Navigating CSRD: A Comprehensive Guide to Streamlined Corporate Sustainability Reporting

Corporate sustainability reporting is not a new concept, but it has gained increasing importance and attention in recent years. As the world faces unprecedented challenges such as climate change, biodiversity loss, social inequalities, and human rights violations, there is a growing demand for businesses to disclose how they address these issues and contribute to sustainable development.

The European Union (EU) has been at the forefront of advancing corporate sustainability reporting, and in January 2023, it adopted a new law that will significantly transform the landscape of sustainability reporting for organizations operating in the EU and beyond. This law is the Corporate Sustainability Reporting Directive (CSRD), and it aims to promote consistent, comparable, and reliable sustainability information that can inform decision-making by investors, stakeholders, and society at large.

But what exactly is CSRD and what does it mean for organizations? How does it differ from the previous EU reporting requirements? What are the key changes and requirements under CSRD? How can organizations ensure compliance with CSRD and benefit from it? And what are the best practices for CSRD reporting?

In this blog post, we will answer these questions and more, providing you with a comprehensive guide to CSRD and how it can help you achieve your sustainability goals.

Understanding CSRD

CSRD stands for Corporate Sustainability Reporting Directive, and it is a law in the EU that requires certain companies to share information on how they monitor and manage both social and environmental issues. CSRD replaces and expands the previous EU reporting law, the Non-Financial Reporting Directive (NFRD), which was adopted in 2014 and applied in 2018.

The purpose of CSRD is to promote sustainable practices among companies by enhancing the transparency and accountability of their sustainability performance. By requiring companies to disclose relevant, reliable, and comparable information on their environmental, social, and governance (ESG) impacts, risks, opportunities, policies, and outcomes, CSRD aims to:

• Support informed decision-making by investors, consumers, regulators, civil society organizations, and other stakeholders who need access to high-quality sustainability information.
• Encourage companies to integrate sustainability into their strategies, operations, risk management, and reporting processes.
• Foster a level playing field for companies operating in the EU single market by harmonizing the reporting standards and reducing the reporting burden.
• Contribute to the achievement of the EU’s policy objectives on sustainability, such as the European Green Deal, the Sustainable Finance Action Plan, the European Pillar of Social Rights, and the UN Sustainable Development Goals.

Key Changes and Requirements under CSRD

CSRD introduces several changes and updates compared to NFRD that affect both the scope and content of sustainability reporting. Here are some of the key changes and requirements under CSRD that you need to be aware of:

Expanded scope

CSRD applies to all large companies (those with more than 250 employees or more than €40 million in annual turnover or €20 million in balance sheet total) and all listed companies (except listed micro-enterprises) operating in the EU. In addition, CSRD applies not only to parent companies but also to subsidiaries that meet the criteria above or are considered public-interest entities.

Reporting obligations

Companies subject to CSRD have to report on their sustainability performance annually as part of their management report. The report has to cover both financial and non-financial information related to environmental, social, and governance (ESG) matters. The report has to include information on:

• The company’s business model, strategy, targets, policies, due diligence processes, principal risks, and opportunities related to ESG matters.
• The company’s ESG impacts (positive or negative) on people (including workers), the planet (including climate), society (including human rights), and the economy (including value creation).
• The company’s ESG outcomes, i.e., the results of its actions and performance on ESG matters, are measured by indicators and targets.
• The company’s role in and contribution to the achievement of the EU’s policy objectives on sustainability, such as the European Green Deal, the Sustainable Finance Action Plan, the European Pillar of Social Rights, and the UN Sustainable Development Goals.

