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CSRD in a nutshell

The CSRD is the result of the European ‘Grean Deal’ and the associated action plan ‘Financing Sustainable Growth’. This plan must be implemented in the EU so that steps are taken towards a modern, sustainable economy that provides stability, jobs, growth and future-proof investments for both people and nature.

Who will be dealing with the CSRD?

The CSRD directive will affect everyone in the short term.

Comply with the ESRSs – The CSRD standards

In order to comply with the CSRD, the European Union developed the so-called European Sustainability Reporting Standards (ESRS). The first set of these standards is now made available and consists of twelve draft standards. At the end of November 2022, EFRAG submitted this first set to the European Commission. The first 2 ESRSs are general in nature and contain some basic principles: they prescribe what must be reported on strategy, governance and decisions related to materiality. The other 10 standards relate to different ESG aspects. The 12 standards contain 82 reporting obligations (‘disclosure requirements’) and an application manual (‘application guidance’). Those 12 standards describe exactly how the obligations should be applied.

These guidelines drawn up by the European Union have the same status as the other CSRD obligations, and in practice they are a considerable expansion of them. In the future, sector-specific standards and standards tailored to SMEs will also come into force, but these standards are still being developed.

A circular and conclusive way of thinking and reporting

Once the CSRD is in force, the guidelines will no longer allow companies to report their plans and performance in the field of sustainability at their own discretion and preference. For Companies, the standards create the obligation to develop and report on their strategy in a circular and sustainable manner. All end-users and stakeholders of these reports must be able to form a clear picture of how the company implements sustainability, now and in the future. It is important to note that, unlike in its financial reporting, the company must transparently and measurably report on what its objectives are with regard to sustainability.

What is Double Materiality?

Performing a “double materiality assessment” is mandatory for reporting companies under the Corporate Sustainability Reporting Directive (the CSRD). These companies have to look at the sustainability issue in two ways.

Inside-out

On the one hand, they must look internally at how they influence people and environment (the inside-out vision). Think of damage to nature and the environment or violations of human rights.

Outside-in

On the other hand, sustainability-related developments and events create (new) risks and opportunities for organizations (the outside-in vision). Examples include reputational risks when purchasing products that involve child labor, the introduction of new CO2 taxed, corruption or opportunities for the development of new circular and sustainable products.

Reporting on 4 standards

The CSRD report will contain 6 disclosure requirements divided into 4 categories. The circular strategists help you determine which standards apply to your organization.

The CSRD data aligned in new software systems

The required amount of date will increase and it must be qualitative and quantitative in nature. It is important to look forward and backward, describing the short, medium and long term in view of the entire value chain.

According to the CSRD, companies will have to collect and publish a great deal of new and very specific information. As a result, many organizations need to reform their current administrative and internal controls. While it may still be possible to work with a spreadsheet for current sustainability reports, this will soon be insufficient. RoundThink’s adaptable software makes this transition easier. The flexible software is designed to render visible and measurable where impact reduction is possible.

We expect the value chain to be the stumbling block to CSRD compliance for many companies. Some data and technology issues that will play a role in the implementation of CSRD are data collection and procurement, methodology, processes and analysis, credibility and transparency and IT systems and infrastructure and governance. New activities and tasks will often have to be created internally in order to meet these obligations.

Please note: the external auditor will now assess your ESG reporting

A clear and transparent way of reporting on sustainability will increasingly become important. As with financial information, assurance will have to be provided by an external auditor in order to qualitatively check the quality of the information on sustainability. In the first instance, this concerns ‘limited assurance’ only, from 2030 on this will concern ‘reasonable assurance’, and after that it is expected that enforcement will take place.

Change management

It is important to not only focus on the delivery of the CSRD report, but also on the parallel processes for the implementation of the necessary changes. In this way, progress can be made as quickly and efficiently as possible within the business operations and in future reports.