What is the Corporate Sustainability Reporting Directive?
Climate change is a threat to global and European society as a whole. To ensure we still have a planet to live on, the EU has issued the Corporate Sustainability Reporting Directive (CSRD) as a part of the European Green Deal.
CSRD is gaining traction around its interest surrounding the environmental, social, and governance issues (Pike, 2023). CSRD follows the EU’s Non-financial Reporting Directive (NFRD) and increases the depth and breadth of organizations impacted.
It’s important to note that it’s a directive, meaning that it outlines results that ought to be achieved, but it is up to each State and organization to dictate how they’ll get there (USDA, 2023).
According to KPMG, CSRD is about to affect about 50 000 companies globally and within the EU. These companies need to:
- have €40 million in net turnover,
- €20 million in assets,
- or 250 or more employees.
What are key takeaways from CSRD?
1. Society and employees at the core of businesses
CSRD will focus on the impact of organizations on climate change and society. “Double materiality” requires businesses to disclose climate change risks and their impacts on the climate and society. There seems to be emphasis on the “S” part of ESG linking back to society - so employee education, engagement, human rights, bribery, diversity, and anti-corruption (Pike, 2023).
2. Data verification
CSRD requires a third-party assurance and external auditing, whilst under NFRD this was solely optional (KPMG, 2023).
3. Scope 3 reporting becoming mandatory
CSRD requires companies to start reporting on their Scope 3 value chain & supply chain information. Target dates on reporting vary and exemptions from these also exist (Deloitte, 2022).
What are the benefits of early compliance with CSRD & ESG?
- Investor relations & cost efficiency: The biggest benefits of complying with CSRD are investor & stakeholder engagement. According to KPMG, compliance with CSRD offers “cost savings (including energy reduction) and innovations and agility in the production processes alongside with more investments" (2023). This is because companies failing to adhere to these standards will be looked down by investors, and customers. ESG activities are to determine which companies will stay competitive and agile.
- Focusing on your internal value chain or your employees will help you drive sustainable culture from within. This will create more employee engagement, help your talent acquisition initiatives and help you fight greenwashing all across your organization.
- Benefits to reporting simply means your customers, employees, candidates and investors will deem your organization more trustworthy.
How can digitalisation help you with your sustainability & non financial reporting?
In regards to principles of transparency and trustworthiness, digitalisation in sustainability reporting will be a key trend with tools optimising reporting and engagement being major boosts.
CO2HERO allows for greater transparency of data, the gamification of your engagement, Scope 3 benchmarking, and cost saving for most companies. It also allows greater accessibility for investors and key stakeholders.
Perhaps the most obvious down-side seems to be short-term costs that come with such changes. However, KPMG notes that the short-term costs are likely to be negated with the goal to harmonize reporting requirements medium to long term (2023).
How does CO2HERO help?
CO2HERO is a one step platform allowing your teams to compete, win awards, and engage in taking incremental climate actions.
Simultaneously, it allows you to comply with CSRD by real time reporting data. On average, our clients get 70% workforce engagement. It’s a gamified, 3rd party verified by “The Big Four Company '' and backed by climate science.
Your employees are encouraged, educated and empowered to follow your Sustainability Initiatives. Furthermore, we encourage Diversity & Inclusion as everyone can participate and contribute, regardless of location, ethnicity, or position.
Corporate sustainability reporting directive. KPMG. (2023a). https://kpmg.com/nl/en/home/topics/environmental-social-governance/corporate-sustainability-reporting-directive.html
Deloitte. (2022). Timeline for the Corporate Sustainability Reporting Directive.
Difference between a regulation, directive and decision. USDA. (2023, March 12). https://usda-eu.org/faq/difference-between-a-regulation-directive-and-decision/#:~:text=Regulations%20have%20binding%20legal%20force,in%20all%20the%20Member%20States.&text=Directives%20lay%20down%20certain%20results,transpose%20directives%20into%20national%20laws.
Pike, O. (2023, May 4). What companies within and outside of the EU can expect of New European ESG RegulationsOliver Pike. Thomson Reuters Institute. https://www.thomsonreuters.com/en-us/posts/esg/csrd-esg-regulations/
Vær Forberedt på den Næste Bølge af ESG-rapportering. KPMG. (2023b). https://kpmg.com/dk/da/home/indsigt/2023/02/gor-dig-klar-til-den-naeste-bolge-af-esg-rapportering.html