Confused about CSRD and ESRS in sustainability reporting? Here’s an overview and some useful tips on how to get started with this important work.
The new EU directive applies to all countries in the EU and the European Economic Area (EEA). As early as fiscal year 2024, companies above a certain size must collect relevant data for a required sustainability report in addition to annual financial reporting. This new directive lifts sustainability reporting up to the level of financial reporting, requiring audits and third-party verification.
Double materiality is at the heart of the CSRD (Corporate Sustainability Reporting Directive). The goal is for businesses to understand their environmental and societal impact and sustainability risks.
While the new CSRD sets the legal framework and rules for reporting, the ESRS (European Sustainability Reporting Standards) provides the roadmap to compliance.
Corporations must provide sustainability reporting in accordance with the new rules if they exceed two of the following thresholds:
1. Listed companies, and companies in banking, insurance and credit with more than 500 employees.
2. Turnover exceeding 50 million euros and a profit over 25 million euros.
From 2025, companies must comply with the new directive if they exceed two of these thresholds: 250 employees, profit greater than 25 million euros and turnover of 50 million euros.
The CSRD sets stricter requirements in line with society's requirements for greater transparency beyond financial reporting. According to a survey done in 2023 by the Danish trade union Lederne (The Leaders), only about half of the members know about the new directive.
The CSRD expands the number of companies in scope from 11,600 to almost 50,000. According to KPMG, most of these are likely to be unfamiliar with such comprehensive and detailed ESG reporting requirements. Some companies may have never released an ESG report in any form.
ESG (Environmental, Social and Governance) is a framework that helps businesses measure performance based on non-financial factors such as sustainability and ethical issues. This report assesses how the organization can improve in these areas. Non-financial data managed as financial assets can drive growth, improve reputation and reduce risk.
Prioritizing non-financial data ensures a holistic approach to governance. Investors and other stakeholders use ESG criteria to assess and rank a business’ ability to address climate and environment, social conditions and rights, as well as responsible and ethical business governance.
The first set of ESRS contains two cross-cutting and 10 topical standards, with the latter focusing on environmental, social and governance topics (ESRS ESG). These new reporting standards enable a simple and logical structure for sustainability information. However, more standards are expected.
The main objective of ESRS (European Sustainability Reporting Standards) is to support the transition to a more sustainable economy. ESRS requires corporate reporting on impacts, risks and opportunities in a way that is relevant and comparable.
For the largest enterprises, the minimum reporting requirements include:
1. Business model strategy overview
• Brief description of the company's business model and strategy and how these stand up to sustainability risks
2. Alignment with sustainable economy goals
• Company plans to ensure that the business model and strategy are compatible with:
- Transition to a sustainable economy that limits global warming to 1.5 °C in line with the Paris Agreement
- Climate neutrality by 2050 and the company's possible exposure to coal, oil- and gas-related activities
- Implementation measures and associated plans for investment and financing
3. Stakeholder consideration
• How the business model and strategy incorporate
• Evaluation of sustainability impact on stakeholders
4. Implementation of sustainability strategy
• Details on how the sustainability strategy has been implemented
5. Time-bound sustainability targets
• Description of time-bound sustainability targets, including 2030 and 2050 goals
• Progress report on achieving these goals and verification of scientific basis
6. Role of governing bodies
• Description of the role of the company's governing bodies in sustainability
• Assessment of their competence to fulfill this role
7. Sustainability guidelines and incentives
• Description of the company's sustainability guidelines
• Information on sustainability incentives offered to governing body members
8. Sustainability due diligence assessments
• Compliance with legal requirements for due diligence assessments
• Evaluation of actual or potential negative impacts on operations, value chain, products, services, business relationships, and supply chain
9. Identification and monitoring measures
• Implemented measures to identify and monitor sustainability impacts
• Adherence to other EU rules for due diligence assessments.
10. Prevention, limitation and remedy initiatives
• Measures taken to prevent, limit and remedy actual or potential harmful effects
• Results of these initiatives
11. Sustainability risks and mitigation
• Description of the most significant sustainability risks
• Company's approach to mitigating these risks
12. Reporting information process
• Description of the process carried out to identify the reporting information
From data collection to transformation, we've got you covered
Sustainability is often seen as a broad and complex topic, making it difficult to know where to begin. Here are some questions to ask yourself when getting started:
- What reporting and processes do we have in place?
- How are ESG issues incorporated into corporate governance and internal control?
- What data is most relevant to sustainability reporting?
- What measures do we need to take to prepare our data?
Take the first step towards sustainable reporting success with our ESG Data Accelerator service. From data collection to transformation, we've got you covered. Read more in our latest blog post or contact our team to discuss your options.