Mattie Yeta – Chief Sustainability Officer, CGI, UK & Australia, provides a detailed & think tank view of the Corporate Sustainability Reporting Directive
When it comes to the Corporate Sustainability Reporting Directive (CSRD), it’s important to understand the key drivers, targets, and measurements for sustainability reporting.
For us, it is important to discuss the CSRD regularly, working to ensure everyone on a project understands and meets the directive. Whether you’re in the private or public sector, it’s imperative you understand your direct impact on human rights and the environment.
What is the Corporate Sustainability Reporting Directive and how does it function?
In 2018, the EU developed an action plan on the Financing Sustainable Growth which was followed, in 2019, by the Green Deal proposing the CSRD.
The CSRD directive is essentially an ESG rule which makes sustainability disclosures more comprehensive and comparable, much like you would find in financial accounting and reporting, and is part of larger initiatives which aim to standardise information.
The CSRD addresses concerns highlighted through the existing Non-Financial Reporting Directive (Directive 2014/95/EU) (‘NFRD’) and is set to replace it entirely. The directive will also amend the provisions of the Accounting Directive, the “Transparency Directive” (2004/109/EC).
What are the challenges for the CSRD?
The primary challenges faced centre around comparing and benchmarking sustainability reports.
While the NFRD is applied to approximately 11,700 listed companies, the CSRD extends to approximately 50,000 who meet the criteria of more than 250 employees, a net turnover that exceeds €40 million and assets that exceed €20 million.
On the other hand, to ensure a level playing field, SMEs will be subject to a more limited set of reporting requirements based on the principle of proportionality. Organisations operating in the EU market will have to include information on the non-EU undertakings’, and non-EU businesses with a Net turnover of at least €150 million, and at least one subsidiary or branch in the EU, will also have to report on their ESG efforts as defined in the directive.
What will you need to do?
Organisations will have to disclose information on their business strategy, resilience and any and all plans related to sustainability. They will also have to do this while reporting on general sustainability disclosures. For example, in the UK, the new task force on Climate Related Financial Disclosures (TCFD) aims to capture similar information on the climate.
• Organisations will have to report on the natural capital resources they have used, including intangible resources.
• Organisations will need to disclose the due diligence processes of their operations, as well as the impact of their value chain on the environment and human rights.
• Organisations will need to disclose their sustainability goals and transition plans. These plans will have to be compatible with limiting global warming and aligning with the Paris Agreement of 1.5°C with limited or no overshoot, net zero by 2050.
• Disclosures will be retrospective and forward-thinking based on scientific evidence where applicable. Long-term, the CSRD will evolve into sector-specific standards.
The CSRD proposal has been submitted to the European Parliament and Council. Once approved and adopted, the deadline for the adoption of general standards by the commission is the 31st of October 2022 and by 31st October 2023 for sector-specific standards and standards for SMEs (Article 29b of the Accounting Directive).
CSRD for consumers, citizens & investors
In the Council and European Parliament during June 2022 reached a provisional political agreement on the CSRD. As well as reporting on sustainability issues, the Corporate Sustainability Reporting Directive also heralds a certification requirement for sustainability reporting plus better accessibility of information, in terms of this being published in a dedicated part of company management reports.
Bruno Le Maire, Minister for Economic Affairs, Finance and Recovery summed up the intentions of the new CSRD rules, including what this means for consumers, citizens and investors in Europe: “This agreement is excellent news for all European consumers. They will now be better informed about the impact of business on human rights and the environment. This means more transparency for citizens, consumers and investors. It also means more readability and simplicity in the information provided by companies, which must play their full part in society. Greenwashing is over. With this text, Europe is at the forefront of the international race to standards, setting high standards in line with our environmental and social ambitions.” (1)
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