Contact

What Is the CSRD and How Can We Help?

Quality InsightsOctober 20, 2023

We take you through the Corporate Sustainability Reporting Directive (CSRD) and our new suite of services.

What is the CSRD?

The CSRD entered into force on January 5, 2023, to modernize and strengthen the rules concerning the social and environmental information that organizations must report. A broader set of large companies and listed small to medium-sized enterprises (SMEs) will now be required to report on sustainability.

The CSRD will:

  • Unite financial data, environmental, social and governance (ESG) information and assurance
  • Replace the Non-Financial Reporting Directive (NFRD)
  • Improve the consistency and quality of sustainability information 
  • Outline ESG reporting requirements
  • Establish a shared framework for reporting non-financial data
  • Expand upon the NFRD concerning who needs to report and what needs to be reported
  • Enforce rigorous, robust and standardized reports
  • Accelerate responsible change and create transparency across all sectors by standardizing the disclosure, reporting and assurance of sustainability metrics

Why did the CSRD come about?

The EU has long believed that investors and consumers are entitled to understand the ESG impact of organizations in a clear, easily comparable way.

ESG reports often omit crucial information, use confusing metrics and focus on different aspects, making it difficult to trust the data or benchmark organizations against one another. This impacts sustainable investments, one of the EU’s focal points.

With its roots in the EU’s Green Deal, the CSRD is the evolutionary outcome of the NFRD, improving and widening the reporting requirements so that they apply to more organizations.

Who does the CSRD apply to?

The directive is estimated to increase the number of organizations affected from around 11,000 to 50,000.

For EU-based organizations and non-EU organizations with EU-based subsidiaries or securities on EU-regulated markets, the pathway to more sustainable practices will be unavoidable.

As well as organizations currently in the NFRD’s scope, the CSRD will impact all EU-based organizations with:

  • A EUR 40 million or more net turnover
  • At least EUR 20 million in assets
  • 250 or more employees

Every listed organization will also be affected, except micro-enterprises at first. The first companies will have to apply the new rules in the 2024 financial year, for reports published in 2025.

What does the CSRD mean for organizations?

Organizations will face these facts:

  • The CSRD will remove all ambiguity
  • ESG will be part of the annual report process
  • Sustainability information will sit alongside its financial counterpart
  • ESG information will be treated with the same rigor and suspicion as financial information
  • The amount of data that needs collecting will significantly increase
  • The number of people involved in the integrated reporting process will significantly increase
  • Sustainability information will be audited more rigorously

What must be reported?

The European Sustainability Reporting Standards (ESRS) set out the requirements for companies to report on sustainability-related impacts, opportunities and risks under the CSRD.

Organizations must disclose information on:

  • Governance: the processes, controls and procedures used to monitor and manage impacts, risks and opportunities
  • Strategy: how the organization’s strategy and business model(s) interact with its material impacts, risks and opportunities, including the strategy for addressing them
  • Impact, risk and opportunity management: the processes by which impacts, risks and opportunities are identified, assessed and managed through policies and actions
  • Metrics and targets: how the organization measures its performance, including progress toward the targets it has set

What do the reporting requirements include?

Double materiality

This focuses on two main areas and is fundamental to CSRD compliance:

  1. The organization’s impact on the environment and people (inside-out position)
  2. Sustainability-related developments and events that create risks and opportunities for the organization (outside-in position)

Under the CSRD, organizations must disclose their impacts on the above and how they could affect the organization going forward.

The organization must undertake a double materiality assessment to identify which sustainability aspects are most material to the business and its stakeholders. This assessment:

  • Determines the scope of sustainability reporting
  • Enables efficient allocation of the resources needed for CSRD compliance
  • Provides essential insights for shaping company strategy

Under double materiality, a sustainability topic can be material for an organization when it meets impact materiality and/or financial materiality criteria, hence the use of “double”.

Although the CSRD has guidelines for this, the organization must determine whether a subject is material or not, and choices must be substantiated either way. Assessing which topics are relevant/material, and thus, to include in sustainability reports, is a crucial early step toward CSRD compliance. Our CSRD Double Materiality service will support you through this.

The assessment’s outcome will determine which reporting standards, disclosures and data points should be included in the organization’s sustainability reports, and which can arguably be left out.

A double materiality-led report and strategy enhance transparency and decision-making, and ensure that time and resources are focused on the topics that matter most to the organization, stakeholders and society.

Our global network of CSRD experts can support you every step of the way.

Backward- and forward-looking analysis

Organizations must supply retrospective and forward-looking analyses. This means sharing quantitative and qualitative information.

Stricter rules on climate-related disclosures

The CSRD will call for disclosure of Scope 3 emissions, indirect carbon dioxide emissions produced by all organizations throughout the supply chain connected to the original organization.

Enforced audits

For the first time, all sustainability information in a report must be audited to verify accuracy before publication. Our CSRD Assurance service can support this.

How does the CSRD fit with other legislation?

The directive will incorporate existing EU regulations, especially:

  • Sustainable Finance Disclosure Regulation (SFDR), which sets out ESG disclosure obligations for financial market participants
  • EU Taxonomy, a classification system of environmentally sustainable economic activities

The trio will work together to promote sustainable investments. This aims to align the requirements, helping to reduce complexity and avoid duplicating reporting requirements.

What are the key challenges?

As the CSRD is more detailed than the NFRD, organizations will need to collect vast amounts of accurate and verifiable data.

Organizations already reporting under the NFRD face a learning curve while those needing to produce their first ESG report under the CSRD have a greater challenge.

The CSRD will also be incorporated into national law throughout the EU. Depending on how rigorously individual countries enforce the directive, noncompliance could result in penalties or prosecution.

How can SGS help?

As a sustainability leader for over 30 years, we can support you wherever you are on your CSRD journey.

Our experts actively contribute to developing international standards, frameworks, schemes and regulations, including the UN Sustainable Development Goals (SDGs), UN Principles for Responsible Banking (PRB) Assurance and the CSRD, so we are your perfect partner, whatever you need.

Our services:

  • CSRD advisory: get expert advice and support at every step of your CSRD journey
  • CSRD training: understand and enhance your CSRD journey with expert-led training and resources
  • CSRD double materiality: understand and successfully navigate CSRD-related double materiality
  • CSRD gap analysis: identify your CSRD-related strengths and weaknesses with SGS gap expertise
  • CSRD assurance: demonstrate your CSRD compliance and reporting accurately and consistently with SGS assurance

Whatever your CSRD maturity level, we will consider the timeline and resources needed to achieve your goals, including the highest-quality disclosures and reports.

To learn more, visit our CSRD services web page or speak with your local SGS representative.

For further information, please contact:

Jason Hulbert
Associate Marketing Manager
Knowledge
t: +44 7912426878

About SGS

We are SGS – the world’s leading testing, inspection and certification company. We are recognized as the global benchmark for sustainability, quality and integrity. Our 98,000 employees operate a network of 2,650 offices and laboratories, working together to enable a better, safer and more interconnected world.

News & Insights

  • SGS Philippines, Inc.

3/F Alegria Bldg.,

2229 Chino Roces Avenue, 1231,

Makati, Metro Manila, Philippines