The European Union (EU) is taking a bold step towards a more sustainable future by introducing the Corporate Sustainability Reporting Directive (CSRD). This legislation, effective from January 2024, mandates comprehensive reporting on environmental and social impacts for a wider range of companies compared to its predecessor, the Non-Financial Reporting Directive (NFRD).
Understanding the CSRD requirements is crucial for companies operating within the EU, or with qualifying EU subsidiaries. This guide dives deep into the key aspects of the directive, equipping you with the knowledge to navigate the sustainability reporting landscape.
Keep reading the article to be up to date and adapt your business to the new norms accordingly!
Check out as well: Energy trackers for businesses and CSRD – all you should know
Who needs to comply with CSRD requirements?
First off, the CSRD applies to a significantly broader range of companies than the NFRD. Here’s a breakdown of the entities that must comply:
- All large companies listed on regulated markets in the EU (previously only applied to companies in the public interest sector);
- All companies exceeding specific size thresholds, irrespective of listing status (determined by member states based on two out of three criteria: employees, turnover, and total assets);
- Non-EU companies with qualifying subsidiaries exceeding the size thresholds within the EU.
So what does the CSRD require companies to report on?
The CSRD emphasizes a “double materiality” principle. Companies need to disclose information on the sustainability impacts of their business and how sustainability issues affect their business.
On the first point, this includes environmental factors like greenhouse gas (GHG) emissions, resource consumption, and waste generation. It also encompasses social impacts such as labor practices, human rights, and diversity, equity, and inclusion (DE&I) initiatives. Finally, companies must explain how these environmental and social factors pose risks or opportunities to their financial performance, long-term strategy, and overall business model.
Key reporting principles under CSRD requirements
The CSRD outlines specific principles to ensure transparency and comparability in sustainability reporting:
- Double Materiality: As mentioned earlier, companies need to address both aspects of materiality.
- Stakeholder Engagement: Companies must involve relevant stakeholders in the reporting process, considering their expectations and concerns.
- Accuracy and Completeness: Reported information must be accurate, verifiable, and cover all material sustainability aspects.
- Consistency: Reporting should be consistent over time, allowing for trend analysis and comparisons.
- Clarity and Conciseness: Disclosures should be clear, concise, and easily understandable for a broad audience.
Focus on GHG emissions reporting
The CSRD places significant emphasis on robust greenhouse gas emissions reporting. Companies need to quantify their emissions across all three scopes defined by the GHG Protocol:
- Scope 1: Direct emissions from owned or controlled sources (e.g., fuel combustion in boilers)
- Scope 2: Indirect emissions from purchased electricity, heat, or steam
- Scope 3: Other indirect emissions from the value chain (e.g., emissions from purchased goods and services, use of sold products)
That said, calculating Scope 3 emissions can be complex due to the involvement of external actors. The CSRD acknowledges this – and allows companies to prioritize reporting on the most significant categories within Scope 3 while gradually expanding the scope over time.
Leveraging the European Emissions Trading System (EU ETS) data and additional information
Companies already participating in the EU ETS benefit from a simplified approach to Scope 1 and 2 emissions reporting. They can directly use verified emissions data from the scheme for their CSRD reports.
Besides GHG emissions, the CSRD mandates reporting on various other sustainability aspects, including:
- Resource Use: Reporting on water, energy, and raw material consumption, with a focus on efficiency improvements.
- Biodiversity and Pollution: Disclosing impacts on biodiversity and measures taken to minimize pollution (air, water, soil).
- Circular Economy Measures: Reporting on efforts to reduce waste generation and promote circularity within the business model.
- Human Rights: Disclosing policies and due diligence processes related to human rights throughout the value chain.
- Labor Practices: Reporting on working conditions, fair compensation, and diversity within the workforce.
Not only that but the CSRD introduces a significant change by requiring mandatory assurance of reported sustainability information; this independent verification adds credibility and ensures the accuracy of disclosures. Additionally, companies must report sustainability information in a specific electronic format, facilitating data collection and analysis.
