The CSRD sets sustainability reporting requirements for large and listed companies operating in the EU. With the reporting obligations set to commence in 2025, denxpert’s study reveals intriguing analysis and figures about how prepared companies are for this directive.
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Western and Northern Europe take the lead in CSRD awareness, with Central and Eastern Europe lagging behind
Key findings from the study:
- The study reveals that the largest Western and Southern European economies have the highest number of companies under the CSRD regulation. The CSRD awareness is proportional to the number of affected firms in Western Europe, but it is extremely low in CEE, highlighting that the region is lagging in CSRD readiness.
- The solution density, representing the range of CSRD reporting offerings available for regulated companies, shows a wide selection in Western and Northern Europe, but a surprisingly small selection in major Southern European countries.
- The study introduces the estimated proportion of CSRD-engaged companies showing the highest interest from users arriving from the Benelux followed by visitors from the Nordics.
- Denxpert’s forecast suggests a dynamic rise in demand for CSRD reporting solutions in most regions. The fastest growth is predicted to come from the less mature economies of Central and Eastern Europe.
Denxpert’s research concludes that EU companies increasingly recognize the importance - and the approaching deadlines - of the CSRD directive and want to start preparations quickly.
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.
