Understanding the EU Corporate Sustainability Reporting Directive (CSRD)

Summary

The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) now requires businesses to significantly increase the monitoring, measuring, and reporting they do for their sustainability and carbon footprint.

This adds to the existing complexity of corporate sustainability reporting and regulations.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The European Union announced the Corporate Sustainability Reporting Directive (CSRD) several years ago, in an effort to measure and reduce business impact on climate change.

With the CSRD, businesses must change how they approach sustainability reporting. This new directive is replacing – by expanding on and strengthening – the Non-Financial Reporting Directive (NFRD), which has been in place since 2014.

The CSRD will require organisations to report on sustainability-related data that affects their business operations and the impact their business has on society and the environment.

That covers everything from environmental concerns, climate protection, and combating climate change to water, pollution, and use of other energy resources. It also includes the energy consumption and carbon footprint of your business’s technology, like your website and web hosting provider.

CSRD reports

In just a few months, when we enter 2025, the first group of businesses will need to file their CSRD reports based on their 2024 data.

CSRD reports are set to become the biggest source of environmental, social, and governance (ESG) data once the directive is in effect. To put this into perspective, over 23,000 companies submit reports for the Carbon Disclosure Project (CDP), which contains roughly 100 data points. Now, around 50,000 companies will report on the CSRD, and those reports will contain more than 1,000 data points.

As sustainability becomes a higher priority for businesses, it’s becoming increasingly difficult to keep up with all the requirements.

Who does the Corporate Sustainability Reporting Directive affect?

The EU is mandating that European companies meeting certain criteria fall within the CSRD scope and must, therefore, comply. Certain non-EU companies with substantial operations in the EU will also have to comply, based on revenue and operational criteria.

What about SMEs?

The CSRD will not impose new reporting requirements on small-to-medium-sized enterprises (SMEs) except for those with securities listed on regulated markets.

SMEs can use simplified standards for reporting, which are still being developed. The European Commission has also proposed separate standards that non-listed SMEs could use voluntarily to help accelerate the transition to a more sustainable business landscape.

Given the detailed disclosure requirements and growing demand for transparency, it’s likely businesses not directly in scope will also see increased pressure from clients, partners, and investors to publish information in accordance with the CSRD. This will be influenced by stakeholders looking to understand how sustainability links with wider business risks and opportunities and report for their own compliance.

UK-based companies

If you’re a UK-based company, your EU-based clients may be impacted by these regulations, which will also bring you into play. That may also affect your ability to secure contracts with European businesses in future, as CSR data will be required.

If you want to maintain relationships with European clients, you’ll need to meet specific requirements based on the CSRD.

When does the Corporate Sustainability Reporting Directive come into effect?

The reporting requirements have begun to come into effect this year (2024) and will progress into 2028.

• Businesses already subject to the Non-Financial Reporting Directive (NFRD) must report in 2025 (for the financial year 2024).
• All large businesses that aren’t currently covered by the NFRD must begin reporting by 2026 (for the financial year 2025).
• Capital market-listed SMEs, small credit institutions, and group-owned insurance companies must begin reporting by 2027 (for the financial year 2026).
• All companies covered by the CSRD, including non-EU companies with EU branches or subsidiaries, must begin reporting by 2028 (for the financial year 2027).

These reports will need to be published no later than four months after the end of the indicated financial year.

Why is the CSRD important even for those not within scope?

It’s going to become increasingly common for enterprises to demand ESG-related data as a prerequisite for working with them. So, even if you’re not obligated to submit reports for the CSRD (yet), your clients may begin requesting this data.

For instance, with the UK’s National Health Service’s (NHS) Health and Care Act of 2022, every product and service delivered to the NHS by 2028 will need a carbon footprint measurement or report associated with it.

Granted, this act isn’t directly linked to the new CSRD laws. But it is an apt example of a large organisation with a vast supply chain putting strict policies in place and ensuring every company it works with is taking corporate sustainability reporting seriously.

What does a Corporate Sustainability Report need to include?  

The reporting requirements of the CSRD are significantly more thorough and wide-reaching than those of the previous NFRD.

The NFRD’s reporting requirements will remain, including:

• Protection of the environment
• Social responsibility
• Diversity
• Treatment of employees
• Respect for human rights
• Anti-corruption and bribery.

But the CSRD mandates a wealth of new reporting requirements:

• The process of selecting material topics for stakeholders
• Targets and progress of sustainability initiatives, including aligning the business model and strategy with the EU goal to achieve net zero by 2050
• The most significant negative impacts regarding ESG, such as the degree of exposure to coal, oil, and gas-related activities
• The roles of administrative, management, and governance bodies
• Information regarding intangible factors, like social, human, and intellectual capital
• A description of corporate policies in relation to sustainability issues
• A description of the company’s most material risks related to sustainability issues.

How do the value chain and downstream activities factor in?

You’ll only need to report metrics from your own organisation for the social and governance standards within your CSRD reports.

For the environmental standards, most of the metrics only need to cover your own operations, such as water and pollution.

However, the main focus regarding the wider value chain is on the Scope 3 greenhouse gas emissions data points. Scope 3 emissions reporting for the CSRD will include indirect emissions across a company’s value chain, such as business travel and waste disposal. This is to improve transparency and accountability for each business’s total environmental impact.

As a result, accurate sustainability data collection, analysis, and reporting will become an increasing priority for businesses moving forward. Technology will play a crucial role in overcoming challenges, such as data availability and accuracy.

This gives businesses an opportunity to gain competitive advantages by demonstrating their sustainability through efficient data reporting.

What are the benefits of compliance with the Corporate Sustainability Reporting Directive?

As mentioned earlier, getting a head-start with your sustainability reporting can create competitive advantages. There are plenty of other benefits to be gained from proactively embracing the CSRD. For instance:

• Easier access to capital, funding, and investment
• Cost savings and cost optimisations
• Greater control over business risk management
• Improved brand reputation and perception
• The ability to attract more candidates into your workforce
• Streamlined decision-making and other critical processes
• Eligibility for certifications, like B-Corp status.

Taking steps to ensure your business is operating in line with the CSRD will enable you to continue to grow and succeed as sustainability reporting becomes increasingly important to business.  

What you should do next

The ultimate goal is carbon reduction and easing the impact businesses have on the environment.

Before you begin reporting for the CSRD, there are some short-term changes you can make to improve your sustainability.

Your website is a great place to start because it almost certainly increases your digital carbon footprint more than expected.

Most websites are not being designed and managed in ways that are as sustainable as they could be.

Here, we have a helpful, straightforward guide to reducing your website’s carbon footprint. This includes a wealth of easy steps you could take today to reduce your greenhouse gas emissions.

Start reducing your business’s carbon footprint

Want to know exactly what your website’s carbon footprint is right now?

Kanoppi provides intelligent, automated insights into your WordPress website’s carbon footprint and helps improve sustainability.

And if you would like to discuss digital sustainability reporting, please get in touch. We’re always happy to have a friendly, no-obligation chat.

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