Corporate sustainability reporting playbook for companies operating in the EU
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Let us help you with the new Corporate Sustainability Reporting Directive and ESRS
This ebook explains the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). It outlines the rules and requirements for companies operating in the European Union.
The ebook helps those impacted by the directive. This includes executives, managers, sustainability officers, IT or finance staff, and ESG team members.
What will you learn from the CRSD & ESRS Ebook?
- Why corporate sustainability reporting is necessary
- The best way to manage the challenges CSRD entails
- CSRD scope and expectations
- How CSRD and ESRS can drive success
- The first steps on your CSRD journey
Why CSRD Matters: Embracing Double Materiality
One of the cornerstones of the CSRD is its commitment to the concept of double materiality assessments. Double materiality in sustainability reporting encompasses two perspectives mandated by the Financial Reporting Directive (NFRD).
It examines how sustainability influences a company's performance and market position. It also looks at how the company's actions affect people and the environment. Consider these impacts from both an external and internal perspective. This approach ensures a comprehensive understanding of corporate sustainability efforts.
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Navigating the European Sustainability Reporting Standards
Central to the CSRD's mandate is the adoption of European Sustainability Reporting Standards (ESRS). These standards provide a comprehensive framework for companies to report on their sustainability performance consistently. By adhering to ESRS, businesses can enhance transparency, comparability, and credibility in their sustainability disclosures. From carbon emissions to supply chain ethics, ESRS cover a wide array of sustainability indicators, empowering companies to communicate their efforts effectively.
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FAQ
CSRD, part of the 2020 Green Deal, sets rules for large corporations in the EU to report on sustainability. It aims to improve transparency and accountability. The EU has approved the directive, and reporting obligations start in 2024.
The main reason to introduce the CSRD is to guide companies towards implementing more sustainable business practices. Sustainability reporting is important for businesses to stay competitive in the long run.
- It enhances the attractiveness of companies to investors by bolstering Environmental, Social, and Governance (ESG) reporting.
- CSRD provides a structured framework for companies to chart their sustainable journey, aiding in goal setting and progress tracking.
- Compliance leads to reduced reporting costs and alleviates the burden of responding to numerous data requests.
- Adherence to common reporting standards under CSRD positions companies favorably in global markets, enhancing their competitive edge.
- Companies gain deeper insights into the environmental and social impacts of their supply chains, aiding more informed decision-making.
- By mandating comprehensive reporting, CSRD acts as a deterrent against greenwashing and ensures transparency in sustainability achievements.
The necessity for the Corporate Sustainability Reporting Directive (CSRD) stems from glaring deficiencies in the current landscape of sustainability reporting data. Some companies don't share sustainability info, and those that do often use long, complicated PDFs to present it.
Quality concerns further compound this issue, with sustainability reports frequently lacking in detail or reliability. Subjective decision-making by companies regarding which areas to disclose exacerbates the challenge of comparing and analyzing sustainability reports.
Moreover, existing rating systems built on sustainability criteria yield disparate ratings for companies, causing confusion for both companies and investors alike. Difficulty in accessing information about suppliers and customers further burdens companies with substantial costs for data collection and sustainability reporting.
With these challenges in mind, it is important to improve regulations and increase transparency in companies' sustainability practices. This goal is to improve sustainability reporting data, making it easier to make informed decisions in all areas.
ESRS, approved by EFRAG, sets rules for companies to report on sustainability impacts, opportunities, and risks. This is in accordance with the EU's new Corporate Sustainable Reporting Directive (CSRD). https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en
A term used in sustainability reporting that brings environmental impacts into the focus of standard-setting in accounting. A company should disclose information that is material and that "a reasonable person would consider important."
The double materiality concept states that a sustainability issue can be important for two reasons. The first reason is its impact. The second reason is the risks and opportunities it presents.
Double materiality now considers stakeholders, meeting the needs of both shareholders and other groups involved in a company. This approach integrates both the "Outside-In" and "Inside-Out" perspectives, each representing a distinct materiality viewpoint.
The latest draft of ESRS (November 2022 – ESRS 1 General requirements) emphasizes the concept of double materiality. ESRS 1 delineates double materiality into two dimensions: impact materiality and financial materiality. As defined by the Global Reporting Initiative (GRI), double materiality unites impact materiality and financial materiality.
1. Impact materiality
The evaluation begins by examining how businesses affect the environment, society, and governance over different time periods. This includes the short, medium, and long term impacts. Sustainability issues encompass impacts originating from any segment (upstream or downstream) of the entire supply chain. While severity determines materiality concerning negative impacts, potential negative impacts also require consideration of their likelihood, factoring in scale, scope.
2. Financial Materiality
Financial materiality arises when a corporate sustainability impact becomes financially significant or relevant for investors and lenders. ESRS underscores the importance of risks or opportunities significantly influencing cash flow, performance, and financial or market position.
3. Other materiality concepts
Researchers have dismissed new ideas about materiality, such as "dynamic materiality," "core materiality," and "nested materiality." Instead, we prefer the concept of double materiality for its clarity.
Double materiality considers both financial and non-financial impacts on a company's performance. This approach provides a more comprehensive understanding of a company's materiality. It helps stakeholders make more informed decisions about the company's sustainability and long-term success.
ESRS, with EFRAG's help, helps companies follow consistent guidelines to share their sustainability impacts, opportunities, and risks. This alignment with the EU's CSRD aims to streamline reporting practices across the European corporate landscape.
