Preparing for CSRD in-house

EU regulations will soon require thousands of non-EU companies to increase their sustainability reporting. The Corporate Sustainability Reporting Directive (CSRD) will apply to at least 10,000 companies outside the EU, with about one-third of those in the U.S. 

Join the Datamaran webinar " A Race Against Time: CSRD Compliance Countdown " at 15:00 BST on 27 July, to learn the crucial steps to meet CSRD requirements.

Hear firsthand from industry leaders Dr. Donato Calace (Datamaran), Simon Braaksma (Philips), Brianne Sood (Boeing), and Roxana Steliana Cata (Dell).

The CSRD aims to increase transparency in reporting on issues as diverse as greenhouse gas emissions to gender pay differences. EU officials expect over 50,000 European companies will be impacted by CSRD, but while many non-EU businesses will be affected the exact number is less certain.

Who will be impacted by CSRD?

Businesses outside the EU will need to comply with the rules if they:

• Have securities listed on a regulated EU market
• Have an EU branch with a net revenue of over €40 million and an annual EU revenue of more than €150 million
• Have an EU subsidiary that is a large company with more than 250 EU-based employees, a balance sheet exceeding €20 million, or local revenue above €40 million.

Recently, Dieter Holger writing in the Wall Street Journal noted that there are 10,400 foreign companies listed on EU stock exchanges, in addition to over 100 companies outside the EU with local revenue exceeding €150 million. Of these companies:

• 31% are American
• 13% are Canadian
• 11% are British

When should you start preparing for CSRD?

Under the CSRD, companies must use the European Sustainability Reporting Standards (ESRS), which are developed by EFRAG, an independent body of stakeholders. These standards will align with EU policies and contribute to global standardization efforts. EFRAG released draft standards in November 2022, and the Commission adopted the first set of standards in January 2023.

Companies need to start getting ready for CSRD now to ensure they can comply with the new regulations when they come into effect. 

Starting in 2023, eligible organizations must prepare for the CSRD by building ESG reporting capabilities and infrastructure. The CSRD takes effect for these organizations in their corporate fiscal year 2024.

In 2025, qualifying large businesses must disclose a CSRD report based on the first set of sustainability reporting standards for their 2024 financial year. All EU Member States must comply with the CSRD by July 6, 2024. CSRD Article 4 of the Directive applies from January 1, 2024, for financial years starting on or after that date.

2024 is only 8 months away so organizations must have robust processes in place to ensure they are ready.

Preparing for CSRD - advice from those who know

Simon Braaksma, Senior Director of the Corporate Sustainability Office at Philips International B.V. spoke to Datamaran about CSRD and his experience conducting double materiality assessments, a key requirement of the new regulations, and working with external consultants to prepare for CSRD.

Braaksma’s advice for those addressing CSRD is clear, “Don't underestimate the work you need to do to comply with the reporting standards. The clear recommendation that we can give is to start as soon as possible, and start with a double materiality analysis.”

“Meeting the disclosure requirements is a massive task.” Start now and learn from the experience of others in your industry who are further down the line.

To outsource, or not to outsource, is that the question?

External consultancies provide valuable support for companies navigating the complexities of CSRD compliance, especially for the first time, but there are several reasons why companies should also be confident enough to consider their in-house capabilities to prepare for CSRD.

Double materiality in sustainability reporting means that organizations should consider a topic material if it is relevant from either of two perspectives: inside-out impact (an organization's impact on society or the environment) or outside-in impact (the financial impact of society or the environment on an organization).

The traditional method of conducting materiality assessments involves multiple meetings with stakeholders, which consumes a significant amount of time and resources for everyone involved. This approach generally only captures the perspectives of selected individuals, typically those who are responsible for a single aspect of the ESG spectrum. Due to resource and time limitations, the number of respondents is often small. Alternatively, using an automated platform, like Datamaran, enables companies to collect a larger volume of data, resulting in a far more extensive and robust dataset. With its ability to access an extensive range of data sources, Datamaran offers a speedy, robust and impartial foundation for carrying out materiality analysis.

By increasing internal resources to manage double materiality as part of CSRD preparations, companies can control costs, mitigate risks in data quality, and build a sustainable internal capacity that can be used for ongoing compliance and reporting requirements beyond CSRD.

With reporting deadlines looming, time and resources are critical to delivering robust data. Victoria Emerick, Executive Director and Global Head of Corporate Sustainability Strategy and Operations at Bristol Myers Squibb shared her insights at a recent conference discussion on"ESG: the journey from best guess to best informed".

With all organizations facing a shortage of experienced ESG talent, developing in-house expertise establishes a durable ESG knowledge base and skill set to future proof them beyond CSRD and help integrate ESG into the DNA of the business.

Building internal expertise for CSRD compliance and reporting can help companies develop a deeper understanding of their ESG performance, identify areas for improvement, and foster a culture of sustainability throughout the organization. This can lead to more meaningful and impactful sustainability initiatives, as well as increased stakeholder engagement, authenticity, and trust.

“The ability to use technology, and data in particular, has really elevated the conversation that we've been able to have with our leadership teams and has made them take us seriously,” commented Megan Maltenfort, VP of ESG at Cardinal Health.

Companies that prepare for CSRD in-house can tailor reporting to their specific needs and goals, capturing the nuances of their business or industry. This can lead to more relevant and impactful reporting that resonates with stakeholders and drives sustainable value creation for the business.

Megan Maltenfort, VP of ESG at Cardinal Health commented in the"ESG: the journey from best guess to best informed" conference discussion, “The ability to use technology, and data in particular, has really elevated the conversation that we've been able to have with our leadership teams and has made them take us seriously.” 

CSRD requires a third party to audit materiality assessments

Braaksma advises engaging with your auditors as early as possible as any challenges or questions raised to your approach must be addressed with clarity and evidence. His approach works as Philips achieved reasonable assurance on this from their auditors, one level higher than what the CSRD prescribed. “I don't think we spent an awful lot of time on this topic to get reasonable assurance on it with our accountant, which was good news,” said Braaksma.

By building in-house ESG knowledge, companies can better integrate sustainability considerations into their broader business strategy and operations. This can help companies create more holistic and integrated sustainability strategies that deliver long-term value for all stakeholders.

External consultancies can help navigate CSRD, but managing preparations in-house can offer several advantages. These benefits include cost savings, more comprehensive and detailed data, deeper expertise and understanding of the company, a more authentic approach to ESG, more relevant reporting, clearer auditing responses, and greater integration of sustainability into the business strategy.

Preparing for CSRD compliance may be the initial driver, but materiality is dynamic and will continue to serve organizations beyond initial compliance by offering organizations potential opportunities to differentiate themselves in a crowded marketplace. Recognizing and developing business opportunities is the goal for any internal team.