In a world where sustainability is becoming more central, companies are increasingly under pressure to transparently disclose their impact on the environment and society. The European Union has therefore introduced the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) to standardize and improve reporting on non-financial aspects. But what exactly do these new requirements mean, and how do they affect companies?
What is the CSRD?
The CSRD is an EU directive that replaces the previous Non-Financial Reporting Directive (NFRD) and significantly expands the requirements for sustainability reporting. It requires companies to disclose detailed information about their environmental, social, and governance (ESG) performance. The main objectives of the CSRD are to increase transparency, improve comparability between companies, and provide relevant information to investors and other stakeholders.
Who is affected by the CSRD?
The CSRD significantly expands its scope compared to the NFRD. It applies to:
- Large companies with more than 250 employees, a turnover of over 40 million euros, or a balance sheet total of more than 20 million euros.
- All publicly listed companies, including small and medium-sized enterprises (SMEs), except micro-enterprises.
- Subsidiaries may also be subject to the reporting requirements if they are part of a large group, even if they do not meet the size criteria themselves.
Additionally, companies not based in the EU but operating in the EU and exceeding certain thresholds must also report under the CSRD requirements.
What needs to be reported?
Companies are required to disclose comprehensive information on the following ESG topics:
- Environmental protection: Climate protection measures, resource use, environmental impacts, biodiversity.
- Social issues: Workers’ rights, diversity, equality, working conditions, and human rights.
- Governance: Anti-corruption efforts, ethical behavior, transparency in corporate governance.
Both qualitative and quantitative information must be provided. Special attention is given to double materiality: companies must report not only on how sustainability factors affect their business (outside-in perspective) but also on how they impact the environment and society (inside-out perspective). Additionally, companies must disclose the risks and opportunities that ESG factors present to their business model.
Audit Requirement and Digital Reporting
A key aspect of the CSRD is the introduction of an audit requirement: sustainability reports must be reviewed by independent auditors (assurance) to ensure compliance with the requirements. Furthermore, reports must be published in a machine-readable digital format to make them accessible via the “European Single Access Point” (ESAP). This promotes transparency and facilitates access to sustainability data at the EU level.
When will the CSRD come into effect?
The CSRD will be introduced in stages:
- Starting in 2024: For companies already covered by the NFRD (first reporting in 2025).
- Starting in 2025: For all other large companies.
- Starting in 2026: For publicly listed SMEs, which may submit simplified reports.
What are the ESRS?
The European Sustainability Reporting Standards (ESRS) are detailed standards that complement the CSRD. They specify what information must be included in sustainability reports and how it should be presented. The ESRS are based on international standards such as the GRI Standards (Global Reporting Initiative) and are divided into various modules that cover specific topics.
What topics do the ESRS cover?
The ESRS are divided into various modules that address key sustainability issues:
- ESRS E1: Climate change – Measures to reduce greenhouse gas emissions and adaptation strategies.
- ESRS E2: Pollution – Management of pollutants and measures to reduce environmental impacts.
- ESRS S1: Social issues – Responsibility towards employees, respect for human rights, and compliance with social standards.
- ESRS G1: Governance – Corporate governance, ethical behavior, and anti-corruption efforts.
In addition to these general standards, there are sector-specific reporting requirements tailored to the unique circumstances and challenges of individual industries.
Why are the ESRS important?
The ESRS provide clear guidelines for sustainability reporting and create a direct link to existing international standards, promoting comparability between companies within and outside the EU. This helps companies produce consistent and credible reports, which is especially important for investors and other stakeholders. Additionally, alignment with international standards helps companies position themselves as sustainable players on a global scale.
Challenges and Opportunities for Companies
The introduction of the CSRD and ESRS presents many companies with significant challenges in terms of reporting, both in terms of the internal processes required and the associated costs. It will be necessary to implement new systems for data collection, analysis, and reporting. Additionally, companies must have their reports validated by external auditors.
Despite these challenges, the new regulations offer opportunities for companies. They enable sustainability to be integrated as a strategic element in corporate management, help manage ESG risks more effectively, and thus achieve long-term competitive advantages. Transparency and a clear focus on sustainability can also strengthen the trust of investors, customers, and other stakeholders.
How EcoBalance Can Support Companies
Given the growing responsibility for climate protection, EcoBalance is dedicated to assisting companies in achieving their sustainability goals. The advanced software offered by EcoBalance enables comprehensive and tamper-proof recording of emissions data throughout the entire value chain. By accessing various datasets, it creates a foundation for data comparability, which enhances collaboration with international partners and ensures transparency.
A key feature of the software is its capability to conduct detailed performance analyses. Through these evaluations, companies can pinpoint specific areas for improvement and implement measures to optimize their sustainability performance. EcoBalance ensures that all emissions are accurately documented and compiles the data in a way that makes it simple to convert into reports.
These reports provide auditors with a transparent and clear overview of emissions data, simplifying the audit requirements under the CSRD. The origin of the data remains clearly traceable, and any changes are easily identifiable – ensuring the highest level of data security and tamper-proofing.
The solution not only helps companies meet the legal requirements of the CSRD and ESRS but also enables the development of sustainable and long-term business strategies. By promoting global collaboration, EcoBalance empowers companies worldwide to establish transparent and trustworthy partnerships.
EcoBalance is setting new standards in sustainability reporting, helping companies streamline their internal processes and manage their emissions more effectively. Together, this solution contributes to shaping the future of emissions reporting and supporting a more sustainable world for future generations.
Source:
• The website of the European Commission
