Everything you must know about the CSRD

The CSRD is a game-changer, significantly expanding mandatory sustainability reporting requirements and impacting nearly 50,000 companies operating within the EU. 
It will roll out in multiple stages, depending on company size and other factors:

‍First Stage (Beginning January 1, 2024): Large companies with more than 500 employees that are already subject to the Non-Financial Reporting Directive (NFRD) must start reporting according to CSRD guidelines for the 2024 fiscal year, with publication due in 2025.

‍Second Stage (Beginning January 1, 2025): Large companies that meet at least two out of three specific criteria, which were not previously required to comply with the NFRD, are included.

Following Stages   
-  Large public EU companies with over 500 employees and shares traded on the EU market are expected to begin reporting in 2025 for financial periods starting from January 1, 2024.   
- Major EU companies and parent companies of large groups, as well as large non-EU companies listed on EU markets, need to report starting in 2026 for financial periods beginning on or after January 1, 2025.   
- Small and medium-sized enterprises in the EU and non-EU companies listed on EU markets are required to report between 2027 and 2029 for financial periods beginning on or after January 1, 2026.   
- Non-EU companies with significant subsidiaries or branches in the EU must report from 2029 for financial years starting on or after January 1, 2028.

For more information on the timeline and implementation phases of the CSRD, refer to this article.

What does this mean for businesses? Let’s break it down:

One of the primary benefits of CSRD is increased transparency. Companies are required to disclose detailed information about their sustainability practices, which includes environmental impact, social responsibility, and governance structures. This comprehensive reporting framework allows stakeholders, including investors, customers, and regulators, to make informed decisions based on accurate and reliable data. For instance, the CSRD mandates using the EU Sustainability Reporting Standards (ESRS). This ensures consistency and comparability of reports across different sectors and regions.

By incorporating double materiality assessment and requiring detailed disclosures on ESG metrics, the CSRD helps companies identify and manage potential risks associated with environmental and social issues. This proactive approach not only mitigates risks but also enhances strategic decision-making.

CSRD compliance can significantly boost investor confidence. Transparent sustainability reporting reassures investors about a company's long-term viability and ethical practices, potentially leading to increased investment and a stronger market position. Additionally, companies that excel in sustainability reporting can enhance their brand reputation and attract socially conscious consumers and partners.

While the CSRD brings numerous benefits, it also presents several challenges that companies must navigate to ensure compliance:

One of the main challenges is the complexity of the reporting requirements. The CSRD demands detailed and comprehensive disclosures, which can be overwhelming for companies, especially those with limited resources. To address this, businesses can leverage digital tools and platforms for sustainability reporting. For instance, the use of the XBRL format for CSRD, as outlined here, can streamline the reporting process and ensure accuracy.

Accurate data collection is another significant challenge. Companies need to gather extensive data across various ESG metrics, which can be resource-intensive. Implementing robust data management systems and engaging third-party assurance providers can help ensure data accuracy and reliability. For example, third-party assurance not only validates the reported data but also enhances the credibility of the sustainability reports.

Keeping up with evolving standards and regulations, such as the differences between CSRD and ESRS or the EU Taxonomy and CSRD, can be challenging. Continuous education and training for staff involved in sustainability reporting are crucial. Businesses should stay updated with regulatory changes and seek guidance from expert consultants to ensure compliance. More information on the differences between CSRD and other regulations can be found here.

For more on how companies can address these challenges, including leveraging General Purpose Technologies (GPTs) for CSRD reporting, check out this article.

The European Sustainability Reporting Standards (ESRS) is integral to the Corporate Sustainability Reporting Directive (CSRD), addressing 12 key topics in environmental, social, and governance (ESG) areas. These standards aim to create a unified and comparable ESG reporting framework. Updates include alignment with ISSB standards, streamlined reporting requirements, and the inclusion of SMEs. The ESRS tackles previous ESG reporting challenges, fostering widespread adoption by businesses starting in 2024.
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The CSRD introduces a set of robust reporting and audit requirements designed to enhance transparency and reliability in sustainability reporting. Here’s a brief overview of what companies need to know:

To boost the credibility of sustainability information, the CSRD mandates that EU member states establish audit requirements. Independent auditors will be responsible for certifying reports to ensure they meet CSRD standards. Initially, companies will be subject to limited assurance standards, allowing them time to adapt. However, by 2028, extensive assurance standards, including reasonable assurance, will come into effect to further bolster the reliability of reports and support the transition to a sustainable economy.

