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The EU CSRD Legislation and How It Will Affect You

November 10, 2022 | News,

Webinar: What Does the EU Corporate Sustainability Reporting Directive Mean for Your Organisation?

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Option 1: Tuesday, 6th December | 12:00 CET / 11:00 GMT / 04:00 MST
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What has happened?

On 10 November, 2022, the European Parliament voted ‘YES’ to the Corporate Sustainability Reporting Directive (CSRD) proposal. The legislation was proposed in April 2021 and agreed upon with amendments in the Summer of 2022. Companies are expected to comply with the bill, starting with the largest listed companies for fiscal year 2024, other large companies for fiscal year 2025, and listed small and medium enterprises (SMEs) in fiscal year 2026. The CSRD is part of the broader ‘European Green Deal’ program, that so far has delivered legislation including the EU Taxonomy Regulation and the revised Sustainable Finance Disclosure Regulation.

The law will bring sustainability reporting much closer to the discipline and fidelity of financial reporting and significantly impact which sustainability data will be published, how that will be collected, and which processes need to be in place to meet the additional requirements of the legislation. The effects will be felt both directly by organisations—inside and outside the EU—responsible for reporting under the CSRD norms and indirectly by organisations competing with them or those that are part of their value chains.

What is the CSRD?

The ‘Corporate Sustainability Reporting Directive’ is a new law governing the requirements for sustainability reporting in the EU and is a significant step up from the existing and relatively limited EU sustainability reporting requirements.

For any reporting company, the CSRD puts new requirements in place for the contents, the format and the processes involving sustainability reporting. The law also requires new European Sustainability Reporting Standards (ESRS) to be developed and define the content companies are required to report on.

The CSRD also expands the number of companies with activities in the European Union to which the mandatory reporting requirements apply. Its effects will inevitably affect companies based outside the EU, either directly or indirectly through competition and the value chain.

Organisations must provide “information necessary to understand the undertaking’s impacts on sustainability matters, and information necessary to understand how sustainability matters affect the undertaking’s development, performance and position.”

What information do organisations need to provide?

Importantly, companies are required to report in accordance with the double-materiality principle, meaning that sustainability information should consider both the impacts caused by the organisation and those incurred. This could impact materiality assessments because understanding the impacts from both perspectives is needed to be able to report on them.

According to the CSRD, relevant “sustainability matters” include all relevant environmental, social and human rights and governance factors. Specifically, the CSRD outlines the following areas to be covered in organisations’ mandatory sustainability reporting:

The ESRS will further define the contents and metrics organisations will use to report within these areas. Those standards are currently being developed by EFRAG, an EU public-private partnership on financial and sustainability reporting. By June 2023, the EU Commission will adopt secondary legislation imposing the ESRS, and by June 2024, complimentary and sector-specific information must be adopted. Different standards for small and medium enterprises and third-country undertakings will be adopted by June 30, 2024.

What other changes are coming?

The CSRD prescribes format and process requirements for sustainability reporting. One important requirement is that the reporting shall take place in the management report of the organisation. Another significant change is that the reported information will need to undergo assurance in the future, starting with limited assurance and later to a reasonable assurance standard. These assurance standards are to be developed by the European Commission by 2026 and 2028, respectively.

Who is affected by this change?

We expect many organisations inside and outside the EU to be affected directly or indirectly.

The legislation directly applies to undertakings specified by the CSRD (see table). Indirectly, organisations will be affected through their value chain. The CSRD requires companies to report on their value chain, so suppliers to CSRD-reporting organisations should expect increased requests and requirements for information. Further, we anticipate that competition between undertakings required to report under the CSRD and those that are not will increase the need for the latter to align with CSRD standards for reporting.



What happens next?

Over the next two years, the EU and its Members States will take the following actions:

  • Member States need to formally transpose the legislation into their national laws within eighteen months after the official publication of the CSRD
  • The ESRS first tranche needs to be adopted by the EU Commission by June 30, 2023
  • The ESRS second tranche needs to be adopted by the EU Commission by June 30, 2024

Companies should be aware of the following important reporting milestones:

  • Large, listed companies need to report sustainability information under the CSRD and ESRS for FY 2024 data
  • All large companies need to report sustainability information following the CSRD and ESRS for FY 2025 data
  • SMEs need to report sustainability information per the CSRD and ESRS for FY 2026 data

In cadence with the ESRS development and assurance standards, Anthesis will roll out services to provide you with readiness support through change and process management. And we will keep supporting you with executing your reporting and other engagements per the new EU requirements.

How is Anthesis supporting you?

The introduction of the CSRD arguably marks the most significant change to date in corporate sustainability reporting, and we are here for you to help with the transition. Anthesis offers solutions that give you the information and learning you need, help you to analyse your needs for change, and support you in implementing that change. Our focus is two-fold: first, to prepare your organisation for compliance, as required, and second—perhaps more important—to empower your organisation for long-term success beyond regulatory requirements.

As the dust settles on the vote and the ESRS is being developed, we will focus in the short term on providing you with webinars aimed at various groups in your organisation. We invite you to join a session designed to introduce your core ESG/Sustainability team to the CSRD. We will also offer tailored sessions for your Legal, Compliance and Finance teams to bring them up to speed with the requirements of the CSRD. Finally, we provide short form learning sessions for Executive Leadership and Board Members, enabling them to understand the incoming changes and elevate their ESG/Sustainability knowledge.

What about other developments?

The CSRD is one of many regulatory changes on the horizon. As mentioned, the ESRS will further determine changes to sustainability reporting. Organisations should also consider other emergent non-legislative initiatives, such as the disclosure standards under development by the International Sustainability Standards Board operating under the IFRS. In the United States, proposed draft SEC rules are in development. We will keep you informed of our approach and offerings in future communications.

 

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