2023…..”it’s life Jim, but not as we know it…..”!
On the 21st of April the European Commission released its proposal for a new corporate reporting directive. The Corporate Sustainability Reporting Directive (CSRD) will replace the existing Non Financial Disclosures Directive (NFD), which requires certain large companies to report on how sustainability issues affect their business and how their own economic activities impact on the environment and society. The directive is only at ‘proposal’ stage’, therefore for now I will concentrate on its overarching objectives and what I consider the salient points.
In this article I will:
- Outline what I see are the main points of the proposed directive, focusing on the potential impact on companies.
- Make some recommendations as to what companies should do now.
The main aim of the directive is to promote long-termism in economic activity by decoupling the objective of growth with the use of our planet’s resources.
The headline recommendations are:
- The term ‘non-financial’ will be replaced by ‘sustainability’.
- The scope of CSRD is much wider than NFD, including all large companies operating in Europe and listed SMEs. It is expected that the number of companies required to report non financial information will increase from 11,000 to over 50,000.
- The size criteria for large company will reduce, and will now include organisations with 250+ employees (previously 500).
- Similar to existing Financial Reporting Standards (FRS), Sustainability Reporting Standards (SRS) will be introduced to ensure relevant, reliable and comparable non-financial information is available to investors and stakeholders.
- As with Financial Statements, there will be a regulatory requirement for Sustainability Statements to be audited and verified by a third party.
- As with Financial Statements, the level of disclosure and detail required in Sustainability Statements will be largely based on the size of the company with regards to employee numbers, turnover and balance sheet value.
- The directive will incorporate activities along the entire life cycle of a company’s product or service, with a particular focus on supply-chain management and responsible procurement.
- Voluntary Sustainability Reporting Standards will be issued for non-listed SMEs, recognizing their impact on sustainability, in particular with regards to supply chain activities.
- The Commission has made this a priority and the target date for implementation is 2023. Therefore companies should plan for publishing their first CSRD Sustainability Reports in 2024 for the financial year 2023.
What should companies do now?
The scope and impact of this Directive cannot be understated. It is widely accepted that the objectives and targets are ambitious, reflecting the urgency of the challenges that face Europe, in particular with regards to Climate Change.
My recommendations at this point are:
- Make someone in your organisation responsible for Sustainability. This should be a senior person with the authority to work with other departments i.e. Finance, HR, Procurement, Quality etc.
- The collection of ESG (Environmental, Social, Governance) data will be essential. At a minimum companies should start collecting and monitoring their environmental data on energy, water and waste as soon as possible. This is likely to require investment in new processes, training and technology solutions.
- Carry out a sustainability due diligence on your supply-chain.
- Using the data/information gathered from 2 & 3, carry out a ‘materiality assessment’ to establish sustainability issues affecting your company and how your activities and operations impact on the environment and society.
- And finally, stay informed. The formulation of sustainability legislation and reporting standards will be dynamic and fast paced, posing a significant challenge to companies and organisations within its scope with regards to implementation.
I will endeavor to keep you all updated on my blog with developments in this area.
I am also available for a free consultation to discuss the design and implementation of an effective ESG/Sustainability Strategy that will incorporate your compliance and reporting requirements. You can email me at firstname.lastname@example.org or book your consultation here.