With this Directive expected to impact around 50,000 companies within the EU, it’s crucial to start preparing early. This guide will help you understand what the CSRD entails and how your company can get ready for this significant regulatory change.
What is the CSRD?
The CSRD is an EU Directive aimed at enhancing the transparency, consistency, and comparability of corporate sustainability reporting. It is an extension of the Non-Financial Reporting Directive (NFRD) and significantly expands the scope, content, and requirements for reporting on sustainability issues. It requires companies to provide detailed information on how sustainability matters affect their business, as well as how their operations impact people and the environment.
The CSRD focuses on several key areas, including:
- Environmental matters (e.g., climate change, pollution, biodiversity, water use, and circular economy)
- Social and employee-related aspects (e.g., human rights, working conditions, equality, and diversity)
- Governance (e.g., anti-corruption, bribery, board diversity, and supply chain sustainability)
The CSRD introduces more stringent and standardised reporting requirements, emphasising double materiality (both the impact of sustainability factors on the company and the company’s impact on society and the environment). This means that companies will need to provide more in-depth and verifiable data on their sustainability practices and outcomes.
Who is Affected by the CSRD?
The CSRD applies to a much broader range of companies compared to its predecessor, the NFRD. It affects:
- All large companies in the EU, regardless of whether they are listed on the stock exchange
- SMEs listed on regulated markets (though they have an additional three years to comply)
- Non-EU companies with substantial activity in the EU (generating a net turnover of €150 million within the EU)
A company is considered “large” if it meets at least two of the following criteria:
- More than 250 employees
- Net turnover exceeding €40 million
- Total assets exceeding €20 million
Key Steps for Preparing for the CSRD
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Understand the Requirements
Before making any changes, it’s crucial to fully understand what the CSRD requires. Companies will need to report on sustainability topics in greater detail, covering areas such as climate change, biodiversity, social responsibility, human rights, and governance. Unlike the NFRD, the CSRD will require companies to have their reports audited and to follow the EU Sustainability Reporting Standards (ESRS), which are currently being developed.
Start by reviewing the CSRD in detail and assessing how it applies to your organisation. Identify gaps in your current reporting practices compared to the CSRD requirements, and understand which aspects of your business will need to adapt.
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Conduct a Materiality Assessment
A materiality assessment is a crucial step in understanding which sustainability issues are most relevant to your company. The CSRD emphasises the concept of double materiality, which means you need to evaluate both:
- How sustainability issues affect your business (financial materiality)
- How your business activities impact society and the environment (impact materiality)
By conducting a materiality assessment, you can identify the most significant sustainability issues for your stakeholders and prioritise them in your reporting. This will help you focus your efforts on the areas that matter most and align your strategy with CSRD requirements.
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Integrate Sustainability into Your Business Strategy
Sustainability should not be treated as an isolated aspect of your operations but integrated into your overall business strategy. The CSRD requires companies to demonstrate how sustainability is embedded within their business models, risk management, and decision-making processes. This means you’ll need to:
- Define clear sustainability goals and objectives
- Develop action plans to achieve these goals
- Ensure that sustainability is considered at every level of decision-making
This integration will not only help you comply with the CSRD but also position your company for long-term success in an increasingly sustainability-focused market.
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Develop Robust Data Collection and Management Systems
The Directive requires detailed, verifiable, and auditable sustainability data. This means your company will need reliable systems to collect, manage, and report on sustainability metrics. Start by:
- Identifying key performance indicators (KPIs) relevant to your sustainability goals
- Implementing data collection processes across all departments and business units
- Establishing a centralized system for tracking and managing sustainability data
Consider investing in technology solutions, such as ESG reporting software, that can help automate data collection and streamline the reporting process. Having accurate and timely data will be crucial for meeting CSRD requirements and providing transparent sustainability information to stakeholders.
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Engage with Stakeholders
Stakeholder engagement is an essential aspect of the Directive. Companies are expected to demonstrate how they interact with stakeholders, including employees, customers, suppliers, investors, and communities, in relation to sustainability issues. Engage with your stakeholders to understand their expectations and concerns, and incorporate their feedback into your sustainability strategy and reporting practices.
Building strong relationships with stakeholders will not only help you align your reporting with the Directive’s requirements but also enhance your company’s reputation and credibility in the market.
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Establish Internal Controls and Governance Structures
The Directive requires companies to establish robust internal controls and governance structures to ensure the accuracy, reliability, and quality of sustainability information. This means:
- Assigning clear roles and responsibilities for sustainability reporting
- Establishing oversight mechanisms, such as sustainability committees or dedicated ESG teams
- Implementing internal review processes to validate data accuracy
Ensure that your board and senior management are involved in sustainability reporting and that they understand the CSRD requirements. This will help drive accountability and ensure that sustainability is integrated into your company’s decision-making processes.
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Prepare for Assurance and External Audit
Unlike the NFRD, the CSRD mandates external assurance of sustainability reports. This means you will need to have your sustainability data audited by a third party to ensure its accuracy and reliability. Start preparing by:
- Establishing internal audit processes to review sustainability data
- Engaging with external auditors to understand their expectations and requirements
- Ensuring that your data collection and reporting systems are audit-ready
By proactively addressing assurance requirements, you can avoid potential issues during the audit process and demonstrate your commitment to transparency and accuracy.
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Stay Updated and Adapt
The Directive is part of an evolving regulatory landscape, and additional guidance and standards will continue to be developed. Stay informed about updates to the Directive , the development of the EU Sustainability Reporting Standards (ESRS), and emerging best practices in sustainability reporting. Regularly review your reporting practices and adapt to any changes to ensure continued compliance.
Conclusion
Preparing for the Directive may seem daunting, but it’s an opportunity for companies to enhance their sustainability efforts, improve transparency, and build trust with stakeholders. By understanding the requirements, conducting a materiality assessment, integrating sustainability into your business strategy, and establishing robust data management and governance structures, you can position your company for success under the CSRD.
Starting early, engaging stakeholders, and staying updated on regulatory developments will not only help you comply with the CSRD but also demonstrate your company’s commitment to sustainability, setting you apart in an increasingly ESG-focused market.
Antaris partners with international companies to support their sustainability ambitions and compliance obligations. To learn more about our sustainability services, please visit our website: Sustainability Consulting & Climate Change Advice by Experts (antarisconsulting.com)
Antaris also delivers relevant sustainability training via our training partners. You can view our environmental and sustainability courses here: Sustainability Archives – SQT Training (sqt-training.com)
