The CSRD Compliance Guide: 9 Steps to Mastery

Have you heard about the Corporate Sustainability Reporting Directive (CSRD)? It's changing the business landscape in Europe, and you'll want to pay attention to it very soon. The CSRD is a game-changer for over 50,000 organizations across the continent.

So, what exactly is the CSRD? In essence, it's the European Commission's latest move towards ensuring companies prioritize sustainability. Picture it as a roadmap for businesses to disclose and audit their environmental and social impacts. However, it isn't just about ticking boxes; it's about accountability and responsibility towards the planet and society.Now, you might be wondering why the CSRD matters to you. Well, imagine your company as part of a larger ecosystem. Your actions ripple beyond your office walls; they touch communities and environments. The CSRD recognizes this interconnectedness and empowers businesses to be more transparent and responsible in their actions.

With the first reporting phase looming in January 2024 and reports due by January 2025, it's time for businesses to get ready. Here are 8 steps to help your company navigate and comply with the CSRD:

1. Check if the CSRD Applies to Your Organization and Understand the CSRD Framework

The CSRD applies to large EU public interest entities, non-EU companies with listed securities on EU-regulated markets, and listed small and medium-sized enterprises (SMEs). The reporting requirements vary depending on factors such as company size, listing status, and workforce size. The CSRD primarily encompasses:

• Large EU Public Interest Entities: They are defined as companies with more than 500 employees or categorized as public-interest entities, which include companies with securities listed in EU-regulated markets, banks, insurance companies, and other designations as specified by Member States under the EU Accounting Directive.
• Non-EU Companies Listed on EU-Regulated Markets: These include companies with securities listed on an EU-regulated market, those with annual EU revenues exceeding €150 million and an EU branch with net revenue of over €40 million, and those with annual EU revenues surpassing €150 million and an EU subsidiary meeting specific size criteria.
• Listed Small and Medium-sized Enterprises (SMEs): Certain SMEs with listed securities on EU-regulated markets fall under the CSRD's purview.

To comply with the CSRD framework, it is crucial to understand its reporting obligations in detail. Companies subject to the CSRD must disclose non-financial information related to their social and environmental impacts.

2. Identify Reporting Requirements

Companies must report on their impact on people and the environment and how social and environmental issues could affect their financial risks and opportunities. The reporting encompasses various sustainability aspects, including climate change mitigation, pollution control, resource usage, biodiversity conservation, labor practices, human rights, and corporate governance. There are 12 European Sustainability Reporting Standards (ESRS) covering various sustainability issues. Companies should focus on the specific ESRS to emphasize their strengths and maximize their impact. Companies should disclose material information on sustainability-related impacts, risks, and opportunities as per applicable ESRS. ESRS reports should cover environmental, social, and governance matters, including strategy, governance, materiality assessment, sustainability performance measures, and performance metrics. You can follow the links on the table to learn more about the specific reporting requirements.

3. Establish Reporting Processes and Systems

Develop comprehensive reporting processes and systems to collect, validate, and report non-financial information. Utilize technology solutions to streamline data management and ensure data accuracy throughout the reporting cycle. This step might involve creating protocols for data collection, assigning roles and responsibilities within the organization, and implementing internal controls to ensure data accuracy and integrity.

During the reporting process, make sure to disclose the following:

• The resilience of the company strategy for sustainable risks
• The opportunities for the group related to sustainability matters
• The plans to ensure the busses model is compatible with EU goals (e.g., Paris agreement, carbon neutrality by 2050)
• How the company model takes into account wider stakeholders
• How the strategy considers sustainability matters
• Timebound commitments
• Governance structure
• Incentive schemes
• Due diligence process for sustainability matters
• Mitigation tactics employed
• A description of principal risks

4. Define Materiality and Reporting Scope

Conduct a materiality assessment, which is the process of identifying and prioritizing the most relevant environmental and social impact issues for your business. Materiality assessment ensures that reporting efforts concentrate on these significant areas determined for your company and stakeholders. This step ensures that your reporting focuses on the most significant areas to your company and stakeholders. Conduct a double materiality assessment (DMA) to prioritize reporting topics based on stakeholder significance and business impact. Define reporting scope and boundaries to include the entire value chain, subsidiaries, and joint ventures, ensuring comprehensive disclosure of sustainability performance.‍

5. Integrate Sustainability into Corporate Governance

Embed sustainability principles into corporate governance structures and decision-making processes. To embed sustainability principles, companies should assess governance structures, assign clear responsibilities, and align strategy with sustainability goals. It entails disclosing metrics, incorporating criteria into processes, and balancing financial performance with environmental and social responsibility. By integrating sustainability principles into core business operations, companies can lead long-term value creation and mitigate risks.

