CSRD: 17 Answers For CFOs And CEOs

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The European Union’s Corporate Social Responsibility Directive (CSRD) represents a huge challenge for European companies: they need to put policies and mechanisms in place by 2023 to measure and improve their non-financial performance such as carbon emission reductions by 2024 in order to be able to report it in 2025-with an auditor’s report and the CFO’s signature.

Regulators, investors and other stakeholders already attach increasing weight to double materiality: the impact of a company on its environment, and its repercussions on the company’s finances.

Cost of capital is increasingly dependent on how banks, insurers and rating agencies value a company’s climate impact and related risks. Green bonds provide a nice interest rate discount on investments in sustainability-provided your organisation achieves the agreed climate performance and demonstrates it convincingly.

  • As an ESG Lead in your organisation, how do you bridge the gap between intention and performance?
  • How do you collect frictionless CO2 data on mobility, workplace use and home working of your employees?
  • How do you smoothly and permanently reduce the CO2 emissions of e.g. your vehicle fleet and buildings?

But above all:

  • How much time do I have to do this?
  • What if our organisation does not achieve it in time?
  • What if our organisation does make it on time?

To start with the latter: then your organisation will become the absolute darling of regulators, investors and customers!

Those who know how to give hands and feet to their CSRD strategy quickly can gain a competitive edge. 2023 is a crucial year for that.

This blog post gives you an overview of CSRD especially for Dutch and Flemish CFOs, CEOs and other stakeholders such as supervisory board members.

We will cover these questions:
  • What is the Corporate Sustainability Reporting Directive (CSRD)?
  • What is the difference between NFRD and CSRD?
  • To whom does the CSRD apply and what is the timeline?
  • Is CSRD reporting mandatory?
  • What should I report under CSRD?
  • When will the final ESRS documents be published?
  • What is double materiality?
  • Are ESRS reports mandatory?
  • How should companies measure and report their GHG emissions?
  • What format should a CSRD report have?
  • Should our CSRD reporting be assured by a third party?
  • What happens if my company does not comply with CSRD?
  • Is assurance required from the outset?
  • Are disclosures in the value chain required from the beginning?
  • How does the CSRD relate to the GDPR?
What is the Corporate Sustainability Reporting Directive (CSRD)?

The Corporate Sustainability Reporting Directive (CSRD) is the new EU directive that makes the reporting of Environmental, Social and Governance (ESG) corporate information mandatory for large, medium and also some small companies in Europe.

The CSRD was adopted by the European Parliament on 10 November 2022 and by the Council of the European Union on 28 November 2022. EU member states, including the Netherlands and Belgium, will incorporate the CSRD into their national legislation in 2023.

The CSRD requirements will apply to reporting of environmental and social impacts of business operations in 2024 (for reports to be published in 2025).

What is the difference between NFRD and CSRD?

The CSRD replaces the Non-Financial Reporting Directive (NFRD).

NFRD and CSRD are two European Union directives that require companies to disclose information on their sustainability performance. The CSRD is heavier and broader than the NFRD and affects more companies.

The 2014 NFRD requires large EU companies (more than 500 employees) to disclose information on their policies, risks and results relating to environmental, social and employee affairs, respect for human rights, anti-corruption and board diversity (age, gender etc.). A “material and relevant” non-financial statement included in the annual report was sufficient.

The 2022 CSRD aligns with existing global frameworks and standards for sustainability reporting such as from the Task Force on Climate-Related Financial Disclosures (TCFD). The CSRD expands the scope of reporting requirements. In addition to the previous sustainability topics, companies are now required to report on their supply chain due diligence, the sustainability of their products and services and their impact on biodiversity.

Other differences include the requirement for external assurance (audit opinion and CFO signature), ESRS reporting guidelines, machine readability and double materiality. More details below.

To whom does the CSRD apply and what is the timeline?

Companies currently covered by the NFRD must start complying with the CSRD from 2024, i.e. for reports published in 2025.

NFRD-compliant companies are now: listed companies, banks and insurers that meet at least two of the following three requirements:

  • more than EUR 40 million in net turnover
  • more than EUR 20 million in assets
  • more than 250 employees (for diversity policy reporting) or more than 500 employees (for other non-financial reporting).

