The Corporate Sustainability Reporting Directive (CSRD) explained

The Corporate Sustainability Reporting Directive (CSRD) explained

An increasing number of environmental regulations directly or indirectly connected to carbon accounting affect organizations active in the European Union. Among them, the Corporate Sustainability Reporting Directive (CSRD).

Regine Castilla
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Regine Castilla
December 12, 2023
# min read
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CSRD, a cornerstone of the European green transformation

In the last two years, the European Union has been working intensely on the Corporate Sustainability Reporting Directive (CSRD), a major legislative enactment of the EU Green Deal. The CSRD is a “critical step towards the objective of placing sustainability reporting on an equal footing with financial reporting. Quality sustainability-related information is indeed key to transparency and decision-making.” (Patrick de Cambourg, Chair of the EFRAG SRB)

On July 31, the commission adopted the ESRS, a first set of reporting standards. These general and sustainability-related disclosures were developed in cooperation with existing frameworks such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), the Task-Force for Climate-related Disclosures (TCFD), to ensure harmonization and comparability of sustainability disclosures. It is estimated that the CSRD will affect more than 50,000 companies based in the EU or performing activities on EU territory.

The following article explains the scope, timeline and main features of the ESRS. It highlights how Cozero can support businesses in efficiently aligning with the CSRD. At Cozero, we believe that the CSRD goes beyond regulatory compliance; rather it needs to be considered as a strategic imperative for organizations to stay competitive on the way towards a low-carbon European economy.

Which companies are in scope for CSRD and when is reporting due?

  • Large, EU-based public-interest companies subject to the EU Non-Financial Reporting Directive (current reporting law applicable to public-interest companies > 500 employees)
  • Other large EU companies meeting two of the three conditions will be required to report under the CSRD:
    • €40 million in net turnover
    • €20 million in assets
    • 250 or more employees
  • Non-EU companies that have achieved a net turnover above €150 million in two consecutive years
  • Listed European SMEs will be required to report using simplified standards
  • Under proposal by the Commission: separate voluntary standards for non-listed SMEs

What is the structure of the ESRS and what are its main features?

Double materiality assessment: there are two materiality dimensions to be assessed, namely financial and impact. A sustainability matter is material from a financial perspective if it potentially triggers significant financial effects on the business and may influence its future cash flows and enterprise value. A sustainability issue is material from an impact perspective if it is connected to significant impacts by the business on people or the environment.

Companies will be required to report on those standards, that are material from either dimension or both. Double materiality is the centerpiece of the CSRD, defining the extent of information and areas that need to be disclosed and companies need to clearly define a governance structure to address material topics strategically as well as collect relevant physical and monetary KPI data.

Structure of the standards:

Reporting broadly on sustainability at the same time as financial statements: One major focus of future compliance is the availability and robustness of sustainability data. Part of the management report, sustainability reporting will be published at eye level with financial statements. Further, businesses will be subjected to assurance of their data, requiring clear audit trails as well as process documentations and controls. Non-compliance may lead to fines.

Outlook: How COZERO supports businesses in championing the CSRD

1.Collaborate to build deep capabilities in carbon accounting and strategic decarbonization

Sustainability reporting will be subject to unprecedented relevance and complexity. For companies, this means building up deep and broad sustainability capabilities in several areas, including carbon emissions. In addition, a large number of internal departments must be involved and sufficient resources must be available.

At Cozero, we go beyond providing our customers with advisory on carbon accounting and climate action, we empower capability-building: Our products enable entire organizations to work together and build a deep understanding of a) company and product emissions and b) how to engage in carbon actions and develop a tailor-made decarbonization journey.

2. An easy way to ensure high-quality climate change reporting

The CSRD places a strong emphasis on data accuracy and quality. Independent quality assurance will not only scrutinize the correctness of disclosed endpoints, it will also take into account the plausibility and robustness of the data collection and calculation methods. Furthermore, the regulation is likely requesting that companies use a machine-readable tagging system for reporting information. Thereby, the report will need to be prepared in XTHML format and information tagged digitally to make it available in the upcoming European Single Access Point (ESAP) database.

At Cozero, we want to ensure that you build accurate carbon accounting and a coherent decarbonization strategy. We support our customers throughout the entire process of collecting and entering relevant Corporate and Product Carbon Footprint data, performing quality assurance on the calculations to spot any data shortcomings. Whereas our emission factors and methodologies are based on state-of-the-art research, calculations are executed automatically, guaranteeing accuracy. Lastly, we aim to work on linkages between our platform and the digital tagging system so that our customers can easily cross-disseminate information.

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