New EU Corporate Sustainability Reporting Directive

Let’s start with the basics. Could you explain the key aspects of the EU’s Corporate Sustainability Reporting Directive?

CSRD is the new sustainability reporting directive of the EU. Its intention is to enhance transparency and provide comparability between companies when it comes to sustainability information. This more structured reporting then helps investors, customers and other stakeholders put their money into companies which are providing solutions for a more sustainable future. 

It's not just an exercise, it really helps companies consider their impacts, risks and opportunities from a sustainability perspective. 

What is interesting is that it doesn’t only concern large, listed companies, as has been the case before, but also those non-listed large companies that meet certain thresholds will be required to report to the CSRD from 2025. 

 

 

Is the CSRD mandatory?

Yes, but the smaller companies that don’t meet the current thresholds will only be required to report from 2026. However, many of these smaller companies will work with large customers who will now need ESG (Environmental, Social and Governance) information that considers their whole value chain. This may well include these smaller companies who will therefore need to collect and report data. 

 

What are the main challenges a company might face when implementing the CSRD?

Value chain analysis has the initial challenges because the regulation forces companies to analyse not just their own operations, but also to map and analyse the impact of the whole value chain. Companies are already struggling to find the data for their own operations, let alone the impacts, risks and opportunities upstream and downstream. 

 

This is a very data-based requirement. How should companies approach the data management side of this?

The CSRD reporting really needs the handling of sustainability information to be given the same level of seriousness as the company’s financial information. This is a good thing, because now investors and insurers will have more detailed, comparable and transparent information so that better decisions can be made. 

 

This should be a strategic decision. How do we integrate this significant change and workload into the existing business model?

Much of the information required for the CSRD already exists. For example, the HR or EPR system has the information for social sustainability. Companies need to understand what the necessary information is and where to find it, and this will help narrow the gap between the current state of data recording and the new requirements. 

 

Can we have some concrete examples. If a company produces something, a product for example, who are the relevant stakeholders when it comes to CSRD?

This is where we need to map the value chain and find the current information of the ESG impacts, and this is an important issue. The company itself can be very small, but because they are part of the value chain of a large company, they will be affected by the recording requirements of the CSRD. Essentially, this will be a long list of valid information from every company in a relevant value chain. 

 

If my company is ready and able to comply with the CSRD requirements, but my partner companies are not, how will this work?

The CSRD is mandatory, so companies will have to start to comply. An additional incentive is from a business point of view. Those companies that can ensure the relevant data and prove that they are a sustainable business, will be a more attractive company to partner with. Having the processes in place will be a competitive advantage. 

 

What technology and tools will be necessary to process all this data?

There are many service providers already on the market who have noticed this opportunity. At the same time, the quality of the sustainable data is going to develop year on year, and we will see a corresponding improvement in the data management technology. 

We should also remember that when a customer starts its data recording, the first report does not have to be perfect. The key is to consider the transparency and clarity. We need to describe where we are at that moment, where we want to go and what is still under development. 

Have a positive mindset. If you are in a company that has never done any sustainability reporting, remember it is a process and both the techniques, and the technology will develop and make everything easier. 
It should be said that a sustainability professional will be able to take a deep dive into any new regulation and consider the benchmarks for how to implement this. 

In summary, the message is do not be afraid. Start, and remember that this can bring you new opportunities. Now is a perfect time and place to start and help future-proof your business. 

 

How can companies prepare themselves for any future amendments to the CSRD?

There will be sector specific standards to come at a later date. We have already seen updates to the CSRD criteria, and these can come again. However, I recommend taking the criteria as they are, acting now and moving forward. 

 

What about the communication perspective. Aside from the data collection and process reviewal, how do we communicate this work in a genuine way that avoids accusations of greenwashing?

The key is transparency with your process. Show what has been done and what needs to be done. Many companies don’t mean to greenwash, but sometimes the perspective we present can be too narrow when we don’t understand the complexity completely. 

With the CSRD, which is a formal and regulated manner to report, it will be clear what work is in progress, what targets and measures are in place for that work and what targets are being measured in a proper way. This data is clear and interesting to all stakeholders which ensures that you can set a good trend which can be measured and verified. Just as with the financial information, we can show good trends financially and with ESG.

 

How can we approach the co-existence of these two things, financial and sustainability information? Do they work hand-in-hand?

To start the CSRD process we need something called double materiality analysis. This is that you analyse the impacts of your company in the value chain on the environment and on the people. This means both positive and negative impacts. On top of that you analyse the financial materiality, which is how the environmental topics impact on your business. These impact risks and opportunities have a monetary value and of course, companies want to describe opportunities since it is key information to investors. You can show your potential and value. 

Naturally, companies have done this sort of risk assessment in the past, but now we also consider the sustainability related risks like climate change and floods. How would a flood affect the factory, how can this risk be mitigated, what is the cost of this mitigation and are these risks are permanent or not? 

New to this is the risk assessment with monetary value including sustainability, including those monetary values. This is a very strategic conversation in a company. 

 

What other advice can we offer to companies considering CSRD?

One key fact is that you must get your key stakeholders on board. It is required by the CSRD that stakeholders should be engaged in the process. Maybe you can start by discussing the main sustainability topics in your own management team, but then also with your stakeholders so that they can point out what they think are the most important sustainability topics in your business. This is one key thing to remember when your start the alignment process. You can not just do it with your own team, it must be bigger than that. 

The CSRD should be considered a strategic tool. It will help you analyse impacts, risks and opportunities and this can bring you new opportunities and help to future proof your business. We can see how the environment is changing and the impacts of climate change, and we can see what human rights risks are arising in the value chain, so this directive is a key thing for the future of your business.