In the fight against climate change, there is an essential role for business to play. They can create impact on a large scale. To ensure that sustainability efforts are familiar and transparent to external stakeholders, the Corporate Sustainability Reporting Directive (CSRD) will come into play from 2024 onwards. What does the CSRD mean for your company and what steps do you need to take?
Sustainable entrepreneurship is high on the agenda of companies around the world. It is based on the ESG principles – Environmental, Social and Governance – which were expressed in the United Nations’ 17 Sustainable Development Goals (SDGs) in 2016. These goals are broad, ranging from responsible production and consumption and fighting poverty to encouraging innovation, promoting gender equality and eliminating inequality between countries. In a nutshell, organisations are expected to operate in a climate-friendly and socially ethical manner, while continuing to generate sufficient profit.
For a long time, companies have had to report on their performance over the past financial year. Currently, only ‘public-interest entities’, i.e. organisations that fall under a supervisory authority, such as banks, insurance companies and listed companies, are obliged to report on sustainability; other companies may do so voluntarily. They use an existing reporting framework for this at present, within which they choose where to place the emphasis. The Corporate Sustainability Reporting Directive (CSRD) will soon change this. The new European guideline for sustainability strategy and reporting, which is part of the European Green Deal, will come into effect progressively from 2024 onwards. 2024 is the first reporting year for the aforementioned public-interest entities; all companies that meet the CSRD size criteria will follow in 2025. By providing a set of European Sustainability Reporting Standards (ESRS), the European Commission aims to improve the quality, transparency and comparability of sustainability reporting.
To start implementing the CSRD, your company must take certain steps. Firstly, you must analyse the group structure to determine the level of reporting within the group. Then comes the double materiality analysis, which identifies the actual sustainability themes (linked to the ESRS) that must be reported. This analysis forms the basis for a realistic step-by-step plan to improve the quality of sustainability processes and data, and thus contribute to making Europe more sustainable.
Because every company is different, the relevant sustainability themes that must be reported on will also vary. For one organisation, biodiversity might be an attention point, while in other sectors the focus might lie on the circular economy. At that point, double materiality analysis comes into play. As the name suggests, it is a two-way process: what is the impact of your company on the environment and the impact of the environment on your company? Specifically, this means that the internal and external stakeholders (suppliers, customers, staff, shareholders and others) are asked to find out what is relevant. A few guidelines clarify how to structure this analysis.
The result of the double materiality analysis is an overview of the possible impact, risks or opportunities of sustainability, and insight into which ESRS are relevant to your organisation. The following step is to draw up a concrete action plan, in which you set goals for each material sustainability theme and develop a plan to report on your progress in line with the requirements of the ESRS.
Although this is not the first time that many companies are reporting on sustainability, the CSRD is still complex and involves a great deal of internal work. Carrying out a double materiality analysis is far from simple, and it takes time. So do not leave it until the last moment: instead, provide sufficient space and resources. Put together a comprehensive team with internal and external stakeholders from all departments and levels. In one way or another, everyone is involved with the company's sustainability goals. By involving as many people as possible, you create the broad support that is needed to achieve your goals. Bear in mind that the world is constantly changing, and with it the materiality of the themes. Adapt them regularly so that your sustainable strategy stays in line with your company activities and ESG priorities.
Do not merely add conducting a double materiality analysis and implementing the sustainability strategy to the workload of a single employee or a handful of staff, as ‘extra’ tasks. Sustainability is no longer an afterthought, but an essential part of your business strategy. If all businesses aim to make Europe climate neutral, they can achieve major impact with their shared efforts.