The CSRD requires that all sustainability data in company reports be tagged digitally to facilitate machine readability by the European Single Access Point (ESAP). This move is part of the EU’s broader digital financial strategy, aiming to enhance data accessibility and usability. Digital tags will improve the efficiency of digital reporting, enable better organization of reports through algorithms, and allow stakeholders to easily compare data across different companies.

Companies must address several key areas in their reports:

- Strategy: Outline the business model, strategic objectives, sustainability risks, and the role of management and supervisory boards.
- Implementation: Detail due diligence procedures for supply chain management, sustainability policies, and progress towards set targets.
- Performance: Provide key performance indicators related to business strategy, implementation efforts, and progress toward strategic goals.

Implementing the Corporate Sustainability Reporting Directive (CSRD) requires a thorough understanding of both the regulatory landscape and the specific needs of your organization. Based on our interviews for the AtlasZero Podcast with industry experts, these are some best practices to guide businesses through this process.

Staying informed and adapting to the dynamic nature of CSRD regulations is paramount. Expert Catharina Ahmadi emphasizes that the dynamic nature of CSRD regulations requires companies to stay informed and adapt to changes constantly. Ahmadi highlights the importance of having a detailed implementation plan that outlines clear timelines and responsibilities to ensure a successful CSRD implementation process. She also stresses the need for companies to understand the evolving regulatory landscape and its practical implications for their business. Ahmadi suggests that engaging with regulatory experts and external consultants can provide valuable insights and support in navigating the complexities of CSRD implementation.

Maarten de Haan from Kraft Heinz shared insights on implementing the Corporate Sustainability Reporting Directive (CSRD). He emphasized the importance of conducting a double materiality assessment to determine the significance of various sustainability topics for both financial performance and broader impact. This assessment helps prioritize issues and ensures a comprehensive approach to sustainability reporting. De Haan also highlighted the need for collaboration across different departments within the organization, including procurement, logistics, food safety, and quality, to ensure that the chosen tools and processes for CSRD compliance meet the needs of all relevant stakeholders.

Similarly, Jesper Jerlang, from Aasted ApS, recommends that companies starting with CSRD compliance begin with a materiality assessment and use it as a prioritization tool. He advises a step-by-step approach, acknowledging that things may not be perfect initially, and emphasizes the importance of building a strong data structure, especially to accommodate supplier data.

Choosing the right tool for CSRD compliance is critical. The tool should support the current requirements and be adaptable to future regulatory changes. During our interview with Retarus, they mentioned it is essential to select a solution that integrates seamlessly with existing systems and offers flexibility for expansion. The process involves sending out Requests for Proposals (RFPs), evaluating responses, and conducting demos with shortlisted vendors to ensure the tool's suitability.

Once a tool is selected, the next step is implementation and testing. This phase involves setting up the tool, configuring it to meet the defined requirements, and conducting thorough testing to ensure it functions correctly. During our interview with Catharina Ahmadi, she mentioned the importance of having a detailed implementation plan that includes timelines and responsibilities, which helps in managing the project effectively.

Finally, continuous monitoring and adaptation are crucial for maintaining compliance with CSRD. Regular reviews and updates are necessary to keep up with regulatory changes and to ensure that the reporting remains accurate and relevant. Engaging with third-party assurance providers can enhance the credibility of the sustainability reports and provide an additional layer of verification.

These best practices, derived from expert interviews, provide a structured approach to navigating the complexities of CSRD implementation. By following these guidelines, businesses can enhance their sustainability reporting, ensure regulatory compliance, and ultimately contribute to a more sustainable future.

To further support your CSRD implementation journey, consider exploring AtlasZero's Navigator for more comprehensive guidance and tools tailored to your needs.

Jan van Buijtenen, Head of Corporate Development at REIFF Group, emphasizes that companies should not view CSRD compliance as a mere reporting obligation but as a strategic opportunity to drive sustainability performance and transformation.

He recommends that companies take a proactive approach by thoroughly understanding the CSRD requirements and identifying material topics specific to their business. Engaging with relevant stakeholders, including management, department heads, and operational staff, is crucial for a successful implementation. He also suggests conducting workshops to delve into the details of ESRS standards and double materiality assessments.

Furthermore, van Buijtenen advises companies to consider the CSRD as a chance for improvement rather than a burden. By embracing the CSRD, businesses can enhance their sustainability performance, gain a competitive edge, and contribute to a more sustainable future.