As part of the EPCA Talent and Leadership Committee's ongoing commitment to fostering impactful leadership through ESG, we are running an ESG-related webinar series. The fourth webinar was specifically designed for small- and medium-sized enterprises, and covered realistic and impactful approaches to ESG reporting, ensuring practical guidance for CSRD compliance without overextending resources. In this article, we summarise the key takeaways from that session.
The preparation of the first CSRD report will be particularly challenging for mid-sized companies that typically have not published comprehensive sustainability reports before and are more resource-constrained than bigger companies. Under current legislation, almost 50,000 companies[1] across Europe are required to compile a CSRD report for the financial year 2025.[2] Consequently, companies having to report for the first time in 2025 now have approximately one year to prepare and publish this report as part of their annual accounts.
The starting point of the preparation for CSRD compliance is the double materiality assessment (DMA) which is typically followed by a gap analysis. Based on the DMA results, companies can derive the exact reporting scope and start collecting all relevant data to compile the CSRD report. For an effective implementation of the CSRD, four key success factors should be considered:
● Diligent materiality analysis
● Pragmatic report compilation
● Management buy-in
● Alignment of assumptions
Since the double materiality assessment determines the exact reporting scope and thus also the implementation effort, the next chapter will highlight a compliant and yet pragmatic approach for carrying out the DMA as well as for compiling the report. Subsequently, recommendations are summarized in the key success factors.
The realization of the DMA is based on four main steps as shown in Figure 1:
Preparation
Proper preparation is key for an effective implementation of the DMA. Responsibility should rest with a core team that is proficient in sustainability topics and knowledgeable about the company, ideally with strong connections across various departments. This team will be tasked with advancing the DMA, developing its methodology, organising and moderating required meetings, and documenting the process and outcomes.
An in-depth understanding of the DMA and its underlying methodology, as outlined in the overarching standard ESRS 1 and EFRAG’s supplementary Implementation Guidance 1, is crucial for the core team. In addition to an obligatory stakeholder analysis, a context analysis covering the company’s business model and value chain should be conducted in a preparatory step. This is important to clarify the scope of consolidation, thus making sure that the entire business is included in the DMA. In addition, this analysis helps to identify an interdisciplinary team of experts from across the company that will be required to provide input to the DMA, covering sustainability expertise, financial knowledge, as well as perspectives from all subsidiaries in scope and key stakeholders.
IRO identification
To effectively collect impacts, risks, and opportunities (IROs), an interview-based approach is recommended rather than preparing questionnaires, as personal discussions tend to yield deeper insights into the often-complex sustainability issues to be covered. In preparation for the interviews, experts from the interdisciplinary team should be assigned to specific sustainability topics which are related to their field of expertise. To ensure a comprehensive coverage of all sustainability matters, a minimum list of sustainability topics is provided in ESRS 2.
The individual interview sessions should be moderated by a core team member. After an introduction to the sustainability topic at hand, IROs are collected and documented. The introduction to the sustainability topic can also be used to enquire whether associated KPIs, policies, actions and targets already exist in the company. This not only facilitates productive discussions with the experts but also serves as a gap analysis that is relevant for planning the implementation of the individual disclosure requirements.
IRO assessment
The methodology framework for assessing the materiality is provided by the CSRD, but companies need to define the details of their approach. While the framework outlines the dimensions for assessing IROs, the scoring scale is determined by the company, typically ranging from three to six categories.
The IRO assessment can proceed in two ways: individual assessments where experts score IROs independently, or collaborative workshops where expert groups jointly assess related IROs. Both approaches should be moderated by the core team to ensure a consistent assessment. Once scoring is completed, it is essential to consolidate and visualize the results to perform consistency checks and verify the overall outcome. For effective implementation, companies should adopt an intuitive methodology, and engage early with the auditor to align on the selected approach.
Determination of reporting scope
In the final step, results should be aligned between involved experts and the management. This way, later overwriting or revising of the DMA results can be avoided. While management holds the overall responsibility for the sustainability report, the involvement of experts is crucial, especially as they will most likely participate in the subsequent implementation of the reporting requirements.
The reporting scope is determined based on the DMA results. Companies only need to report on those sustainability matters associated with material IROs. Consequently, entire ESRS standards or specific topics within a standard may be deemed non-material, thereby reducing the number of overall data points required for reporting. Conducting a sound analysis therefore helps clarify reporting requirements and the implementation steps ahead.
Audit approval is the primary objective of preparing the first CSRD-compliant report. Gain of experience and the establishment of sound reporting processes are additional objectives. The latter includes the facilitation of a reasonable degree of automation for the coming years.
Gaining experience
In order to gain experience with the complex disclosure requirements, an early writing of test chapters has proved to be useful. By gathering 2024 information for quantitative and qualitative data points, a detailed understanding of the individual reporting requirements is reached, bottlenecks in the data collection can be identified and a methodology incl. pre-processing of the data points can be developed. This way, the effort for updating the draft report with 2025 data is reduced.
The collaboration with different departments and subsidiaries for compiling all relevant information is a good opportunity to anchor the sustainability reporting governance within the organisation. Responsibilities for data provision should be defined early on if possible. Furthermore, automating repetitive, time-consuming data collection tasks should be considered. When selecting a suitable software solution, an audit trail and future XBRL tagging should also be considered.
Simplifying the implementation
Especially in the first reporting years, some considerations may simplify the CSRD implementation. First, companies should leverage existing reports and processes, as many requirements overlap with sustainability data needed for regulations like pollutants registries and supply chain acts, as well as for voluntary frameworks such as EcoVadis.
Secondly, phase-in criteria allow certain disclosures to be postponed.[3] While all companies can defer certain disclosures of the ESRS S1 standard on own workforce and anticipated financial effects from risks and opportunities related to the environmental ESRS, companies with less than 750 employees can benefit from comprehensive phase-in criteria. These companies may defer the disclosures under ESRS S1 and of scope 3 emissions (part of ESRS E1) by one year and disclosures under ESRS E4, S2, S3, and S4 by two years.
Lastly, organizations should consider simplifications where feasible, employing cost-benefit evaluations to reduce complexity. This includes accepting disclosures that indicate the absence of policies, actions and targets for material sustainability issues, using assumptions for data collection where appropriate, and carefully considering the inclusion of voluntary data points.
The implementation of CSRD is a complex endeavour that also affects smaller companies. Through a structured, pragmatic approach involving the focus on several high priority factors highlighted by Figure 2, companies can achieve CSRD compliance, use available resources effectively and gain valuable sustainability insights.
[1] This includes companies fulfilling at least two of three criteria: Number of employees > 250 and/or, Turnover > 50m EUR and/or, Balance sheet total > 25m EUR
[2] The European Commission is currently working on an alignment of various sustainability regulations by its first Simplification Omnibus initiative that may lead to simplifications, scope amendments, extended transitional provisions and postponements, respectively.
[3] For details cf. ESRS 1 appendix C.
Authors: Denis Ludwig and Johannes Rehn, d-fine
