Corporate Sustainability Reporting Directive

Key points of the CSRD:

• The CSRD covers sustainability in a broad sense and includes disclosure requirements for a wide range of Environmental, Social and Governance (ESG) aspects.
• For large listed companies, the CSRD will take effect as of fiscal year 2024 and thereafter will also apply to many companies not covered by the current NFRD (non-financial reporting directive).

• The EU directive requires companies to collect, process and publish a huge amount of data and information; this will require new systems, processes and a governance structure to be put in place.
• The CSRD requires an external auditor to provide assurance on sustainability reporting, initially with limited, but with reasonable assurance at a later date.

The new standards - ESRSs

At the heart of the CSRD are the European Sustainability Reporting Standards (ESRSs). The first set is now available, consisting of 12 draft standards. In late November 2022, EFRAG submitted this first set to the European Commission.

The first two ESRSs are general in nature and contain some basic principles and prescribe what should be reported on strategy, governance and decisions related to materiality. The remaining 10 standards cover different EGS aspects:

The 12 standards contain 82 'Disclosure Requirements' and an 'Application Guidance'. These describe exactly how the obligations should be applied; these guiding documents have the same status as the obligations and in practice represent a considerable broadening of them. Later, sector-specific standards and standards tailored to SMEs will come into effect.

Read more about the new ESRSs

What exactly must companies start reporting on?

To give a (good) impression of the reporting scope required and how specific and detailed the information provided must be, let’s look at the fourth standard under the environment theme (ESRS E4). This standard relates to biodiversity and ecosystems.

This standard contains six disclosure requirements divided into four categories

1. Governance: on, among other things, the method for internal pricing of everything related to biodiversity and ecosystems.
2. Strategy: on issues including the plan that leads to no net loss of biodiversity from 2030 on, and no net gain after 2050.
3. Impact, risk and opportunity management: on such topics as the processes by which material risks to biodiversity and ecosystems are identified and the policies implemented to manage biodiversity and ecosystems.
4. Targets and performance measures: on, among other things, the financing of projects to reduce risks and damage to biodiversity and ecosystems outside its own value chain (optional).

The CSRD requires a major leap forward in data and technology

Under the CSRD, companies will have to publish a great deal of new and very specific information. Therefore, it is clear in advance that in many companies a major leap forward is needed in their administrative organization and internal control. Where current sustainability reports may still be able to work with a spreadsheet, this will soon be insufficient.

The required amount of data increases must be qualitative and quantitative, look forward and backward, describe the short, medium and long term, and cover the entire value chain.

We expect the value chain to be the obstacle on the road to CSRD compliance for many companies. Some of the issues around data and technology that will come into play when implementing CSRD are data collection and procurement, methodology, processes and analysis, credibility and transparency, and IT systems and infrastructure and governance.