On 5 January 2023, the European Corporate Sustainability Reporting Directive (CSRD) came into force, replacing the previous Non-Financial Reporting Directive (NFRD). The CSRD sets out the legal framework and reporting obligations for companies. ESRS, the European Sustainability Reporting Standards, is the key document that sets the mandatory standards to which companies will report on sustainability. Let us now look at both obligations in more detail.
What is behind the acronym CSRD?
CSRD is another important piece in the mosaic of solutions to achieve the ambitious targets set out in the Green Deal for Europe and the Fit for 55 package. These goals are designed to ensure a sustainable and fair transformation of the European economy, including the creation of trillions of kronor worth of investment opportunities. In order for financial actors to make informed decisions in favor of sustainable investments, they must have access to accurate and standardized ESG reporting data. Publishing data, setting strategies, and monitoring progress on the environmental and social impacts of a company's activities will now be mandatory for a much wider range of companies. In the past, mandatory non-financial reporting only applied to 20 large corporations; now the CSRD is expanding this obligation to more than 1,000 companies in the Czech Republic.
Does this also apply to your company?
The CSRD applies to companies that meet at least 2 of the 3 criteria: a net turnover of more than EUR 50 million, more than 250 employees or balance sheet assets of more than EUR 25 million.
What will I need to report? Let's take a look at the ESRS standards
Despite the current availability of sustainability information, it is clear that it is often insufficient. Companies often omit key information that is crucial for investors and other stakeholders. This information is not easily comparable between companies, creating uncertainty for users of this information, especially investors who do not know whether they can trust it.
That is why on 31 July 2023 the EU adopted sustainability reporting standards. The ESG Directive aims to create a transparent environment and significantly improve the quality of non-financial reporting. The full scope of the standards is set out in the European Commission Regulation, and we set out the key points below.
There are currently 12 standards; specific standards for individual sectors with significant climate and environmental impacts are expected to be developed by the Commission in the future through so-called delegated acts.
Other important aspects of the ESRS: Double materiality
ESRS 1 and 2 are mandatory for all companies covered by the CSRD. Other standards and individual requirements will be subject to a materiality assessment. This means that a company will only report relevant information and may omit information that is not central to its business model and operations. The materiality assessment is not voluntary and is subject to external verification. For example, if a company concludes that climate change does not have a material impact on its operations, it will have to disclose a detailed explanatory report. This requirement reflects the fact that climate change has widespread and systemic impacts on the entire economy.
Dual materiality looks not only at a company's environmental impact, but also at how the changing environment affects the company's operations and what risks it poses. The first type of information is primarily aimed at the public, consumers and employees; the second type is particularly important for investors. The assessment of the relevance of each phenomenon is in line with the SFDR. The assessment itself can be carried out by means of a questionnaire survey of key stakeholders working with the company.
Other important aspects of the ESRS include the fact that reports filed under the ESRS will be subject to audit, must be prepared digitally and machine-readable, and be labeled with appropriate labels. ESRBs were created to improve comparability between firms, increase their competitiveness, and create a level playing field. In the long term, they reduce costs for companies compared to today's fragmented and opaque standards.
Is it too much? Green0meter can save you time and resources
Non-financial reporting is still a mess of acronyms and often unclear material for many. Companies looking to invest in sustainability face additional costs, and the first steps are often challenging. In addition to the time and administrative burden, companies may struggle to navigate the topic due to a lack of data, capacity, and experience that are necessary to make informed strategic decisions with real impacts.
To comply with CSRD requirements, companies across the EU will need to collect and report on a wide range of data. The Green0meter Studio platform helps companies collect information in an automated way using APIs, questionnaires, invoice analysis, and public data. It then assesses the carbon footprint (Scope 1, 2, 3) and generates non-financial reports according to CSRD, GRI, and SFDR. It also prepares reports and tailored recommendations which help your comany with the reduction of carbon emissions and circular solutions.
It works: a large banking company operating in seven countries saved approximately 1,000 working days in the ESG department in one year thanks to Green0meter Studio technology
By leveraging the technologies offered by Green0meter Studio, the client can formally report its carbon footprint to ISO 14064, issue a non-financial CSRD report to ESG standards, and identify key areas where significant savings or sustainability innovations can be achieved through AI recommendations. Digitizing the entire process allows us to track progress and plan necessary sustainability actions, as well as respond to growing customer and partner demand for sustainable products and practices.
Start working on your CSRD report today and get free demo access to the Green0meter platform
