What is CSRD?
In November 2022, the European Union adopted the Corporate Sustainability Reporting Directive (CSRD). This new directive will require a growing number of companies to report on the impact of their activities on both people and the environment starting in 2024. An important part of the European Union's Green Deal, the CSRD is designed to create more transparency and improve the quality of sustainability reporting. In this article you will read what the CSRD entails and how it affects companies.
Who is CSRD for?
The CSRD Directive requires large companies to report on various aspects, such as carbon emissions, social capital, and the impact on biodiversity and human rights violations within the supply chain. This directive extends the existing European regulations around sustainability reporting, the Non-Financial Reporting Directive (NFRD). A lighter version of the CSRD is being considered for unlisted SMEs, one that better suits their implementation capacity.
A company is considered large if it meets at least two of the following three criteria:
- More than 250 employees
- More than 50 million euros in sales per year
- More than 25 million euros on the balance sheet
ESG and CSRD, which is what?
The CSRD can be seen as a framework that ESG reporting mandates and standardizes. Whereas ESG criteria are a set of guidelines and principles that companies can follow voluntarily, the CSRD makes certain aspects of ESG reporting mandatory for many European companies. Below we describe the main relationships between ESG and CSRD:
- Standardization of ESG reporting:
The CSRD sets clear rules for how companies should report on ESG topics. This ensures consistency and comparability between companies, which was often lacking before. - Mandatory vs. Voluntary:
ESG reporting has traditionally been voluntary, but with the introduction of the CSRD, reporting on sustainability and ESG factors becomes mandatory for a wider range of companies. This means more companies will have to provide detailed information on their ESG performance. - More detailed information:
The CSRD requires companies to provide more detailed and comprehensive information than was often the case with voluntary ESG reporting. This includes not only results but also strategies and plans for improvement. - External verification:
The CSRD introduces the requirement for external verification of sustainability reports, which increases the reliability and credibility of ESG information. - Dual Materiality:
Both the CSRD and ESG criteria emphasize the importance of dual materiality, requiring companies to report both the impact of sustainability on their operations and their impact on society and the environment.
How do you implement CSRD?
In the transformation of IT systems, CSRD is a topic that should be on the agenda. Source systems should be equipped to capture data needed to populate the ESRS (European Sustainability Reporting Standards), the standards on which to report. Every year, organizations have to demonstrate again how they are doing within these standards. Within our Business Intelligence discipline, we help organizations collect, structure and automatically convert data into CSRD reports. Based on the data points from the ESRS, this results in a score for each component. This score comes out of the solution as a PDF and is attached to the Audit file.
Accountants advise companies on how to improve reporting systems and processes to meet CSRD requirements. Educating staff within companies on the new reporting requirements and sustainable practices will be an important part of accountants' role. Your accountant can help you identify and manage risks related to sustainability and ensure that companies comply with the new regulations.
The implementation of the CSRD in the Netherlands brings significant changes for companies in all sectors. While the new regulations present challenges, they also present opportunities for companies to improve their sustainability performance, drive innovation and strengthen your competitive position. By being proactive and well prepared, companies can not only comply with the new requirements, but also contribute to a more sustainable future.
Frequently asked questions about CSRD
- What is sustainability reporting?
Just as organizations report financial performance annually, sustainability reporting is about sustainability results achieved. It includes efforts such as reducing carbon emissions and other sustainability goals. Reports show whether these goals are being achieved and how companies are committed to sustainability.
- Can my company strategically benefit from CSRD?
Yes, companies that timely and effectively comply with CSRD guidelines can improve their reputation, become demonstrably more sustainable and gain a competitive advantage in the marketplace.
- How does BI help with CSRD compliance?
Business Intelligence (BI) helps you gain insight into ESG data, analyze trends and produce accurate reports.
- What happens if my company does not comply with the CSRD?
Failure to comply with the CSRD can lead to penalties and reputational damage, as transparency and accountability are key.
- How can technology help with CSRD reporting?
With solutions like Business Intelligence (BI), Robotic Process Automation (RPA) and Power Apps, you can automate and streamline data collection and reporting processes.
- Are SMEs required to report under the CSRD?
Unlisted SMEs may receive a lighter version of the CSRD, tailored to their capacity.
- What data do I need to report under the CSRD?
Companies must report on issues such as carbon emissions, biodiversity, social capital, and human rights in the supply chain.
- What is the difference between the CSRD and the NFRD?
The CSRD expands the existing Non-Financial Reporting Directive (NFRD) with more stringent requirements and more companies covered by the reporting requirement.
- When will the CSRD take effect?
Starting in 2024, more and more companies must comply with the CSRD's reporting requirements.
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