A deeper look into CSRD
The new directive for sustainability reporting, Corporate Sustainability Reporting Directive (CSRD), is now being adopted in the EU countries. The publicly listed companies must report according to the new directive already in 2024. What is the impact of CSRD on companies and their sustainability reporting? Leise Marud, Sustainability specialist at Stena Metall, explains.
As part of the European Green Deal, the EU has set the target to reach zero net emission of greenhouse gases by 2050. There are many means to achieve this, one of them being CSRD.
“It is expected that the private sector will indirectly be forced to change behavior when they must disclose their environmental, social and governance impact,” says Leise Marud.
CSRD a driver for change
The new reporting directive will state which types of companies that are obliged to report and what data they must disclose. The increased transparency will lead to an easier evaluation of companies and assessment of risks and opportunities.
“The CSRD will make it easier for businesses and consumers to move their preferences to companies that behave in a more sustainable way. Let’s say that you are a pharmaceutical company with a net zero emission target. With the CSRD, you can now determine which suppliers you want to work with based on the information on CO2 emissions that your suppliers have disclosed in their sustainability statements. The idea is that transparency will lead to change.”
Reporting standards
CSRD is structured in line with ESG, which stands for Environment, Social and Governance. ESG is a common structure for companies to use when they inform stakeholders about their sustainability work.
As a tool for the sustainability reporting the EU has adopted 12 European Sustainability Reporting Standards (ESRS). Two of the standards cover general requirements and general information and are mandatory for all companies subject to the CSRD. The other ten so called topical standards cover the full range of environmental, social, and governance issues.
Double materiality analysis
It is not all topical standards that are relevant to all companies. The first task is to perform a Double Materiality Analysis (DMA). The result of the DMA determines which topics a company must report on.
“If you are a manufacturer of IT equipment for example, reporting on biodiversity may not be relevant to you. To deal with this dilemma, companies must first analyze which topics that are relevant to them, and only report on these topics.”
Double materiality means that the analysis must cover both the issues that have an impact on the company, and the issues that the company has an impact on.
“At Stena Metall we are currently preparing the data that our customers will need from us, to analyze their value chain, such as data on their CO2-emissions related to their waste management. There will be an increased pressure on sustainability reporters to have high quality data, and we can help them with that,” concludes Leise Marud.
Facts about CSRD
When and who
For financial years that start in 2024 large (more than 250 employees) publicly listed companies in the EU must report according to CSDR in their annual statement. For financial years that start in 2025, it is large unlisted companies, and from 2026, publicly listed small and medium size companies are also included. Moreover, the reporting is subject to third party assurance.
The reporting standards
EFRAG (European Financial Reporting Advisory Group) has developed a set of reporting standards called ESRS (European Sustainability Reporting Standards). There are 12 standards. The first two standards are general requirements and general information that are mandatory for all companies that are subject to CSRD. The other 10 standards are listed below.
Environment
E1 – Climate change
E2 – Pollution
E3 – Water and marine resources
E4 – Biodiversity and ecosystems
E5 – Resource use and circular economy
Social
S1 – Own workforce
S2 – Workers in the value chain
S3 – Affected communities
S4 – Consumers and end users
Governance
ESRS G1 – Business conduct
