The EU’s Corporate Sustainability Reporting Directive (CSRD) marks a significant step up in sustainability reporting. And with the first deadline fast approaching – and some 50,000 companies set to be impacted – we sat down to analyse what the legislation requires and how best to prepare for it.
This year the legislation everyone in the food industry has been talking about has been EUDR. But there's actually another, bigger regulation on the horizon - the EU’s Corporate Sustainability Reporting Directive (CSRD). It may not be grabbing the headlines (yet), but here's everything you need to know before it does.
The EU’s Corporate Sustainability Reporting Directive entered into force on January 5, 2023.
Designed to amend and update the pre-existing EU’s Non-Financial Reporting Directive, the directive substantially increases reporting requirements for the companies that fall within its scope
The legislation forms part of commitments outlined in the European Green Deal; a series of policy initiatives announced in 2019 that are intended to help the EU achieve climate neutrality by 2050.
As a result, the CSRD modernises and strengthens corporate reporting rules across a broad swathe of social and environmental information.
The CSRD is set to require more data, more insight and more scrutiny of company’s ESG efforts than ever before.
Those companies that fall within its scope will be required to supply information across 12 reporting standards, 86 disclosure requirements, more than 100 KPIs and an estimated 1,000 data points. These standards were created under the advice of the European Financial Reporting Advisory Group (EFRAG), a private body first created in 2001 that was appointed technical advisor to the European Commission as it drafted standards for the CSRD.
Under its advice, everything from gas emissions, water use and pollution, all the way to anti-corruption policies, board diversity and executive pay will be assessed. It may not be limited to a company’s own operations either, but extend to the impact of direct and indirect business partnerships across the value chain.
All these disclosures must take a "double materiality" perspective. This is an accounting term that means companies need to report both on their impact on people and the environment, and how social and environmental issues create financial risks and opportunities for the company.
This dual approach is designed to ensure companies cover off all salient points in their reports, and equip external stakeholders, such as investors, with the information they need to understand future pressures.
The CSRD also requires organisations to set targets, select a baseline and report on their progress. Companies need to identify those metrics that are most pertinent to the business, review the minimum disclosure requirements for the relevant EFRS, which may include specific timelines, and develop actionable targets that comply. Each target needs to be framed as an action improvement target, so that it allows companies to periodically assess their progress and report against it.
Though this creates some flexibility, bear in mind that some targets are mandatory. For example, CSRD requires all reporting businesses to have a Paris Agreement-aligned emissions reduction plan to reach net zero by 2050.
All which means that companies will need to be able to access, understand and report on a huge volume of internal data, some of which they may not even have collected up until this point, in order to be compliant.
But remember, CSRD doesn’t only need to be thought of as an administrative burden.
Once up and running harnessing this level of insight can help craft more effective corporate strategies; highlight ways to add value and help cement a commitment to the environment and communities that has never been more important for food and drink businesses globally.
Any EU-based company that fulfils two of the three criteria below will fall within the scope of CSRD.
But non-EU companies will also need to comply if they meet any of the following criteria.
It’s estimated that some 50,000 companies worldwide will fall within the scope of the CSRD at the outset.
For those that were already subject to the NFRD, the first deadline for reporting is 2025. For the remaining EU large companies that meet the above criteria, that deadline is pushed back to 2026, and for non-EU large companies to 2029.
However, those that don’t currently meet criteria shouldn’t get complacent either.
Though SMEs have been afforded a longer timeframe to accommodate CSRD requirements, they are expected to have to comply further down the line. In fact, an update on this is expected at the end of December 2024.
Already, listed EU SMEs must be compliant by 2027, though they do have the option to defer to 2029. The reporting burden on smaller companies is also lighter, with a simplified set of requirements. For example, the need to report on opportunities is set to be voluntary.
It’s estimated that by 2029, around 50,000 companies will be covered by the new rules, up from the current 11,700.
The CSRD is a transformative piece of legislation, both in its scope and the granularity of its requirements for ESG reporting going forward.
As the first of a series of deadlines comes into view, here are four ways to get ahead of the curve.
Educate: The CSRD impacts each stage of the value chain, so train your wider team on what it is, what it requires and how they can contribute to building up the data and insight required. Remember, each disclosure must take into account a "double materiality" perspective, which requires data on both current impact and how future risks and opportunities.
Understand: Don’t wait until the deadline is in view to understand where shortfalls in your data might be. Carry out a mapping exercise of your value chain well in advance to identify where there are gaps in data and how they can be addressed. Use this exercise to create a comprehensive sustainability plan too, setting realistic targets to work toward.
Connect: An internal sustainability lead can be invaluable in preparing for the CSRD. But if that isn’t within reach, don’t panic. Connect with industry peers, external stakeholders and third-party sustainability experts to provide advice and support on how the rules will apply to your specific business and best to prepare.
Aspire: Though compliance with the CSRD can feel like a daunting prospect, it can also create a framework with which to accelerate progress toward a more sustainable business model. Reframe it as opportunity, rather than obligation.
You can read more about the different regulations shaping the food industry on our dedicated Regulations page, where you can find all our expert analysis on the subject.
With EUDR and FSMA 204 the biggest talking points in the regulation conversation right now, we reached out to 500 businesses in the UK and US to find out how prepared they felt. Download our whitepaper on the subject to read the results.