The deadlines for compliance with the Corporate Sustainability Reporting Directive (CSRD) are fast approaching. By the close of 2023, only half of European Union companies were adequately prepared for the new reporting standards. Readiness levels outside the EU are even lower: just 30% of UK companies, 22% of US companies, 27% of Canadian companies, and 27% of Japanese companies are projected to be ready to comply with CSRD requirements by 2025.
In an effort to standardise sustainability reporting, the European Union has implemented the most comprehensive set of disclosure requirements to date through the CSRD. This directive is expected to apply to 50,000 companies across the EU and another 10,000 companies globally. While the first wave of companies has only a few months to submit their detailed reports, even those with deadlines extending to 2026 must begin their preparations now to ensure they meet their obligations on time.
The Carbon Trust, a London-based consultancy that collaborates with businesses, governments, and financial institutions to drive climate action, recently published an article authored by Noor Crabbendam, Senior Associate for Benelux and EU Policy Lead at the Carbon Trust. The article outlines essential strategies for companies to be ready for CSRD compliance:
1. INTERNAL COORDINATION
The CSRD encourages close collaboration across multiple departments, including finance, procurement, operations, human resources, and sustainability. Coordinating these areas can be challenging, particularly when dealing with competing priorities and varying approaches to data management. Additionally, non-specialist employees will need to develop a strategic understanding of ESG issues, making it necessary to address the sustainability knowledge gap beyond just the core sustainability team.
The CSRD demands a cohesive approach. To build a strong internal framework for reporting, companies should:
– Establish a cross-departmental team dedicated to CSRD compliance, identifying key personnel who need to be involved.
– Define essential details such as timelines, major milestones, responsibilities, meetings, and communication strategies. This will minimise the risk of miscommunication and enable senior management to maintain a clear view of progress.
– Promote awareness of the directive among both leadership and staff. Consider integrating CSRD reporting into key performance metrics so that data collection becomes a routine part of employees’ daily tasks.
– Provide training for your CSRD taskforce on sustainability and the directive’s disclosure requirements. This will not only streamline the data collection process but also foster greater internal commitment, encouraging shared responsibility for improving data quality and setting collective goals.
– Standardise data management by defining the key metrics and tools your organisation will use to capture CSRD data, ensuring consistency and reducing operational silos.
2. DATA COLLECTION
The CSRD seeks to ensure companies provide comprehensive and reliable sustainability data, which can make the data requirements appear overwhelming.
To manage this large volume of information efficiently:
– Assess what data qualifies under CSRD guidelines and compare it with the data you currently possess.
– Organise your data by mapping your value chain, prioritising the most critical areas. Start by focusing on areas where your data is already strong, and then proceed to address any gaps.
– Engage both internal and external stakeholders to help bridge these data gaps. It’s crucial to communicate with suppliers and partners about the CSRD to ensure they understand the required data and its level of detail. Including specific data provisions in supplier contracts can be a good first step.
– Alleviate internal pressure by adopting a phased approach to data collection. You might start by gathering high-quality data on your most significant activities or, in the first year, consider issuing separate reports for each legal entity instead of a comprehensive global report.
3. ALIGNMENT WITH OTHER FRAMEWORKS AND A NET ZERO TRANSITION PLAN
While sustainability disclosures have become more common due to increasing investor and shareholder demands, the CSRD aims to standardise these reports across organisations. Your company may have already reported using frameworks such as the Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), or the Sustainability Accounting Standards Board (SASB). Cross-referencing your current disclosures with these frameworks can facilitate the transition to CSRD compliance.
To ensure sustainability reports are consistent and comparable, the CSRD requires alignment with the European Sustainability Reporting Standards (ESRS). The main challenge for your internal CSRD team is to gather all relevant data from these existing frameworks and update your sustainability reporting methods and boundaries as needed.
CSRD also differs from other frameworks by placing a stronger emphasis on forward-looking strategies. Companies are required to assess future performance and consider transitional risks over the next five to ten years or more. For businesses that are further along in their sustainability efforts and have set 1.5°C reduction targets, CSRD expects the development of comprehensive climate transition plans. These plans should demonstrate how your company will maintain resilience in the face of potential risk scenarios.
To meet the expectations of both regulators and investors:
– Since the CSRD is designed to work in tandem with other major climate reporting frameworks, identify which frameworks your company is already adhering to and determine where they overlap.
– Many prominent climate-focused reporting frameworks, such as CDP, have produced comparison guides against CSRD requirements. Utilising these resources can help streamline your reporting efforts, making them more efficient and saving time by meeting multiple standards simultaneously.
– Approach CSRD reporting not just as a regulatory obligation, but as a strategic opportunity to align your broader organisational goals with your climate transition plans.
– Ensure that your current sustainability targets are robust and grounded in sound methodology.
– Set clear short-term goals to monitor progress and ensure accountability throughout the process.
– Incorporate climate risks into your transition plan by identifying potential impacts and developing strategies to mitigate them.
To gain a clearer understanding of the CSRD, I recommend watching this brief video by Morningstar Sustainalytics and listening to the European Commission‘s podcast on the topic. For additional perspectives on CSRD readiness, you can refer to PwC’s survey and Baker Tilly’s study. Furthermore, to expand on Ms. Crabbendam’s essential tips, I personally suggest the We Mean Business Coalition’s report, titled “75 Inspiring Solutions from CSRD Early Adopters.”
Written by Anicet Delporte.
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