As part of the EPCA Talent and Leadership Committee's ongoing commitment to fostering impactful leadership through ESG, we recently launched an ESG-related webinar series with a first session on the Corporate Sustainability Reporting Directive (CSRD) basics. This first webinar provided a comprehensive overview of CSRD requirements, timelines, and reporting obligations, setting the stage for future sessions that will delve deeper into company-specific approaches and best practices. In this article, we summarise the key takeaways from that session.
The Corporate Sustainability Reporting Directive (CSRD) imposes broad sustainability reporting requirements on about 50,000 companies across Europe. The first reports will be due for fiscal years starting between 2024 and 2028 and will need to be prepared on a consolidated level that includes EU and non-EU subsidiaries. And since the sustainability report will become part of a company’s annual report, it will be audited[1] and published. The coverage of sustainability disclosures is broad and includes environmental, social and governance topics as well as qualitative and quantitative data points.
The first application of CSRD depends on several company characteristics and is shown in Figure 1. Regardless of this, even companies that do not directly fall under CSRD might be approached by their supply chain partners or parent companies with data requests.
As depicted in Figure 2, CSRD comprises two overarching standards and ten subject specific disclosure standards (ESRS- European sustainability reporting standards) that cover a broad range of topics including climate change, pollution, own workforce, affected communities and business conduct. The standards typically impose disclosures on governance, strategy, the management of sustainability impacts, risks and opportunities and quantitative metrics. In addition to this, industry-specific reporting standards that may impose further requirements are under development. While CSRD imposes minimum disclosure requirements that apply to all companies, other disclosure requirements might not be relevant for a particular company’s business model. Therefore, CSRD prescribes a double materiality assessment that determines the exact scope of disclosures.
Firstly, the double materiality assessment imposes an inside-out perspective that considers a company’s impact on the environment and society. Such impacts can be positive and negative. This view is supplemented by an outside-in view considering the financial effect of sustainability topics on the company. Similar to impacts from the inside-out view, the effects can be positive opportunities or negative risks. Collectively, impacts, risks and opportunities are referred to as IROs (cf. Figure 3).
After the company identifies their IROs, they need to be scored – typically according to a semi-quantitative score card. A company-set threshold then determines if an IRO is material, leading to a reporting obligation for the underlying sustainability matter. Disclosures on non-material sustainability matters do not need to be included in the sustainability report. Material IROs are actively managed through a framework that covers IRO identification, the setting of strategies and targets, their operationalization through policies and concrete actions as well as quantitative measurements.
Thus, conducting a double materiality analysis is typically a first step in a CSRD implementation endeavor since it determines the exact scope of disclosures. In a next step, companies typically identify and prioritize gaps between the detailed CSRD requirements and the company’s status quo. This represents the basis for a CSRD readiness roadmap that is operationalized in a CSRD implementation project. Typical challenges in such projects are of course highly company specific – but experience shows that the establishment of sustainability management governance structures, the availability of data and the need for the involvement of all business units and subsidiaries are typical drivers of complexity. For that reason, companies should start the CSRD journey as early as possible.
Find the slides of the first webinar on CSRD basics here: DOWNLOAD
EPCA’s webinar series will support companies with that journey - by highlighting approaches in the chemical industry and deep-diving into several special topics. Please reach out to Lydia Pernal-Stoddart at ttlt.committee@epca.eu for more information or to request past webinar recordings.
We also invite you to take the opportunity to ask your questions and join the discussion - EPCA and d-fine are looking forward to welcoming you to the next webinars!
Further information on the CSRD can be found here:
[1] First with limited assurance. The European Commission is mandated to analyse the potential for reasonable assurance incl. delivering respective Delegated Acts by October 1st, 2028.
Authors: Denis Ludwig and Johannes Rehn, d-fine