Reporting framework

Companies subject to CSRD have to report according to European Sustainability Reporting Standards (ESRS), which will be developed by EFRAG, an independent body that brings together various stakeholders. The ESRS will be based on existing international frameworks and standards, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), and the UN Guiding Principles on Business and Human Rights (UNGPs). It will be tailored to EU policies and objectives while building on and contributing to international standardization initiatives. ESRS will consist of:

• A general standard that applies to all companies and covers the common reporting elements, such as the reporting principles, scope, process, content, and format.
• Sector-specific standards apply to companies in specific sectors and cover the specific reporting elements, such as the material ESG matters, indicators, and targets for each sector.
• Supplementary standards apply to companies that want to report on additional or emerging ESG matters that are not covered by the general or sector-specific standards.

Non-financial performance indicators

Companies subject to CSRD have to report on a set of non-financial performance indicators that measure their ESG outcomes. These indicators will be defined by the ESRS and will cover both quantitative and qualitative aspects of ESG performance. The indicators will be aligned with the EU taxonomy regulation, which establishes a classification system for sustainable economic activities. The indicators will also be consistent with the EU climate benchmarks regulation, which sets minimum standards for low-carbon and positive-carbon impact benchmarks.

Value chain reporting

CSRD-applicable companies must report not only on their sustainability performance but also on their value chain impacts. This means that they have to disclose information on how they identify, prevent, mitigate, and account for their adverse impacts on people and the planet throughout their value chain, including their suppliers, customers, and business partners. This also means that they have to disclose information on how they promote positive impacts on people and the planet throughout their value chain, including their contribution to sustainable development goals. Value chain reporting is based on the concept of corporate due diligence and accountability, which is also reflected in other EU initiatives, such as the proposed directive on sustainable corporate governance.

External assurance

CSRD companies have to ensure that their sustainability report is externally assured by an independent auditor. The auditor has to verify that the report complies with the ESRS and provides a true and fair view of the company’s ESG performance. The auditor has to issue an assurance report that expresses an opinion on whether the report meets these criteria. The assurance report has to be published together with the sustainability report. The level of assurance required by CSRD is limited assurance, which means that the auditor provides a moderate level of confidence that the report is free from material misstatements. However, companies can choose to obtain a higher level of assurance (reasonable assurance) if they wish.

Supervision

Companies subject to CSRD have to submit their sustainability report to the competent authority in their member state. The competent authority is responsible for supervising the compliance of companies with CSRD and enforcing the reporting obligations. This authority can impose sanctions or corrective measures on companies that fail to comply with CSRD. Additionally, they can cooperate with other authorities in other member states or third countries to ensure consistent application of CSRD across borders.

Navigating CSRD Compliance

Complying with CSRD may seem daunting for many organizations, especially those that are new to sustainability reporting or have limited resources and expertise. However, complying with CSRD can also bring many benefits for organizations, such as enhancing their reputation, attracting investors, engaging stakeholders, improving risk management, driving innovation, and creating value. Therefore, organizations need to understand how they can navigate CSRD compliance effectively and efficiently.

Here are some practical steps that organizations can take to prepare for CSRD compliance:

1. Assess your current situation

The first step is to assess your current situation in terms of sustainability reporting. You need to determine whether you are subject to CSRD or not based on your size, legal form, sector, and listing status. Aim to also evaluate your current reporting practices and identify any gaps or areas for improvement. Here, you can use existing frameworks and standards as a reference point for this assessment.

A good way to begin a general assessment of your current ESG performance is to download Certainty’s free ESG Checklist.

30+ Audit and inspection checklists free for download.

Explore Certainty’s Checklist Library

2. Define your strategy

The next step is to define your strategy for sustainability reporting under CSRD. Establish your vision, mission, values, and goals for sustainability and how they align with your business strategy. Also, identify your material ESG matters, i.e., the issues that are most relevant and significant for your organization and your stakeholders. You can use a materiality assessment process to prioritize your ESG matters based on their impact and importance. Make sure that you set clear and measurable targets and indicators for each ESG matter and monitor your progress and performance over time.

