CSRD. Part 1: Get ready for a new legislation

Get ready for the CSRD! Don’t worry, it’s easy. It’s just an improved NFRD including the ESG that follows the ESRS developed by the EFRAG…

You don’t know what I’m talking about, do you? I’ll try again:

Get ready for the Corporate Sustainability Reporting Directive! It is an improved Non-Financial Reporting Directive that includes all relevant Environmental, Social and Governance elements of an organization and follows the EU Sustainability Reporting Standards developed by the European Financial Reporting Advisory Group…

All clear now? Maybe not.

Ok, follow me in this jungle of acronyms and legislation; I will try to make some sense of it.

With the Paris Agreement in 2015, the ambitious target of the Green Deal was decided on: by 2050, Europe will be the first continent to become climate neutral. On the 21^st of April 2021, the EU Commission made a step further in the same direction with the introduction of the Corporate Sustainability Reporting Directive (CSRD). This new regulation will standardize the reporting of all relevant Environmental, Social and Governance (ESG) elements of an organization. In 2024 will come into effect and will replace the current directive on Non-Financial Reporting (NFRD).

To really understand what all this is about, let’s take a closer look at these acronyms and their meanings.

The Non-Financial Reporting Directive (NFRD) is the current directive that regulates the reporting of companies’ environmental, social and personnel matters. Every year, companies must report on their policies, strategies, and performance relative to topics such as respect for human rights, plans against corruption or bribery, and sustainability strategies. This report monitors the position and the performance of a company in these areas and the effects of its activities on society. Ultimately, its aim is to contribute to a sustainable global economy by way of providing consumers and stakeholders with valuable information on companies they want to invest in.

For example, if you want to establish a partnership with a company, it is a good idea to have a look at its NFRD and check how they behave with employees, which kind of policy they have against corruption, and what their plans for sustainability are. The better they perform in these matters, the lower your risks as a partner or investor.

Environmental, Social and Governance. It is the part of the NFRD that collects specific data like, for example, greenhouse gas emissions, energy efficiency, water management, working conditions, employee safety, equity, inclusion, cybersecurity, and privacy practices. Nowadays, the market value of a company is not only determined by its financial performance. Sustainability, ethical issues, and the way the organization is managed, though immaterial, are crucial factors. That is why the data collected in the ESG are considered important by investors.

Shortly, if you want to establish a business partnership, or invest in a company, it is important for you to know, not only its bottom line but also how it scores in terms of eco-friendliness and social impact because these factors will influence its global value.

Corporate Sustainability Reporting Directive. It is the latest and improved version of the NFRD. It answers the increasing need of investors and consumers for transparency and the possibility to make more conscious and informed choices. Like the NFRD, it rules the annual reporting requirements for companies on environmental, social, and governance matters. Differently from the NFRD, however, the CSRD will be mandatory for a significantly larger number of companies in Europe, will contain more detailed information, and will require an external validation of the data to improve its reliability. It also contributes to regulating a more efficient standardization of sustainability reporting.

In a nutshell, the CSRD is almost the same as the NFRD but better!

Which companies will be required to compile the CSRD? This new directive will be mandatory for about 75% of the companies in Europe. The scope will be widened from the previous number of 11000 companies to the new and much larger number of 49000.

The criteria for inclusion are based on the organization’s capital, turnover, and employee number. Specifically, the CSRD will affect EU-based companies with a net turnover of no less than €40 million, a capital of at least €20 million, and a number of employees of 250 or more.

The deadline for the introduction of the new CSRD is 2024. That’s the year when the poor old NFRD will be dismissed and replaced by its new and improved version. The deadline might still seem far away but getting ready for this new directive might be challenging.

Just to give an idea of what it means, let’s consider a couple of steps that might be necessary to prepare for the CSRD: creating a database, designing a reporting framework, drawing a long-term strategy, and setting targets.

The database will be necessary to collect detailed information and be carefully monitored to ensure the reliability and transparency of data. In designing the reporting framework, much attention should be given to flexibility. Reporting standards and relative regulations are never really definitive. They keep developing and undergoing continuous adjustments. A reporting framework, therefore, should be easily and quickly adaptable to changes. As for strategies and targets, apart from being clearly defined, it is important to make them publicly accessible. In this way, companies will become more attentive to sustainability matters and will find it convenient to include them in their long-term strategies and vision.

Do not think, however, that all these efforts will end up being only pains and no gains

The sooner you start working on strategies and data collection to comply with the CSRD the better. Not just because it will soon become mandatory, but because it has clear advantages apart from the obvious ones related to sustainability. This kind of reporting can give you a better knowledge of your own organization and lead to new and unexpected insights.

At Emons Cargo, we already have quite some experience with reporting. Our company has always put environmental protection at the top of our priority list, and transparency has always been a matter of course. Already for some time, we have been using tools like BigMile to calculate our carbon emissions and have been compiling annual sustainability reports.

Nevertheless, we are perfectly aware that there is still work to be done. It is easy to predict that, in the coming years, the focus on environmental and social issues will increase and that every company will be required more efforts to comply with higher performance standards.

We are ready to take up the challenge. What about you?

Keep checking our blog, we will share more information on the development of this new legislation. Which data will be required? How will this data be assessed? What are the advantages? What’s in store for the future? In our next blogs we will try to answer to these and more questions.

In the meantime, check our website to find out how you can already start improving your sustainability performance with our alternative solution 2WIN.