6. Enhance Stakeholder Engagement

Engage stakeholders proactively to understand their expectations and concerns regarding sustainability performance and reporting. Foster open dialogue and collaboration to address feedback and enhance the credibility of sustainability disclosures. Here are the tangible steps that your company can follow to engage stakeholders effectively on sustainability:

• Identify key stakeholders, including investors, customers, employees, suppliers, local communities, and NGOs.
• Understand every stakeholder's interests, expectations, and concerns about sustainability performance and reporting.
• Establish various communication channels such as surveys, focus groups, meetings, and social media platforms to engage stakeholders.
• Initiate proactive outreach efforts to communicate with stakeholders and seek their input on sustainability matters.
• Listen actively to stakeholder feedback and concerns and respond promptly with transparent and meaningful information.
• Address stakeholder concerns and incorporate their input into sustainability strategies and reporting practices.
• Encourage collaboration of stakeholders to co-create solutions and initiatives that address sustainability challenges and opportunities.
• Keep stakeholders informed about progress on sustainability goals, initiatives, and performance through regular updates and reports.

7. Ensure Data Quality and Assurance

Implement efficient data collection mechanisms to gather accurate and reliable information on social and environmental impact measurement. Implement internal controls and verification procedures, and consider engaging external assurance providers to enhance trust and confidence in reported information. Some external assurance providers include:

• Big Four Accounting Firms (e.g., Deloitte, PwC, KPMG)
• Specialized Sustainability Consultancies (e.g., Sustainalytics, CDP)
• Environmental Engineering and Consulting Firms (e.g., Bureau Veritas, DNV GL)
• Law Firms with sustainability practices (e.g., Baker McKenzie, Norton Rose Fulbright)
• Third-Party Certification Bodies (e.g., B Lab, Forest Stewardship Council)

This step may also involve integrating sustainability data into existing reporting systems or investing in dedicated impact reporting tools. Maintain high data quality and integrity to validate the accuracy and reliability of sustainability disclosures. Regular audits and reviews help in maintaining data integrity and credibility.

8. Monitor Compliance and Evolving Reporting Practices

Stay informed about regulatory requirements, industry standards, and stakeholder expectations to adapt reporting practices accordingly. One possible way to promote positive change and show dedication to sustainable development is by fostering continuous improvement and encouraging innovation. Embrace a culture of continuous improvement by monitoring performance, seeking feedback, and adapting reporting practices based on evolving regulatory requirements and best practices in sustainability reporting. Valens Project Consulting recommends implementing continuous improvement tools and methodologies such as Lean Six Sigma or Total Quality Management (TQM) to drive positive change in sustainability reporting practices. These tools help identify areas for improvement, streamline processes, and enhance the quality of reporting.

9. Use Technology for Reporting

Leverage technology solutions such as sustainability reporting software to streamline data collection, analysis, and reporting processes. Automation can enhance efficiency and accuracy in meeting CSRD requirements. Some examples of sustainability reporting software solutions include the following:

• SASB Navigator provides access to the SASB Standards and helps companies identify relevant sustainability topics, metrics, and disclosures specific to their industry.
• GRI supplies software solutions that facilitate reporting processes according to the GRI Standards, helping companies collect, manage, and report sustainability data effectively.
• EcoVadis offers a sustainability ratings platform that helps companies assess the sustainability performance of their suppliers and manage sustainability reporting requirements.
• CSRware provides a cloud-based sustainability management platform that enables companies to track, manage, and report on sustainability metrics across their operations and supply chain.
• MetricStream offers a sustainability management software solution that helps companies streamline data collection, analysis, and reporting processes to meet regulatory requirements and stakeholder expectations.