Sustainability becomes increasingly important and reporting on ESG (environmental, social and governance) becomes mandatory in the Management report to underline transparently the continuity of the businesses. A common standard is launched by the European Commission under the name of CSRD.

 

CLASSIFICATION

CSRD stands for Corporate Sustainability Reporting Directive and is the regulatory tool that aims at standardising sustainability disclosures in Europe. On April 21st,2021 the European Commission issued a new proposal amending the current directive 2014/95/EU, known as the NFRD (Non-Financial Reporting Directive). This implies that the non-financial reporting will have to be included in the Management Report.

The aim is to have this directive adopted by October 2022, with the new requirements applicable from January 1st, 2023. All companies that need to comply with CSRD will have to publish their sustainability reports starting January 2024 with the data from the previous year.

 

WHICH COMPANIES WILL NEED TO COMPLY ?

Under this CSRD, all public interest companies and all listed EU regulated markets will have to report on sustainability matters. Companies that meet 2 of the following criteria are also required to report:

  • 250 or more employees
  • 40 million euro in net turnover
  • 20 million euro in assets

While small companies do not yet have the obligation of following these standards, it is advisable to start already on a voluntary basis and report under this new directive. Within the total supply chain, clients will ask suppliers to comply with this new standard. This integration of ESG in the strategy of the company ahead of legal obligations can also create a competitive advantage.

Although this is a European directive, this CSRD will also be applicable for non-European based companies if they have a subsidiary in the EU.

 

CONTENT OF EU REPORTING STANDARDS

Companies will need to publish information relating to environmental matters, social responsibilities, climate protection and mitigation, but also the treatment of employees, anti-corruption, respect of human rights and diversity, amongst others. 

To comply with the CSRD, companies will need to obtain a limited external assurance report on the reported information, making it mandatory for this sustainability reporting to be verified by an external auditor.

Reporting requirements will be further detailed and will have to follow the EU approved sustainable reporting standards.

Management reporting will have to be published in a digital format, so it can be included in the ESAP (European Single Access Point).

Double materiality will play an important role, where companies will have to take into consideration the impact of sustainability on the company’s financial position, as well as the business impact on the environment, people and economy.

 

CARBON FOOTPRINT

CSRD should contribute to achieving the goals of the Paris Climate Agreement.

The regulations, linked to the EU Green Deal, should ensure more relevant and comparable information about sustainability policies and results. This will provide more insight into the progress of Europe and European companies towards achieving the goals of the Paris Climate Agreement (net-zero emissions and keeping global warming below 1.5 degrees). To this end, the integration of financial and non-financial data within corporate reporting is important, to ensure that companies can better steer towards broader value. The CSRD does not stand alone in this. Earlier this year, the Sustainable Finance Disclosure Regulation and EU Taxonomy came into force, and next year a directive on Sustainable Corporate Governance is expected. These laws and regulations offer more and more frameworks around and vision of the responsibilities of companies in a more sustainable economy.

 

OUR ADVICE

We advise you to get started with the process as of now. Defining the tailored content that is relevant for your company and then gathering all necessary information will require time to be performed in a structured manner. As mentioned above, within the supply chain, eventually many companies, also small companies, will need to report on sustainability.

As the thresholds of the required criteria are now set lower, an increased number of companies (quadrupling) will need to comply. Avoiding the rush on sustainability reporting will be key.

 

HOW CAN RSM HELP YOU ?

With the ambitious timeframe set out by the European Commission for the implementation of this directive, time is of the essence. RSM can help you with this sustainability reporting, we do have the expertise in analysing and auditing ESG reporting and on in-depth analysis of the carbon footprint to match the Paris agreement. Our R-SIMS (RSM Sustainable International Monitoring Systems) tool with embedded Artificial Intelligence is specially designed for this and has the capability to automate and digitize many tasks.

Do not hesitate to reach out for sustainability reporting or for more information on R-SIMS.