What is the Corporate Sustainability Reporting Directive and who does it apply to?
The introduction of the Corporate Sustainability Reporting Directive (CSRD) is a significant step towards a more sustainable future for businesses. It now poses a new challenge for 50 000 small and medium-sized enterprises to create a sustainability report. In this blog post, we will explain what the CSRD term entails, whether your company is affected by the sustainability reporting, and what lies ahead for you.
The Corporate Sustainability Reporting Directive (CSRD) is an important approach to measure and communicate the sustainability and responsibility of companies. These required reporting is intended to result in the following benefits:
1. Enhance an undertaking’s access to financial capital. Sustainability reporting can help undertakings to identify and manage their own risks and opportunities related to sustainability matters. 💶
2. Provide a basis for better dialogue and communication between undertakings and their stakeholders 🤝, and
3. to help undertakings to improve their reputation. 👏
4. Decrease ad hoc requests for information. 📄
In December 2022, the EU Parliament enacted the Directive. It is set to take effect from January 1, 2024, expanding on the requirements of the existing Non-Financial Reporting Directive (NFRD). The types of companies that are to be required to disclose in accordance with the CSRD will increase throughout the period 2024 to 2028.
What is included in the Corporate Sustainability Report?
The report is structured along the ESRS (European Sustainability Reporting Standard). It is a component or disclosure tool within the CSRD (Corporate Sustainability Reporting Directive) and outlines all the information that needs to be included in these reports.
While the CSRD is largely finalized and being adopted into European law, the ESRS is still under development and is likely to undergo further refinement and changes based on the ongoing work of EFRAG (European Financial Reporting Advisory Group) and feedback from companies, regulators, and industry associations (for more information, see this article).
The graphic below provides an overview of the topics areas which are included in the scope of the ESRS.
The ESRS can be seen as a tool that facilitates the reporting and disclosure of ESG-related data in a standardized format.
Which companies are affected by the new CSR obligation?
The CSRD replies upon and amends both the NFRD and the Accounting Directive to determine the criteria which determine whether a company (an “undertaking”) is required to report.
The first category of undertakings which are required to report their sustainability information are “large undertakings”. Large Undertakings are those companies (Accounting Directive Article 3(4)) which exceed at least two of the three following criteria:
📈 Balance sheet total exceeding 20 million euros
💶 Net turnover exceeding 40 million euros
👥 More than 250 employees
The second category of undertakings which are required to report sustainability information are those Small and Medium Undertaking (the definitions of which are in the Accounting Directive) which are also credit institutions, or insurance companies, or are listed on an EU stock exchange, or are otherwise designated as “public interest entities” by their respective governments. In Germany, for example, this category of undertakings is often referred to as “Marktorientiert” (market oriented).
The good news is that you are not alone in this. Approximately 50,000 companies in the EU are estimated to be affected by the new regulation, including 15,000 in Germany. This means that about 50 times more companies than before will be required to submit sustainability reports.
Now, where and how do you actually start? How do you collect data effectively, and how do you create a sustainability report?
According to the study “ESG-Strategie und Berichterstattung – Status und Umsetzung im deutschen Mittelstand” by IMI and PwC Germany, 76 percent of companies in Germany feel unprepared to achieve their ESG goals and meet legal requirements.
A significant hurdle, not surprisingly, is the slow digitization of SMEs. 75 percent of companies still use spreadsheets for collecting and processing ESG-relevant data. Given the scope of the new CSRD, this can quickly lead to overwhelm and lack of transparency. Read our blog post on why you need not rely on ungainly spreadsheets for your sustainability information gathering.
Tip: Collect, analyze & report your Sustainability Information with CSRD Software
Data collection chaos can be overcome with an ESG reporting software. At Code Gaia, you first define your sustainability goals, reporting/analysis scope (environment/ESG), and reporting period together with our Sustainability Specialists. Then, you upload your data such as invoices, questionnaires, etc., to the Code Gaia portal. Subsequently, your data is processed and optimized together with our sustainability specialists. This allows you to download your reporting-ready sustainability information in seconds and make your transformation visible to stakeholders or your customers.
The Advantages of Corporate Sustainability Reports
With the new regulation, certain small and medium-sized companies which were previously not subject to reporting obligations are facing new challenges. However, therein also lies great opportunity.
1. Gain a competitive edge in responsibility and competition through sustainability reports 🚀
According to the study by IWI & PwC, SMEs in particular, represent sustainable commitment and careful use of resources. With sustainability reports, they can not only document their own contributions to society and the environment, but also differentiate themselves from other competitors.
2. Gain trust from investors and customers through sustainability reports 💚
Sustainability reports offer many advantages for companies. They not only help improve their sustainability performance, but also have a positive impact on potential investors. Through sustainability reports, investors receive important information about a company’s commitment to sustainability. This enables them to make better-informed investment decisions.
3. Make your transformation visible with software-supported sustainability reports 🌱
In times of rapidly advancing climate change, companies can demonstrate their commitment to the environment through their sustainability reports and impress customers. With the 1-click reports offered by Code Gaia, you can easily and transparently communicate your transformation.
Conclusion: Corporate Sustainability Reports as an Opportunity
Sustainability reporting is an important part of measuring and communicating the sustainability and responsibility of companies. The new requirements under the Corporate Sustainability Reporting Directive (CSRD) will affect around 15,000 companies in Germany that will need to prepare such sustainability related disclosures. The reporting encompasses environmental matters, social issues, and governance factors.
The path to sustainability may be challenging, but it is worth it. By complying with the CSRD requirements and disclosing meaningful sustainability information, companies can strengthen their credibility and have a positive impact on society. It is time for us to collectively take responsibility and steer our companies towards a sustainable future. Our modern ESG reporting software can greatly assist you in this journey.
Let’s embark on your transformation together!
Our intelligent software can help you, just like it has helped over 100 other medium-sized companies, in organizing your sustainability data, preparing reports and reducing your carbon footprint. Save yourself from spreadsheet chaos, tedious onboarding processes, and, most importantly, save a lot of time!
Simply schedule a brief appointment with us and see for yourself the benefits of Code Gaia.