At least 42% of all Belgian employees work in a company directly covered by the CSRD, or Corporate Sustainability Reporting Directive. More than 2,500 companies are required by this European directive to publish an annual sustainability report from 2025 onward: a major challenge that will cost businesses time, energy and money. But how can you use the CSRD to gain an advantage? Discover five ways to do so here.
The Corporate Sustainability Reporting Directive is a directive concerning sustainability reporting that has been in force since the beginning of 2023. It imposes a reporting obligation on all large companies across Europe.
The final proposal for the CSRD was launched by the European Commission at the end of 2022. The accompanying ‘European Sustainability Reporting Standards’ (ESRS) will be compiled by EFRAG, the European Financial Reporting Advisory Group, which also advises the European Commission on financial reporting standards and their international alignment.
Some 50,000 European companies are required to report as a result of the CSRD. The expectations imposed on larger companies will also have an impact on many SMEs. This means that the CSRD will affect the entire European economy, starting from large companies.
The EU wants to steer companies toward sustainable activities and investments. Only through this can Europe be climate neutral by 2050. The CSRD will provide more transparency on companies’ impacts on people and planet, and their roadmaps to become climate-neutral. This will give investors a better overview of companies’ sustainability performances and climate-related vulnerabilities, which will influence their investment decisions. The CSRD also takes up the fight against greenwashing.
In 2025, listed companies and public-interest companies will already have to report on the 2024 financial year. Other large companies – the largest group – will have to report on the 2025 financial year in 2026. In other words, by the end of 2024, everything must be ready to measure all KPIs for the entire year.
Want to take a closer look at the CSRD? In this article, we provide you with all the necessary info!
Globally, climate change is becoming more and more evident, and Europe isn’t excluded from this. The climate barcode below, for example, shows clearly how temperatures in the city of Brussels rose between 1850 – the start of temperature measurements – and 2023 (Show Your Stripes). The darker the red, the higher the deviation from the average temperature over the same period.
What many companies overlook is that the impact of climate change in Europe will cause not only material damage and human suffering, but also economic losses. For example, extreme weather events in the European Union between 1980 and 2022 caused financial losses of as much as €650 billion (European Environment Agency). The causes are numerous: prolonged droughts causing crop failures and resource shortages in the agri-food sector, forest fires damaging infrastructure, floods disrupting crucial supply chains, etc. All models suggest that these extreme conditions will only become more frequent in the years to come.
Still, studies have shown that many companies are not yet prepared for climate risks. For example, half of companies worldwide do not use corporate sustainability information. Almost a third of all companies do not include climate risks in their overall risk analysis. And for 37% of companies, the corporate level never even gets to see reports addressing climate-related risks.
Sustainability reporting according to the CSRD will help you obtain a good overview of 1) your own impacts on climate and 2) vice versa, the risks that climate change might pose to your business. How? The CSRD requires you to perform a double materiality analysis that will give you insight into this. Read more about what such a materiality analysis entails here. Moreover, that analysis goes beyond climate alone, and encapsulates all possible topics that are covered by ESG (environment, social & governance).
Another evolution is taking place: customers and consumers are putting increasing pressure on companies to become more sustainable and transparent. Companies today are inundated with questions about their carbon footprint, the origins of raw materials, potential human rights violations in operations, and their possession of certificates demonstrating, for example, good governance.
The reason your B2B customers request such data is often that they need to publish a sustainability report themselves. So the CSRD sets off a domino effect throughout economic chains. If you want to continue serving your customers, an annual sustainability report is part of the deal. As a company, you can no longer afford to remain unclear about your impact on climate change and your plans to mitigate that impact.
The same applies to banks and investors: these days, they think twice before making decisions on loans, financing and investments. They want insight into important and verified data on ESG at companies.
The CSRD helps you measure and report on crucial KPIs for your customers and financial partners following the right process. Read here how we guided Vandemoortele Group throughout their CSRD process in a step-by-step manner.
The CSRD provides a clear framework for making the necessary fundamental shifts. These changes will help guide your company through the climate transition, which is currently in full swing. The CSRD not only helps you face up to your impact on planet and society and vice versa; it is also a strategic tool to proactively integrate the risks and opportunities of tomorrow’s society into your business strategy today.
To be ready for the future, it is best to develop a fully-fledged ESG roadmap, with clear targets and KPIs for each material topic. This roadmap is the way forward for your company; your ESG compass for the coming years. You should also draw up policies and action plans for each material topic and report annually on your progress within your sustainability report. Read here how we did that for Reynaers Group.
The CSRD aims for a clear governance structure that helps you make firm decisions when it comes to climate and other sustainability topics. From your CSRD gap analysis, you will be able to build a clear organisational structure with priority tracks, data owners, reporting lines to management and so on.
Another point of attention that the CSRD entails is data management. How do you ensure that you have high-quality data in the fields of the environment, good governance and social standards? How do you guarantee that this data is measured, maintained and reported correctly and efficiently? Which ERP systems or software do you use for this? The amount of care that you put into your financial data today should also go into the collection, analysis and reporting of your sustainability data.
The CSRD gives you immediate motivation to upgrade your ESG data to the level of your financial data management. While this may pose a huge challenge, once you get there, you will have crucial information that you can use to grow your business.
The CSRD challenge is significant, that much is clear. But how do you ensure that this does not remain a task delegated exclusively to the sustainability manager? How do you activate every employee throughout the different parts of the company, in different branches in different countries, across different cultures and languages, to engage with the company’s sustainability roadmap?
Have you and your company already taken the first steps toward CSRD compliance, or are you overwhelmed by the multitude of new provisions? Get guidance from Pantarein for your CSRD journey. Contact us at mail@pantarein.be.
