Does CSRD require scope 3?

The Corporate Sustainability Reporting Directive (CSRD), adopted by the European Commission in November 2022, updates and extends the Non-Financial Reporting Directive (NFRD) to improve corporate reporting on climate and environmental impact. It will apply to nearly 50,000 EU companies and demands more comprehensive reporting, including a "double materiality" perspective, where companies must disclose both the risks they face from climate change and the impacts they have on the climate and society.

Complying with the Corporate Sustainability Reporting Directive (CSRD)

The CSRD requires sustainability data to be submitted in a standardized digital format for ease of comparison and will cover a broad range of companies, expanding from the 11,000 under NFRD to nearly 50,000. It includes large EU-based companies and non-EU companies with significant EU turnover. The European Sustainability Reporting Standards (ESRS), developed by EFRAG, detail the reporting requirements, emphasizing the need to report scope 3 emissions.

The directive will be phased in between 2024 and 2028, with different start dates for large public-interest companies, large companies not currently subject to the NFRD, and listed SMEs and other undertakings.

The Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) replaces the Non-Financial Reporting Directive (NFRD) and extends to a broader range of companies, requiring detailed disclosure on sustainability issues' impact on business and vice versa. The CSRD targets large companies within or associated with the EU, including those with significant turnover, balance sheet value, or employee count. Compliance begins in 2024 or 2025, depending on the company's current NFRD status.

The reporting under CSRD is governed by two sets of standards focusing on double materiality, environmental impact, social considerations, and financial materiality. These standards also emphasize connectivity between financial and sustainability reporting, the importance of the value chain in reporting, and alignment with public policy goals. Additionally, the CSRD aligns with the Task Force on Climate-Related Financial Disclosures (TCFD) for climate-related sustainability information and requires comprehensive environmental impact reporting, including greenhouse gas emissions, in line with the Greenhouse Gas (GHG) Protocol. It also follows the EU Taxonomy for broader environmental impact assessment.

The CSRD offers new business opportunities by encouraging sustainable practices, product development, supply chain collaboration, and improved marketing and strategic management. Reports must be prepared in XHTML format for accessibility on the European Single Access Point (ESAP) database and need to be digitally tagged for categorization. Companies must report CSRD information within their management reports, integrating financial and sustainability data.

Scope 3 Emissions Reporting under the CSRD

The Corporate Sustainability Reporting Directive (CSRD) has significant implications for scope 3 emissions reporting. Scope 3 emissions refer to indirect emissions embedded in a company's value chain, including emissions from purchased goods and services, business travel, employee commuting, and waste disposal. The CSRD mandates reporting on a range of environmental, social, and governance (ESG) aspects, including climate change, pollution, and circularity.

The directive requires comprehensive reporting on direct (Scope 1) and indirect (Scope 2) emissions, as well as Scope 3 emissions. This emphasis on scope 3 emissions reflects the growing recognition of the importance of understanding and addressing emissions throughout the entire value chain. To calculate their carbon impact broadly, companies can use tools like the GHG Protocol and ISO 14064-1 standard.

Adapting to the CSRD requires enhancing transparency and accountability in ESG aspects, which are becoming as crucial as product or service quality. This shift is part of the European Commission's effort to prevent greenwashing and to encourage genuine sustainability efforts. The directive offers opportunities for businesses to reduce carbon emissions and energy costs, leading to potential business benefits.

In conclusion, the Corporate Sustainability Reporting Directive (CSRD) requires companies to report on scope 3 emissions, along with direct and indirect emissions. The directive aims to improve corporate reporting on climate and environmental impact, and it applies to a broad range of EU companies. Compliance with the CSRD offers new business opportunities and encourages sustainable practices. By reporting on scope 3 emissions, companies can better understand and address their environmental impact throughout the value chain, contributing to climate change mitigation and sustainability efforts.