3. Develop your report

The third step is to develop your report according to the ESRS. Collect, process, and analyze the data and information related to your ESG matters, impacts, outcomes, policies, and actions. Here, ensure that your report follows the reporting principles, such as relevance, reliability, comparability, clarity, and completeness. What’s more, verify that your report covers the reporting content, such as the business model, strategy, targets, policies, due diligence processes, principal risks and opportunities, impacts, outcomes, and contribution to EU policy objectives. You must also ensure that your report meets the reporting format, such as the structure, layout, language, and length.

4. Ensure quality assurance

The fourth step is to ensure the quality assurance of your report. Verify that your report is accurate, consistent, and complete. Also, obtain external assurance from an independent auditor who can provide an opinion on whether your report complies with the ESRS and provides an accurate and fair view of your ESG performance. It’s important to address any feedback or recommendations from the auditor and make any necessary adjustments or corrections to your report.

5. Publish and communicate

The final step is to publish and communicate your report. Submit your report to the competent authority in your member state and make it publicly available on your website or other channels. Ensure that you communicate your report to your stakeholders, such as investors, customers, employees, suppliers, regulators, civil society organizations, and the media. Try to use various communication tools and methods, such as press releases, newsletters, webinars, social media posts, podcasts, or videos. Something extremely important to remember is to engage with your stakeholders and solicit their feedback or suggestions on how you can improve your sustainability performance and reporting.

Benefits of CSRD Compliance

Complying with CSRD may require time, effort, and resources from organizations, but it can also bring many benefits in return. Here are some of the advantages of aligning with CSRD for organizations:

• Enhanced reputation: Organizations can demonstrate their commitment to sustainability and their accountability for their ESG impacts. This can improve their reputation among their stakeholders and society at large. It can also help them differentiate themselves from their competitors and gain a competitive edge in the market.
• Attracted investors: Investors can be provided with reliable and comparable information on their ESG performance. This can help investors make informed decisions based on their sustainability preferences and criteria. It can also help investors assess the risks and opportunities associated with investing in certain companies or sectors. This can attract more investors who are interested in sustainable finance and increase the availability of capital for sustainable projects.
• Engaged stakeholders: By complying with CSRD, organizations can engage with their stakeholders on their sustainability performance and impact. This can help them build trust and loyalty with their customers, employees, suppliers, regulators, civil society organizations, and the media. It can also help them identify and address the needs and expectations of their stakeholders and create value for them. It can also help them collaborate and partner with their stakeholders on sustainability initiatives and solutions.
• Improved risk management: Organizations can improve their risk management processes and practices. They can identify, assess, and mitigate the ESG risks that may affect their business operations, financial performance, or reputation. They can also anticipate and adapt to the changing regulatory, market, or societal conditions that may create new ESG risks or opportunities. They can also enhance their resilience and preparedness for potential crises or disruptions that may arise from ESG issues.
• Driven innovation: By complying with CSRD, organizations can drive innovation in their products, services, processes, or business models. They can identify and seize the opportunities that emerge from ESG trends, challenges, or demands. They can also develop and implement innovative solutions that address ESG problems or needs. They can also foster a culture of creativity and experimentation that encourages new ideas and approaches for sustainability.
• Created value: These organizations can create value for themselves and their stakeholders. They can improve their operational efficiency and effectiveness by reducing costs, waste, or emissions. They can also increase their revenue and profitability by expanding their markets, customer base, or product portfolio. They can also enhance their intangible assets, such as brand equity, human capital, or social capital. They can also contribute to the common good by advancing the social and environmental well-being of their communities and the planet.

Best Practices for CSRD Reporting

CSRD reporting can be a complex and challenging process for many organizations, especially those that lack the necessary skills, knowledge, or resources. However, CSRD reporting can also be a rewarding and beneficial process for organizations that follow some best practices and tips. Here are some of the best practices for CSRD reporting that can help you optimize your sustainability reporting under CSRD:

Start early

Don’t wait until the last minute to start preparing your CSRD report. Start as early as possible to plan your reporting strategy, collect your data and information, develop your report content and format, ensure quality assurance, and publish and communicate your report. This will help you avoid stress, errors, or delays in your reporting process.

