Corporate Sustainability Reporting Directive (CSRD) at a glance, and next steps

In 2024, the Corporate Sustainability reporting directive (CSRD) will replace the Non-Financial Reporting Directive (NFRD). The goal of this directive is to compel the companies affected to publish data about their Corporate Social Responsibility (CSR) issues. As a consequence, companies will have to publish a non-financial report in addition to their financial report. This new report is an Economical, Social and governance (ESG) statement.

The extra-financial report deals with the consequences, risks and opportunities on the environment, the society, people, the companies’ ecosystem. The CSRD aims at improving the reliability and accuracy of the data. All data from all companies will be published on the same software to facilitate comparison.

The European Financial Reporting Advisory Group (EFRAG) created a set of standards the companies subject to the CSRD must use. These 12 European Sustainability Reporting Standards (ESRS) cover three main issues: environmental, social, and governance. The delegated act of this set of standards was adopted by the European Commission on July the 31st.

The ESRS, data points and disclosure requirements will be subject to double materiality analysis. According to the draft 1 of the ESRS 1 General requirements, ” Double materiality has two dimensions, namely: impact materiality and financial materiality “:

Impact materiality: “A sustainability matter is material from an impact perspective when it pertains to the undertaking’s material actual or potential, positive or negative impacts on people or the environment over the short-, medium- and long-term time horizons ”

Financial materiality: “A sustainability impact may be financially material from inception or become financially material when it becomes investor relevant, including due to its present or likely effects on cash-flows, development, performance and position in the short-, medium- and long-term time horizons ”

Contrary to the double materiality matrix, the aim of the materiality matrix is to prioritise economic, financial, social and environmental issues in the light of the company’s ambitions and the expectations of its main stakeholders. Double materiality means taking into account not just the environmental, social and economic impact of a company’s activity (financial materiality), but also the impact of the company on its environment and stakeholders (impact materiality).

Next steps –

In September, the European Parliament will vote this version of standards. Once the standards have been validated, every Member State will have to transform them into national law. EFRAG will also publish recommendations about double materiality this autumn. However, companies should not wait for the country in which they are based to implement the directive before starting the compliance process. Foresight is key because data collection takes time. Companies could use it as an opportunity to elaborate a CSR strategy, instead of getting caught up in a data race.

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