The European Union’s Non-Financial Reporting Directive (NFRD) came into effect in 2014, marking a significant milestone on the path to standardizing sustainability-related disclosure. The EU has since updated this regulation with the Corporate Sustainability Reporting Directive (CSRD), which came into force in January of 2023. The CSRD expands the scope of the NFRD and builds upon its requirements; it acts as the overarching legal directive while utilizing the European Sustainability Reporting Standards (ESRS) as a framework by which companies disclose relevant data. Its objective is to provide companies with precise guidelines on reporting requirements to ensure that the disclosed information is trustworthy, comparable, and relevant.

The CSRD is a highly detailed piece of legislation that is raising many questions: Which companies does it apply to? How will it impact the companies with subsidiaries in Europe? What do companies need to do to prepare?  This briefing by the SustainAbility Institute by ERM aims to answer these questions and more. We have leveraged knowledge from ERM’s CSRD subject matter experts and conducted extensive topic research to put together an overview of the CSRD and guide companies in their disclosure journey, and have highlighted the major components of CSRD including double materiality, the ESRS, assurance requirements, and the impact disclosure can have on a company.  

We have also developed a set of actions and activities for companies to implement in their journey towards CSRD alignment. These recommendations will help companies disclose accurate, consistent, and accessible information while leveraging the required processes to ensure wider impact. For a successful compliance and disclosure strategy, we recommend the following:

  • Start now to prepare for impending reporting requirements: Reporting timelines vary for companies based on size and scope, but it will take time to prepare systems for data collection and reporting processes. Compliance requirements are just around the corner, and there is no time to lose.
  • Consider all aspects of the CSRD implementation approach: There are three primary components that a company should consider when designing its approach to the CSRD: people, process & governance, and technology. Stakeholder engagement is key to understanding the impact of a company’s operations; processes will fluctuate throughout compliance, and any gaps that may hinder the process should be identified; and companies should utilize the technological tools and resources available to ensure accurate, consistent, and accessible disclosures.
  • Conduct a readiness and disclosure gap assessment first: Conducting a gap assessment is a great way to take the critical first steps towards compliance. Identifying the gaps will help improve disclosures and maximize the value a company can leverage from the process.
  • Follow a four step process for efficient compliance: Following the four steps below will position companies well in their CSRD implementation journey.
  1. Discover: Develop a comprehensive understanding of the company’s position with respect to CSRD requirements, assessment gaps, material issues, etc.
  2. Design: Develop an approach to compliance and translate into business outcomes, including effective communication and engagement strategies.
  3. Implement: Utilize technological tools to build and execute communication and engagement plans, integrating CSRD processes into management systems.
  4. Report: Disclose information and conduct assurance requirements, audits, post-disclosure evaluations, and change adoption assessments.

This is just the beginning of the CSRD; as we learn more about effective CSRD compliance, we can expect updates to the requirements, changes in compliance approaches, and an overall improvement in ESG-related activity for those that are subject to the rule. And on a broader scope, these disclosure requirements may prompt improvements in how we approach sustainability as a society.  Even so, the CSRD’s requirements will vary between different organizations. Because of this, we implore companies to consider the impacts to their operations and stakeholders, assess existing gaps in disclosure processes, and, perhaps most importantly, to get started on the path towards compliance.