Navigating CSRD: what every business needs to know about new sustainability reporting regulations

The Corporate Sustainability Reporting Directive (CSRD) marks a significant evolution in EU legislation, requiring all large companies and listed SMEs to publish detailed reports on their environmental and social impacts. It will affect 50,000 companies (and not just those in the EU!), with the result that sustainability information will be scrutinised to a similar degree as financial reports. So, what's it all about, and what do you need to know?

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Understanding CSRD

The CSRD is about providing investors and stakeholders access to information for the assessment of sustainability-related risks like climate change. It's also designed to increase transparency on the impacts of the organisation on the environment and people. With the aim of bringing together the E, S and G of ESG in a more coherent way, is covers topics like environmental practices, treatment of staff, human rights, anti-bribery, and board diversity.

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Who is Impacted?

In total, around 50,000 organisations will need to comply with the CSRD. As for when they’ll need to ensure compliance, the European Commission has planned a phased rollout:

FY’24: requiring compliance from all organisations that are already within the existing scope of the 'Non-Financial Reporting Directive' (NFRD), currently around 11,700 organisations.

FY’25: requiring all “large” organisations to comply. In this case, it's firms meeting two of the following three conditions: €50 million in net turnover, €25 million in assets, and/or 250 or more employees.

In addition, non-EU companies that have a turnover of above €150 million in the EU will also have to comply.

Later: All listed companies, including listed small and medium-sized enterprises (SMEs) but with the exception of micro enterprises.

While the CSRD is not currently mandatory for non-listed SMEs, the European Commission has proposed developing separate standards that these SMEs could voluntarily use. These would make it easier for SMEs to report information to clients, banks, and investors - helping them to be part of the fast-growing sustainability economy.

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Not only that, but the CSRD's influence extends through the value chain. Larger entities complying with CSRD will evaluate and potentially look to influence the sustainability practices of their smaller partners and suppliers, including SMEs, to meet their own requirements. For example, a large CSRD-compliant retailer scrutinising its suppliers' sustainability efforts can drive widespread adoption of sustainable practices across its supply chain.

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Reporting Requirements

Companies under CSRD must present a holistic view of their sustainability efforts, detailing how this interacts with things like their business model and strategy, targets adopted and progress made towards these targets, as well as governance arrangements and incentive schemes. As mentioned, this will cover a variety of environmental, social, and governance topics, with a combination of generic and sector specific disclosure requirements.

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This information will need to be published alongside financial reports, which will need to be submitted in a standardised digital format. The submitted data will then be subject to “limited third-party assurance,” meaning that an auditor will need to evaluate the data.

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How to Prepare?

To prepare for CSRD, companies should look to embed sustainability into their core operations. As more and more stakeholders expect and demand a base level of sustainability performance, and with regulations like this leaving companies nowhere to hide, this strategic embedment is crucial.

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Not only that, but organisations should look to involve a broader range of employees in identifying and mitigating social and environmental risks and opportunities. This inclusive approach helps uncover 'blind spots' and ensures the adoption of best practices beyond just the sustainability team. It involves educating the team on sustainability's broader impact on business and society, as well as their role in collecting data and participating in initiatives. It also means incentivising different teams and departments across the business to be involved, and to start integrating sustainability into their day-to-day.

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How SeedCulture can Help

Are you looking to embed and operationalise sustainability, to prepare your business for evolving regulations like CSRD? At SeedCulture, we're dedicated to helping you to educate and empower your workforce on sustainable practices, enabling them to drive positive change from within. Explore our gamified sustainability training and action platform today.