The CSRD will apply from 2025 (reporting 2026) to all large companies meeting at least two of the following criteria:

  • more than EUR 40 million in net turnover
  • more than EUR 20 million in assets
  • more than 250 employees
Is CSRD reporting mandatory?

Yes. The CSRD is mandatory for all companies meeting the criteria described above. These companies will have to publish an annual ESG report according to the European Sustainability Reporting Standards (ESRS).

What do I have to report under CSRD?

The CSRD requires companies to follow the ESRS in their ESG reports. Topics include: information on environmental and social risks and impacts, and governance structures to manage those risks and impacts.

The ESRS standards align with the goals of the EU Green Deal and the systematics of the 2020 EU Taxonomy for sustainable activities, also known as the “Green Taxonomy”, which aims to counter greenwashing and help promote sustainable investment choices.

The ESRS standards also align with the standards of the Global Reporting Initiative (GRI) based in Amsterdam, which develops authoritative international ESG reporting standards by industry and topic.

Table with 4 columns with CSRD information
When will the final ESRS documents be published?

The first “exposure drafts” of the ESRS were published in April 2022 for comments from society and industry. Since then, the standards have been shortened and the reporting topics reduced from 136 to 84-still a staggering number!

Revised versions will be published monthly or sometimes even weekly in 2023 by the European Financial Reporting Advisory Group (EFRAG), an NGO providing technical advice to the EU. The ESRS are yet to be formally adopted by the European Commission, but the outlines of the content are now fixed.

What is double materiality?

Double materiality (“double materiality”) deals with the inside-out impact and outside-in impact of a company.

Inside-out impact describes a company’s impact on the outside world, near or far, on people and the environment, called “impact materiality”.

The outside-in impact describes the impact of the outside world (nature, climate, stock market and market) on a company, the so-called “financial materiality”.

Double materiality is a central part of the ESRS standards and is a mandatory part of ESG reporting under the CSRD directive. During the materiality analysis, the company figures out which topics should be included in their ESG report.

This involves looking at the company’s operations, business relationships and stakeholders; ESRS topics; sustainability due diligence, including input from affected stakeholders and experts; assessment of the impact by scale, scope and (un)recoverability; thresholds above which an impact becomes material to the company; and a list of ESRS topics that exceed these thresholds, with an assessment of the likelihood and magnitude of the financial impacts of the threshold-crossing ESRS topics.

Materiality analysis is a craft! Scone can provide hard data and also improve performance within this dual materiality framework.

CSRD lifecycle illustration
Are ESRS reports mandatory?
By all appearances, the following ESRS reports will become mandatory under the CSRD directive:
  • ESRS 2 - General reporting
  • ESRS E1 - Climate change (climate action)
  • ESRS S1 - Personnel
The section on general reporting (ESRS 2) requires reporting on:
  • Integration of climate change strategies into performance and incentive schemes
The climate change chapter (ESRS E1) requires companies to disclose, inter alia, the following:
  • Integration of sustainability performance in incentive schemes
  • Climate change mitigation transition plan
  • Material impacts, risks and opportunities and their interaction with strategy and business model(s)
  • Processes to identify and assess material climate-related impacts, risks and opportunities
  • Policies related to climate change mitigation and adaptation
  • Actions and resources related to climate change policies
  • Targets related to climate change mitigation and adaptation
  • Energy consumption and mix
  • Gross Scopes 1, 2, 3 and total greenhouse gas emissions
  • Greenhouse gas removal and mitigation projects funded through carbon credits
  • Internal carbon pricing
  • Potential financial impacts of material physical risks, material transition risks and climate opportunities

The Scone platform and Scone team can support this with frictionless, granular data collection to better drive, performance, reporting and continuous improvements in more sustainable employee behaviour in the workplace, on the road and at home (GDPR-proof, AVG-compliant).

