The Corporate Sustainability Reporting Directive (CSRD) is now active within the European Union, with the first tranche of entities collecting environmental, social and governance (ESG) data for the 2024 financial year. The first sustainability reports will be published in 2025, with all large companies, including those based in a third country but with a significant EU presence, and all listed companies coming into scope by FY 2028.
By this time, all affected companies will report data mandated by the European Sustainability Reporting Standards (ESRS). So, what are the CSRD reporting requirements, what is the objective and how will it affect your reporting process? This article explores these themes and provides a comprehensive guide to the obligations placed upon in-scope entities.
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Table of Contents
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Key Objectives of CSRD reporting
The EU has a goal of making Europe the world’s first climate-neutral continent. To achieve this, it has put in place the European Green Deal that hopes to result in:
- Europe producing no net greenhouse gas emissions by 2050
- The separation of economic growth and the use of resources
- No individuals being left behind in the pursuit of a greener Europe.
A central tenet of this mission is to hold companies to greater sustainability standards, through initiatives such as CSRD.
The initial ESRS requirements that companies will have to adhere to involve two general standards and ten sector-agnostic topical standards covering the three areas of ESG. These will be followed in due course by sector-specific standards, relating to high-risk industries such as mining and agriculture. However, the European Parliament and Council agreed in February 2024 to delay their implementation until June 2026, two years later than initially planned.
The objective, through this framework, is to provide a holistic view of the sustainability efforts, performance and progress of an organisation. The 12 standards allow investors and customers to scrutinise each area of a business’s approach to ESG in order to make informed decisions about the risks and opportunities associated with that company.
CSRD reporting requirements
Within the 12 reporting standards, there are specific qualitative and quantitative data points on which businesses will supply information. It is not necessary for every entity to report on each individual point, but rather they should consider which topic areas impact them and their stakeholders materially.
Double materiality
In order to properly assess whether a data point provides a significant risk or opportunity and, therefore, should form part of the reporting, organisations should implement a double materiality analysis that considers both the impact materiality and financial materiality of the topic. They should also include an explanation as to how they came to their conclusions over which were material to their individual company.
This table describes the features of the two different types of materiality:
| Type | Explanation |
| Impact materiality | The impact that the organisation has on a particular area of sustainability. This can be a negative or positive effect, and one that actually occurs or that has the potential to occur. This is known as the “inside-out” impact. |
| Financial materiality | The impact that the area of sustainability has on the business and its financial standing. This could include how it affects cash flow, access to funding, financial performance in general or any other related matter. This is known as the “outside-in” impact. |
The idea is to help stakeholders understand how the business affects and is affected by ESG factors, providing a clearer overview of the risks and opportunities.
CSRD standards
Here is a guide to the different types of standards and what each standard requires organisations to consider and report on to comply with CSRD.
Cross-cutting standards
| Standard | What it covers | Examples of data points |
| ESRS 1 | General requirements, providing detail on how the ESRS work, as well as conventions for drafting reports and the requirements for preparing and presenting reports in compliance with CSRD. | Guide to performing double materiality assessmentsAdvice on estimating figures using sector averages and proxiesA standardised structure of the sustainability statement. |
| ESRS 2 | General disclosures that all companies should make in their reporting. These are mandatory for all in-scope companies. They include the reasoning behind materiality decisions as well as information about the business and its structure | Description of key stakeholders and how the company engages themThe revenue the company receives from fossil fuels, chemicals, tobacco, “controversial weapons” and other such sourcesDescription of the decision-making process and related internal control procedures. |
Environmental standards
| Standard | What it covers | Examples |
| ESRS E1 | Factors relating to climate change and the actions taken by the company to reduce its impact on global warming, as well as the risks and opportunities relating to how climate change affects the business. | Achieved and expected reductions in greenhouse gas emissionsTotal energy consumption for the company’s operations, as well as its shares of energy derived from fossil fuels, nuclear and renewablesExpected cost savings from climate change mitigation and adaptation actions. |
| ESRS E2 | The relationship of the company’s actions with regard to pollution of air, water and soil. | The emissions originating from the company’s operations to air, water and soilThe amount of microplastics the company generates and usesPercentage of net revenue made with products and services that are or that contain substances of concern of very high concern. |
| ESRS E3 | How the organisation affects and is affected by water and marine resources. | Total water consumption overall, as well as in areas at water riskTotal water withdrawals and dischargesTotal water recycled and reused. |
| ESRS E4 | The impact that the company has on biodiversity and the ecosystems in which it works. | Policies adopted to address deforestation, create sustainable oceans or seas and sustainable land and agricultureDescription of any biodiversity offsets implemented by the companySites owned, leased or managed in or near protected areas or key biodiversity significance in which the business has a negative effect. |
| ESRS E5 | How the company manages effective resource use, including using resources more efficiently, limiting resource depletion and promoting the use of renewable resources to help nurture the circular economy. | Total waste generated by the businessThe total weight of secondary reused or recycled components used within the company’s products and packagingWeight of non-recycled waste and the percentage of all waste that represents. |
Social standards
| Standard | What it covers | Examples |
