This text expands on the first Corporate Sustainability Reporting Directive (CSRD) post published in December, when CSRD's new reporting standard was announced, by offering four starting points for companies to consider before CSRD is obligatory.
CSRD's significant changes include creating new sustainability reporting requirements and standards, expanding the scope of reporting, and introducing a standardised digital reporting format while providing more transparency to the public on companies' sustainability motives and efforts. Higher transparency is crucial if businesses want to support the EU Green Deal's ambitions and transform Europe into a climate-neutral economy by 2050.
CSRD brings sustainability reporting to the same level as financial for the first time. CSRD aims to give investors and other stakeholders an easily accessible tool for evaluating and comparing the non-financial performance of companies.
Why should companies consider CSRD now? Because transformation from linear to sustainable business practices takes time; therefore, starting with a transformational path early enough is important. Below is an overview of the company transformation to achieve the most relevant CSRD obligations.Members can follow each other, write and reply to comments and get notifications. Each member gets their own personal profile page that they can customise.
1. Companies have to have
- sustainable business model and sustainable strategy in place.
- time-tied sustainability targets based on scientific evidence.
- administration, management, and board members that are committed to sustainability transformation and
- in place appropriate sustainable policies and related incentive schemes.
2. Companies have to report
- due diligence process implemented concerning sustainability issues
- conflicting impacts related to the company’s operations and value chain, and actions that are taken to identify and track conflicting impacts; and
- company’s actions to prevent or mitigate conflicting impacts.
3. Companies should measure sustainability performance metrics while implementing the above-mentioned sustainability practices.
How and where to start with implementing CSRD if you are SME? Due to the amount of transformation required, there are no reasons to wait until CSRD becomes obligatory. Here are four starting points to consider:
First, evaluate how sustainable is your company's business model and identify the value of sustainability practices for your business, stakeholders, and investors. Many SMEs business models are already operating according to a circular economy; however, they are not necessarily entirely acknowledging it. The output of this stage should document sustainability gaps and pain points that the company should address, for example, re-design of operations for optimal resource productivity in the entire product/service life cycle system.
Second, based on assessment outputs, co-create with customers, the research and development department, marketing and management, external stakeholders, and board members implementable sustainable strategies. Implement new sustainable strategies on operational, business, and corporate level. Integrate them with your company and industry-relevant sustainable policies (like the company’s commitment to certain standards). The output should identify measurable, sustainable targets and standards the company aims towards monthly, quarterly, and yearly.
Third, measure your company's sustainability transformation progress and environmental impact on every step using relevant fintech companies’ applications. Companies are expected to monitor their social and environmental impacts on sustainability matters by overseeing the entire value chain, including products/services business operations and supply chain. In the sustainability report will stand out measurable facts, demonstrating the trustworthiness of the company's sustainability. The output here are relevant standards that your company is obligated to measure nationality and at the EU level (like GHG, LCA, and various ISO standards).
Fourth, create reliable reporting practices and communicate your sustainability transformation progress transparently to your clients, external stakeholders, investors, and the interested public. This way, sustainability will become the DNA of your company, and annual reports and communication material will be stress-free to develop and share.
And last, what are the deadlines that diverse companies need to comply with CSRD:
- January 1st, 2024, large, listed companies that employ more than 500 people (already covered by the Non-Financial Reporting Directive).
- January 1st, 2025, listed and unlisted companies with 250+ employees and €40M+ in turnover.
- January 1st, 2026, listed SMEs using simpler standards and
- January 1st, 2029, the third-country company with a net turnover above 150 million.
Hopefully, this blog gives you some directions on how to work towards CSRD in the coming years.
If you need advice on this journey, want to give feedback or suggest themes to cover in these blog posts, get in contact.
References
- The CSRD Has Been Adopted – a New Directive Reforms Corporate Sustainability Reporting in the EU (2022) https://www.borenius.com/legal-alerts/2022/11/30/the-csrd-has-been-adopted-a-new-directive-reforms-corporate-sustainability-reporting-in-the-eu/
- Unpacking the CSRD (2022) https://www.onetrust.com/resources/unpacking-the-csrd-webinar/
- Sustainable economy: Parliament adopts new reporting rules for multinationals (2022), https://www.europarl.europa.eu/news/en/press-room/20221107IPR49611/sustainable-economy-parliament-adopts-new-reporting-rules-for-multinationals
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