Align with standards

Follow the ESRS as closely as possible to ensure that your report complies with the CSRD requirements and provides relevant, reliable, and comparable information on your ESG performance.

Here’s how we recommend aligning the standards for your processes:

• Use the general standard as a basis for your report structure and content;
• Use the sector-specific standards as a guide for your material ESG matters, indicators, and targets;
• Use the supplementary standards as a reference for additional or emerging ESG matters that you want to report on.

Ensure data accuracy

Make sure that your data and information are accurate, consistent, and complete. Use reliable sources, methods, and tools to collect, process, and analyze your data and information. Verify and validate your data and information before using them in your report. Document and disclose your data sources, methods, and assumptions in your report.

Be transparent

Be transparent about your ESG performance and impact, both positive and negative. Don’t hide or omit any material ESG matters, impacts, outcomes, risks, or opportunities that may affect your organization or your stakeholders. Don’t exaggerate or embellish your ESG performance or impact. Provide balanced and objective information that reflects the reality of your situation.

Be material

Be material about your ESG performance and impact, i.e., focus on the issues that are most relevant and significant for your organization and your stakeholders. Use a materiality assessment process to identify and prioritize your material ESG matters based on their impact and importance. Report on the material ESG matters that reflect your organization’s economic, environmental, and social impacts or that influence the assessments and decisions of your stakeholders.

Be clear

Be clear about your ESG performance and impact, i.e., use simple, concise, and understandable language and terminology in your report. Avoid jargon, acronyms, or technical terms that may confuse or mislead your readers. Use plain English or the language of your target audience, visual elements such as charts, graphs, tables, or images, to illustrate or emphasize your key points, and headings, subheadings, bullet points, or numbers to organize or structure your report content.

Be complete

Be complete about your ESG performance and impact, i.e., provide sufficient and comprehensive information that covers all the aspects of your ESG performance and impact. Don’t leave any gaps or questions unanswered in your report. Provide context and background information that explains the purpose, scope, process, and content of your report. Deliver details and examples that support or illustrate your statements or claims, and include references and links to additional information or resources that may be useful or relevant for your readers.

Streamlining Audits and Inspections for CSRD Reporting with Certainty

Certainty Software provides a comprehensive solution for organizations to streamline their audit and inspection processes, aiding in CSRD reporting. Here’s how Certainty Software can help:

1. Centralized Data Management: Certainty Software offers a centralized platform for collecting, managing, and storing audit and inspection data. This eliminates the need for manual paperwork and disparate systems, ensuring all relevant information is easily accessible for CSRD reporting.
2. Customizable Templates: Certainty Software allows organizations to create customized audit and inspection templates specifically tailored to CSRD reporting requirements. These templates can capture the necessary data points and performance indicators, promoting consistency and standardization across audits and inspections.
3. Efficient Planning: Enhance the planning process for your audits and inspections. It provides scheduling tools, task assignments, and automated reminders, ensuring the timely completion of audits and inspections. This enables organizations to meet CSRD reporting deadlines effectively.
4. Real-time Data Capture and Analysis: Using Certainty Software, auditors and inspectors can capture data and observations in real time through mobile devices or tablets. This eliminates the need for manual data entry, reduces errors, and enables immediate analysis and reporting. Real-time data capture facilitates swift identification of non-compliance issues, enabling organizations to take prompt corrective actions.
5. Comprehensive Reporting and Analytics: Certainty Software offers robust reporting and analytics capabilities to support CSRD compliance. It generates comprehensive reports encompassing audit findings, inspection results, and key performance metrics. These reports can be customized to align with CSRD reporting requirements and provide stakeholders with clear and concise information. The analytics features of Certainty Software enable organizations to gain valuable insights from the collected data, identifying trends, patterns, and areas for improvement.

If you like to learn more about how Certainty can help with your CSRD reporting needs, book a quick demo with our team to uncover your reporting potential.