Are Companies Prepared for CSRD? And When Will They Start Reporting?

What is CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal piece of legislation introduced by the European Union aimed at enhancing sustainability reporting among companies. 

This directive expands the scope of previous reporting frameworks such as the Non-Financial Reporting Directive (NFRD), requiring a broader range of organizations to disclose detailed information on their sustainability impacts, risks, and governance. It mandates that companies report not only on financial metrics but also on environmental, social, and governance (ESG) factors, making transparency a core tenet of corporate accountability.

CSRD is notable in that it employs the principle of ‘double materiality’ where companies are expected to report not only on the ESG risks that impact them, but also their ESG impacts on other stakeholders and the planet. This is different to the ‘single materiality’ perspective used by the ISSB standards, where companies should primarily report on the ESG risks they face. 

Why Does CSRD Matter?

CSRD is significant for several reasons. 

Firstly, it is mandatory; organizations that fall under its jurisdiction are legally required to comply, facing potential penalties for non-compliance. This creates a strong incentive for businesses to adopt sustainable practices and report their progress transparently. ESMA, the EU regulator that will enforce CSRD, has already set out several areas where it intends to focus it’s supervisory efforts, including EU Taxonomy disclosures. Companies that are required to report against CSRD but not do say, may face regulatory consequences.

Secondly, as stakeholders—including investors, customers, and regulatory bodies—demand more accountability regarding sustainability, companies that fail to meet CSRD standards risk reputational damage and financial consequences. CSRD is therefore not just a compliance issue; it represents a critical shift towards responsible business practices in an increasingly environmentally and socially conscious marketplace.

Are Companies Ready for CSRD?

Overall, companies appear to be making strides toward readiness for CSRD. Findings from recent surveys indicate that a significant majority—approximately two-thirds—of organizations are aware of the requirements set by CSRD and are actively working to meet them. Many have initiated projects focused on data collection and integration processes necessary for compliance. This readiness reflects a growing acknowledgment of the importance of sustainability in strategic planning and reporting.

More Work Needed

Despite this overall preparedness, companies still face notable challenges. Key areas of struggle include the complexity of data collection and the need for standardized reporting frameworks. Many organizations find it difficult to aggregate and analyze the vast amounts of data required to fulfill the new reporting criteria. Additionally, there is uncertainty about how to effectively communicate sustainability metrics in a manner that is both compliant with CSRD and understandable to stakeholders. 68% of companies are missing material negative impacts. Companies are also grappling with the integration of sustainability into their broader corporate strategies, as many still view it as a separate initiative rather than a core business function.

Where Can Companies Get Help with CSRD?

For a comprehensive understanding of the requirements and best practices, businesses can refer to guides and frameworks designed to aid in compliance efforts. Our Essential Guide to CSRD provides a wealth of information to help organizations get started on their path to compliance, ensuring they are well-equipped to meet the demands of the directive and enhance their sustainability reporting practices.