Is a decarbonisation/CO2 reduction plan mandatory?
Yes. CSRD requires reporting of greenhouse gas (GHG) emissions within ranges (scopes) 1, 2 and 3:
  • Scope 1: CO2 emissions from company assets
  • Scope 2: CO2 emissions from purchased energy, heating, cooling
  • Scope 3: CO2 emissions from purchased or leased goods and services from suppliers, business mobility (upstream); distribution, processing, use and recycling or final processing of sold products (downstream)

CSRD requires rapid and structural reduction of CO2 emission volumes in all three Scopes.

Scone can help map and reduce CO2 emissions under Scopes 2 and 3.

How should companies measure and report their greenhouse gas emissions?

The ESRS suggests that companies use the methodologies of the GHG Protocol, GRI or ISO 14064-1:2018. The Scone platform’s data capture is compliant with these.

What format should a CSRD report have?

A CSRD report must have a machine-readable format. Technical details will be announced during 2023.

Should our CSRD reporting be secured by a third party?

Yes. The ESRS (the CSRD’s implementation standard) requires companies to obtain external assurance for their reporting to ensure the quality of the reported data, just as has long been the case for financial reporting. CSRD assurance can be provided by auditors or other external assurance service providers.

What happens if my company does not comply with the CSRD?

Non-compliance with the CSRD can lead to financial penalties and disclosure of non-compliance by a regulator or government. The cost of capital may also increase for your company, if rating agencies, banks, insurers and investors assess your company’s risks higher.

Is assurance required from the outset?

Initially, only a limited degree of assurance is required, in order for the CSRD to quickly land in the business and develop from there.

Are disclosures in the value chain required from the start?

Data collection regarding Scope 3 (upstream suppliers and downstream users and processors) are difficult to collect and therefore not mandatory for the first three years. However, companies are expected to set up their data collection across their upstream and downstream value chain during that time.

Business mobility and home working also fall under Scope 3. Scone can collect that data frictionlessly and also support the reduction of those carbon emissions by giving your employees personalised recommendations, nudges and rewards.

Scone’s data-driven AI platform creates digital twins of your employees, their cars or their workplaces, and supports them through challenges and gamification elements such as rankings and badges to make their behaviour more climate-friendly.

How does the CSRD relate to the GDPR?

If your company wants to monitor and manage or nudge its employees’ behaviour (e.g. driving style, business mobility choices), you will soon run into prohibitions from the European Union’s General Data Protection Regulation (GDPR).

This AVG regulation (in English: General Data Protection Regulation; GDPR) imposes strict requirements and restrictions on the collection, storage, access, use and processing of personal data.

By using a third party like Scone, you can:
  • nudge your employees towards more climate-friendly behaviour
  • collect frictionless CO2 behaviour data in a GDPR-proof way
  • gain insight into behavioural trends within your organisation
  • report hard CO2 data in your CSRD reporting
  • get assurance on this from your accountant
  • as CFO, putting your signature to it with peace of mind
In short

From 2024, large companies must quantitatively describe and robustly justify the impact of their business operations on the environment and society:

impact must be described and justified quantitatively long-term objectives must be defined and measured reporting must receive assurance: externally from auditor and internally from CFO

Erwin van Laethem, CCO at Scone, notes, “Besides the importance of good gap analysis, CO2 behaviour now to CO2 targets in the near future, we see that ESG data capture is hugely challenging for companies with external pressure and authentic ambition to take their climate performance to the next level.”

“Our data-driven Scone platform helps collect hard CO2 data around employee mobility, workplace behaviour and home working easily and reliably.”

“We bring together AI modelling (including digital twinning), behavioural influence through awareness and gamification, enabling companies to quickly close the gap between organisational intent and collective performance by measuring and managing, promoting and rewarding more sustainable employee behaviour. Because Scone sits in as a neutral third party, it is also compliant with European provacy legislation (AVG; GDPR).”

“This is how we help implement, measure and, above all, embed carbon policies, not only in the management of the organisation but also in behaviour and ultimately culture.”

Want to know more about how Scone can also support your organisation in climate action and savings in Scopes 1, 2 and 3? Then can on the website or request a no-obligation consultation with one of our consultants.

Take the first step to a CSRD proof organization with Scone!
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