Are you ready for the CSRD?
The EU’s Corporate Sustainability Reporting Directive (CSRD), passed on 28 November 2022, will extend the scope, depth and rigour of the EU’s non-financial reporting requirements.
The new requirements will apply to around 50,000 companies operating within the EU, a five-fold increase that covers all companies with more than 250 employees, €40M turnover, or a balance sheet of more than €20M. Non-EU companies with an EU turnover of over €150M will also have to comply with the standards. The ruling applies to privately-held and listed companies, as well as listed SMEs.
Companies will be expected to produce integrated reports in line with standards currently under development. The draft standards include requirements for extensive reporting on social and environmental topics across the value chain, their management, governance, targets, policies and link to financial performance. Assurance of non-financial information will also become a requirement.The timeline for implementation, while staggered, and delayed from original projections, is still short. Companies already subject to EU non-financial reporting guidelines will have to issue compliant reports in FY2025, covering FY2024 performance. Large companies that are not currently subject to the EU’s non-financial reporting requirements have an extra year’s grace.
How can you get ready?
It is imperative to start understanding and preparing for the CSRD now. But getting to grips with the CRSD can be overwhelming. The implications are not purely a reporting and disclosure question, but may require fundamental changes in the approach, management, governance and understanding of sustainability within a business. All companies should take these four critical steps to prepare:
- Develop a clear, structured approach to sustainability, underpinned by goals and KPIs to track progress. This should be based upon a double materiality assessment-a key concept of the CSRD that incorporates both the financial impact of the risks and opportunities presented by different sustainability topics, and the impact of the business on those topics. This will form the foundation of reporting.
- Engage and upskill internally. Your senior leaders and allies in key functions need to understand the CSRD and its implications for your business. The strategy, risk and finance team should all have a role in developing your sustainability strategy, and supporting reporting efforts in line with the rigour the CSRD requires. Issue owners across teams should understand the reporting requirements the different draft standards outline for their area. Your leadership should review governance of the business, and sustainability specifically, to ensure it can be reported on.
- Conduct a readiness assessment against the draft requirements. Understanding both the gaps in your current reporting and the substance of your sustainability programme against the requirements now will give you a clear programme of work to be ready for the CSRD. This will highlight key factors such as data gaps, governance and management requirements, and where policies and programmes need to be further developed.
- Secure resources now. Meeting the CSRD will require human effort, as well as likely investment into systems, technology, assurance providers and external support to meet the enhanced reporting requirements.
To discuss how we can support you to prepare for the CSRD, contact Nick Jackson.