| ESRS S1 | The impact of the company upon its own workforce as well as how the workforce can impact the business. | Policies implemented specifically aimed at eliminating discriminationPercentage of employee turnoverNumber of workplace accidents, as well as fatalities relating to work-related injuries and ill health. |
| ESRS S2 | How the company affects those workers in its value chain, relating to products, services and business relationships. | Disclosure of the way the company approaches human rights for value chain workersDisclosure of specific channels in place for value chain workers to raise concernsInformation on any severe human rights issues and incidents connected to upstream and downstream value chains. |
| ESRS S3 | Details of the way the company interacts with those affected communities that are connected with the organisation’s operations or those of its value chain. | The types of communities materially impacted by the business or its value chainDisclosure of resources allocated to management of material impacts on affected communitiesDisclosure of the company’s approach to respecting the human rights of communities and indigenous peoples. |
| ESRS S4 | The relationship between the company and its consumers and end-users of its products or services. | Disclosure of explanations of significant changes to policies regarding consumers adopted during reporting yearDisclosure of how the company canvasses consumers and end-users to inform decisions or activities aimed at managing the actual or potential impacts on themThe number of complaints received from consumers and end users during the reporting period. |
Governance standards
| Standard | What it covers | Examples |
| ESRS G1 | Business conduct matters, including its governance strategy, approach, processes and procedures. | Amount of fines for violation of anti-corruption and anti-bribery lawsThe total amount of political donations made by the company during the reporting periodThe average number of days to pay an invoice from the date when the contractual or statutory term of payment starts to be calculated. |
How will your sustainability reporting process be affected?
One of the main drivers of the Corporate Sustainability Reporting Directive (CSRD) was the objective to standardise reporting on sustainability matters, ensuring that stakeholders could easily compare different organisations, based on their performance across the ESG areas. This requirement to create reports to a specific standard, analysing specific data points, is a major change to the reporting process.
Companies must undertake a double materiality analysis ahead of reporting to determine which data points they must address in their reporting. This may then involve the company having to source data they might previously not have collected. This is why it is important to prepare for CSRD reporting well ahead of the time at which the business falls into the scope of the directive.
Common challenges in CSRD reporting
Data collection and management
Trying to collect accurate and comprehensive data from across different departments or a variety of geographical locations can be challenging for the party collating the report. In addition, there may be concerns over the format in which the data is stored and whether it is compliant with CSRD reporting obligations.
Keeping up-to-date with changing requirements
As CSRD is a relatively new law, there may well be changes and adjustments made to the requirements in the coming months and years. The implementation of the sector-specific standards, for example, has been delayed by two years and more could change as the first section of companies file their annual reports.
Ensuring report accuracy and transparency
The concept behind CSRD is to be transparent about how companies interact with ESG topics. However, this entails accuracy of reporting, which necessitates companies to implement robust internal controls and verification processes to validate the data used. Some companies may opt for third-party audits or additional internal reviews, which demand additional resources.
Stakeholder communication
Organisations must consider how to communicate the reports to stakeholders in a manner that makes them clear and understandable for investors, customers and others. The temptation is often to overstate the positives in a company’s ESG story, but sustainable credentials should be communicated carefully to shareholders and customers, many of whom are wary of greenwashing.
FAQ
What are the penalties for non-compliance with CSRD reporting?
The specific penalties vary by jurisdiction but can include fines and legal sanctions against non-compliant businesses. Additionally, being found not to have reported on sustainability topics correctly or accurately can lead to a damaged reputation and a loss of stakeholder trust in the organisation.
How does CSRD reporting impact investor relations?
Positive CSRD reporting can enhance investor confidence, demonstrating a commitment to sustainability and good governance, which is increasingly important for investment decisions. It shows transparency, allowing you to both announce your successes and manage the discourse over any less-than-favourable results. This gives investor relations officers an opportunity to lay out the company’s plans to rectify situations.
What will your company need to disclose for CSRD requirements?
Companies need to disclose information on their environmental impact, social responsibilities and governance practices. This includes data on energy use, emissions, labour practices, human rights, and anti-corruption policies.
How will CSRD reports be presented?
CSRD reports are typically presented as comprehensive documents integrating financial and non-financial information, often including both quantitative data and qualitative assessments. These reports should be available in a digital format for wider accessibility.
What is double materiality?
Double materiality is the process a company undertakes to determine which data points it must report on. If an area of sustainability has an impact on the company and/or the company has an impact on that area, you should report on it.
ConclusionThere are many CSRD reporting requirements that businesses will have to meet in their sustainability analysis once they come under the scope of the new directive. Conducting a double materiality assessment is essential and preparing for the new obligations well in advance of the start of the year in which you first need to report is advised. For help building the ESG pillar of your equity story to set you on the right course for the necessary disclosures, you can consult with Euronext Corporate Services’ ESG Advisory. Our experts will help you create an ESG strategy to drive long-term value and provide you with a tailor-made route map to sustainability for your company. Request a demo of ESG Advisory today. |
References and further reading
- More on ESG Advisory
- ESG self-assessment
- Are you ready to implement CSRD?
- ESG Equity Barometer
- What is an ESG story?
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