EU CSRD Introduction
The new Corporate Sustainability Reporting Directive (EU CSRD) will affect about 50,000 companies. In a nutshell, it will replace and build upon the Non-Financial Reporting Directive (NFRD) by introducing more detailed reporting requirements and expanding the number of companies that have to comply.
It aims to increase transparency about companies' impacts on the planet and people by getting them to step up their sustainability disclosures with stricter and more transparent reporting standards. Overall, the CSRD aims to create a more uniform approach to sustainability reporting across the EU and to ensure that the information is consistent, reliable, and easy-to-understand for all stakeholders.
It also supports the Green Deal, a set of initiatives designed to cut greenhouse gas emissions, drive investment toward sustainability, invest in research and innovation, and preserve the EU's natural environment.
“High-quality and reliable public reporting by companies will help create a culture of greater public accountability.” - The European Commission
The CSRD came into law at the beginning of 2023, and now the clock is ticking for the first group of companies to comply with the new regulatory requirements for their 2024 fiscal year’s reporting.
To comply companies must introduce a new level of rigour to their ESG reporting. But don’t worry, CoolPlanet has you covered here, more on this later. In the meantime, here are the important points explained, with regard to its application and your company’s compliance.
Does CSRD apply to my company?
The CSRD is expected to roughly quadruple the number of organisations covered by the NFRD (many of which will be reporting their full carbon emissions for the first time). The new regulations will also affect about 10,000 non-EU companies with significant operations in Europe.
Who exactly will be affected?
- Large listed companies, banks, and insurance companies already subject to the NFRD
- Listed European mid-sized companies
- Listed European SMEs
- Large private European companies Non-European companies with significant business in the EU
"[The CSRD will] end greenwashing, strengthen the EU’s social market economy and lay the groundwork for sustainability reporting standards at global level". - EU Parliament
What are the EU CSRD requirements?
The EU CSRD has established some standard rules for companies to follow when creating their annual sustainability reports. Now you will have to include:
Companies must analyse their sustainability impact through two different types of materiality, which are:
How their business impacts people and the planet
How sustainability and climate change impact their business.
Ensuring companies focus on the topics that matter both to the organisation and society at large. For example if a Chocolate manufacturer based in Belgium sources its cocoa in South America then the company must report on their supplier's operations with regard to sustainability/impact on the planet and people as well as their own (scope 3 emissions).
Companies must follow the European Sustainability Reporting Standards (ESRS) when conducting their sustainability reporting. These standards cover environmental, social, and governance topics. More on this shortly too.
The CSRD requires companies to provide limited assurance for their sustainability information. This means that an impartial, reliable, and knowledgeable third party must review the data to ensure it is accurate and reliable.
CSRD disclosures will need to be part of the management report in digital format so that submissions can be aggregated into a single EU-wide database.
ESRS and new disclosures explained
The European Sustainability Reporting Standards (ESRS) are a set of standards that companies must adhere to, in order to comply with the EU CSRD. They outline what is included in each of the four disclosure sections.
The ESRS covers four key topics that must be included, which are:
- General reporting requirements: a framework for how to report the information required
- Environmental Impact: expands the scope of sustainability reporting by covering categories beyond just carbon, including pollution, water, marine resources, biodiversity, and ecosystems.
- Social responsibility: cover the topics of the company’s own workforce, workers in the value chain, affected communities, and customers and end-users.
- Governance: covers business conduct.
The standards are expected to be approved in June 2023. Plus, the ESRS has also announced that they will also create ten sector-specific standards to disclose more information, targeting energy-intensive industry sectors.
When will the EU CSRD go into effect?
The rules will start applying between 2024 and 2028:
CSRD reporting requirements will be phased in for different groups of firms over the coming years.
- From 1 January 2024 for large public-interest companies (with over 500 employees) already subject to the Non-Financial Reporting Directive (NFRD), with reports due in 2025;
- From 1 January 2025 for large companies that are not presently subject to the NFRD (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with reports due in 2026;
- From 1 January 2026 for listed SMEs and other undertakings, with reports due in 2027. SMEs can opt out until 2028.
- From 1 January 2028 the new parent-company level reporting requirements for qualifying non-EU firms will form part of 2029 reporting, using 2028 data/
Start taking action now
Though it may feel far away, the sooner your company begins planning, the easier it will be when the regulations come into effect. Under the proposed value chain sustainability reporting, companies will be required to report scope 3 emissions.
These indirect emissions result from the company’s upstream and downstream activities and are notoriously tricky to measure, which takes time. Companies should begin the process as soon as possible, to ensure they will be compliant.
How can CoolPlanet support you?
For companies to report on these new areas and topics, they will need to set clear climate targets and put in place an audit-ready reporting infrastructure. Companies need to gather, process, and disclose a large amount of data covering various time periods and metrics. This will mean the adoption of new systems and processes and possibly bringing in external expertise like CoolPlanet to help you set them up.
CoolPlanet can play a crucial role in helping businesses meet their CSRD compliance requirements through various avenues, including:
Data Collection and Reporting
CoolPlanetOS, our energy management software, can collect, consolidate, and analyse the required non-financial data, which includes energy usage, emissions, and other sustainability-related metrics. This comprehensive data compilation streamlines the reporting process.
CoolPlanetOS can generate automated reports that align with CSRD guidelines. This reduces manual effort and ensures accurate and consistent reporting.
CSRD emphasises standardised reporting. CoolPlanetOS uses consistent metrics across various reporting periods, ensuring comparability and reliability of data.
Transparency and Accuracy
Real-time tracking capabilities enable prompt identification of anomalies and informed decision making to rectify.
CoolPlanetOS maintains a detailed record of data inputs, changes, and updates. This audit trail supports the company during audits, providing evidence of compliance.
Integration with Financial Data
Energy usage and sustainability performance are interconnected with financial aspects. CoolPlanetOS can integrate energy-related data with financial data, enabling the company to present a comprehensive view to stakeholders.
Companies need to project their environmental impact and sustainability efforts. CoolPlanetOS can perform scenario analysis, helping your business to understand potential outcomes of various actions.
Alerts and Notifications
Alerts and notifications show when data falls outside predefined limits, ensuring proactive management of compliance-related issues.
CSRD encourages benchmarking of sustainability performance. CoolPlanetOS can assist in comparing the company's performance against industry standards and peers.
The software can facilitate sharing sustainability reports with stakeholders through various channels, promoting transparency and engagement.
Our engineering and data experts can help your team develop long-term sustainability strategies, aligning with CSRD's objective of fostering responsible business practices.
In essence, CoolPlanet will help you streamline data collection, reporting, and analysis, ensuring accurate, timely, and standardised reporting in alignment with CSRD compliance requirements.