Don’t miss: Tracking and reporting Scope 3 data – 2024 guide
Resources for implementing CSRD requirements
Several resources are available to help companies comply with the CSRD requirements.
First, we have the European Financial Reporting Advisory Group (EFRAG) – who is developing the European Sustainability Reporting Standards (ESRS,) which will provide detailed guidance on specific reporting requirements.
We also have the EU Commission Guidance, whose team provides guidance documents on various sustainability reporting aspects, and the GHG Protocol. This international standard offers a framework for calculating and reporting greenhouse gas emissions.
How to tackle the CSRD reporting in 7 steps
The CSRD demands more than just ticking reporting boxes. To truly succeed, companies need a comprehensive strategy that integrates sustainability into their core operations. Here’s how to get started:
1. Bridging the Gap
Begin by assessing your current sustainability practices and reporting mechanisms. Identify the areas where your company falls short of the CSRD requirements. Prioritize these gaps to focus your improvement efforts.
2. Setting the Course
Develop a clear sustainability policy that showcases your commitment to environmental and social responsibility. Define measurable goals and targets aligned with the CSRD principles. Importantly, integrate these sustainability considerations into your overall business strategy, ensuring a holistic approach.
3. Empowering Action
Equip your employees with the knowledge and skills needed to navigate the CSRD’s requirements and best practices for sustainability reporting. Establish open communication channels with stakeholders like investors, employees, customers, and NGOs. Actively listen to their sustainability concerns and incorporate them into your reporting strategy.
4. Building a Strong Foundation
Develop a robust system for collecting and managing sustainability data across your entire operation. Ensure the data you collect is accurate, consistent, and traceable throughout the reporting process. Consider investing in data management tools to streamline this critical function.
5. Leveraging Existing Assets
Identify existing sustainability initiatives within your company and explore how they can contribute to your CSRD reporting. Align your reporting with established frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). This not only streamlines the process but also allows for easier comparison with industry peers.
6. Selecting Your Partner
Select a qualified and independent assurance provider with expertise in sustainability reporting. Work closely with them to understand the assurance process and its implications for your organization.
7. Continuous Improvement
View CSRD reporting as an ongoing journey, not a one-time task. Regularly review your sustainability performance and reporting practices. Continuously improve your approach based on stakeholder feedback and emerging best practices in the field.
By implementing these steps, companies can move beyond mere compliance and create a winning CSRD reporting strategy that strengthens their commitment to sustainability and fuels long-term success.
Additional considerations for Scope 3 emissions reporting and CSDR requirements
As mentioned earlier, Scope 3 emissions pose a particular challenge due to the involvement of external actors. Here are some additional tips for effective Scope 3 reporting:
- Identify Significant Categories: Prioritize reporting on the most significant categories within Scope 3 based on their impact and contribution to your overall footprint.
- Utilize Available Resources: Leverage resources like the GHG Protocol Scope 3 Standard and industry-specific guidance documents.
- Engage with Value Chain Partners: Collaborate with suppliers and customers to gather data and encourage their adoption of sustainable practices.
- Adopt a Phased Approach: Start by reporting on the most readily available data and gradually expand the scope over time.
The CSRD requirements present a significant opportunity for companies to demonstrate their commitment to sustainability and build long-term resilience. By implementing a comprehensive CSRD reporting strategy, companies can not only comply with regulations but also enhance their brand reputation, attract and retain talent, and gain a competitive edge in the evolving marketplace.
Datanet IoT is the partner your business needs!
As you can imagine, managing Scope 3 emissions and other sustainability data can be a challenge – especially if you are caught up with other business matters. But you are in the right place to start: for Datanet IoT offers a comprehensive suite of tracking solutions beyond just assets, encompassing environmental parameters and real-time equipment monitoring. Simplify data collection, ensure accuracy, and meet CSRD regulations with our tracking solutions.
Contact Datanet IoT today to learn how their technology can streamline your CSRD reporting and empower your sustainability journey!
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