CSRD Reporting: ESG Disclosure Requirements

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is the latest EU regulation aimed at enhancing transparency and consistency in sustainability reporting among corporations. Encompassing a broader range of companies and topics than its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD is a cornerstone of the European Green Deal. The CSRD mandates comprehensive reporting on sustainability matters, including environmental impact, social responsibility, human rights, and anti-corruption measures. This article provides a guide to understanding and complying with the CSRD, outlining key dates, reporting obligations, and strategies for implementation.

Who falls under the scope of the CSRD?

• The CSRD applies to approximately 50,000 companies across the EU, with obligations varying based on criteria such as size, sector, and location.
• Large EU undertakings, credit institutions, insurance corporations, and certain non-EU entities are among those mandated to comply.
• Specifically, large EU undertakings that meet at least two of the following criteria:
  • Balance sheet assets exceeding 25 million EUR
  • Annual net turnover exceeding 50 million EUR
  • More than 250 employees
• EU-based parent companies meeting criteria for large undertakings, with considerations for consolidated or combined reporting.
• Parent companies from third countries, like the US, involved in consolidation with a net turnover exceeding €150 million in the EU and meeting specified criteria.
• Exemptions: Non-EU corporations that are deemed to be following equivalent sustainability reporting standards by the European Commission, Micro-undertakings.

When does the CSRD enter into force?

• Provisions of the CSRD were enacted on January 5, 2023, with member states required to transpose them into national law by July 6, 2024.
• Implementation timelines vary based on company size and listing status, with deadlines staggered from 2024 to 2028.

What are the new CSRD Standards?

The directive empowers the European Financial Reporting Advisory Group (EFRAG) to establish the European Sustainability Reporting Standards (ESRS). The draft framework includes 12 overarching requirements and specific disclosures applicable to all entities within the CSRD ambit.

What are the Disclosure Requirements for CSRD?

Companies will be obligated to report information essential for comprehending their impacts on sustainability matters and how these impacts influence their development, performance, and position. The amount of information requested is dependent on the size of the company. Universally, CSRD requirements involve:

1. Holistic ESG Integration: Encompassing business strategy, governance of ESG issues, diversity disclosures and reporting on material environmental and social factors, including the business supply chain.‍
2. Regulatory Evolution: A significant advancement involves the incorporation of double materiality and value-chain impacts.

What is the Double Materiality Assessment?:

• The Double Materiality assessment evaluates the two-way relationship between the corporation and its external environment. The assessment includes both the risks posed to the corporation by external environmental and social factors, and the corporation's impacts on society and the environment.
• The process involves defining scope, stakeholder engagement, impact assessment, and integration into corporate strategy.

How to prepare for the CSRD?

As the CSRD journey is unique for each entity, a personalised roadmap is essential. Key steps include:

• Conducting a Gap Assessment: assess current practices against CSRD requirements to identify areas of non-compliance or improvement.
• Conducting a "Double Materiality" assessment: identify both the risks a corporation might face due to environmental or social issues, and the potential impacts of its operations on the environment and society.
• Collecting relevant data: The CSRD necessitates the disclosure of extensive quantitative and qualitative data, requiring robust data collection efforts. AI tools can streamline data gathering and processing to improve efficiency.
• Preparing for assurance requirements: Seek limited assurance of sustainability reporting from accredited third-party auditors to enhance report credibility. Expect a potential transition to reasonable assurance in the future, necessitating more comprehensive testing.
• Digitally Tag Information for the European Single Access Point: Prepare management reports in XHTML format in order to digitally tag sustainability information, facilitating comparability through the European Single Access Point.

What are the implications of non-compliance?

Each member state will be able to include its own penalties for non-compliance when transposing the CSRD into national law. Complying to the regulation is of importance, as consequences of non compliance with the CSRD may include:

• Public statements identifying non-compliant companies
• An order to cease actions that contribute to the infringement, with additional sanctions or fines
• Imprisonment for individual directors

How can ESG Flo help with CSRD compliance?

ESG Flo can be an invaluable tool to navigate the CSRD landscape. ESG Flo aids businesses in streamlining their compliance journey, offering support in data collection, analysis, and reporting, ensuring a smoother path toward CSRD adherence. ESG Flo will help you in:

Conducting a "Double Materiality" Assessment

1. ESG Flo excels in guiding businesses through the intricacies of a "double materiality" assessment. It provides structure in not only evaluating external environmental and social impacts but also delving into internal factors affecting stakeholders. This holistic approach ensures that businesses thoroughly understand the material risks and opportunities associated with their operations.
2. The platform's algorithmic capabilities guide businesses through the materiality assessment process, aiding in the identification of key metrics that warrant attention in CSRD reporting.

Collecting Relevant Data

1. The process of CSRD compliance necessitates the gathering of a diverse array of data concerning environmental, social, and governance factors. ESG Flo streamlines this data collection process by providing efficient tools and methodologies.
2. ESG Flo's data validation and augmentation features enhance the accuracy of collected information, reducing the risk of errors in CSRD reporting.
3. The platform incorporates machine learning to adapt to evolving data requirements, ensuring businesses stay agile in response to changing regulatory demands.

Preparing for Limited Assurance

1. ESG Flo plays a crucial role in preparing businesses for limited assurance, a key facet of CSRD compliance. By offering advanced analytics and reporting functionalities, ESG Flo ensures that the collected data is not only comprehensive but also presented in a manner aligning with assurance requirements.
2. ESG Flo provides customizable reporting templates, enabling businesses to tailor their disclosures to specific industry standards and expectations.
3. The platform facilitates collaborative workflows, streamlining the coordination between internal teams and external assurance providers during the audit process.

ABOUT ESG FLO

ESG Flo is the AI-powered platform working as a strategic partner for businesses navigating the CSRD landscape, streamlining your ESG compliance solution within one-window. Request a demo today to learn more.