Are you ready for CSRD?

Practical challenges with CSRD

CSRD is high on many agendas and for those affected, the reporting requirements will apply as early as 2024. Companies now face the task of understanding what CSRD means and how they need to adapt their operations to meet the new requirements.

A question we often receive from clients is what needs to be done to be ready for CSRD reporting and first and foremost, one must understand the purpose and structure of CSRD.

What is CSRD?

CSRD requires companies, as part of the management report, to provide a detailed sustainability report regarding environmental issues (E), social issues (S), and governance (G). The purpose is to make companies' impacts on sustainability issues more transparent and comparable, which should provide a greater opportunity to fairly evaluate companies' sustainability performance. It also enables companies to identify relevant sustainability issues and actively work on them.

Complex reporting

Almost everyone will need to report their greenhouse gas emissions according to certain calculations. Additionally, the reporting heavily depends on which issues are material based on the activities undertaken and how they impact the environment concerning sustainability factors (ESG factors). This can relate to energy use, how one pollutes the air or water, how one works to prevent corruption and bribery, the working conditions provided, sickness absence, gender equality and staff turnover.

Reporting in accordance with CSRD will often require a restructuring of the company's reporting processes and integrating environmental, social and governance factors into existing systems can be complicated and time-consuming. Therefore, it is essential to understand well in advance what changes need to be made to be ready for reporting.

Standardisation of accounting principles

One of the central aspects of the regulation is uniform accounting principles for CSRD. Within the EU, work is underway to develop reporting standards – European Sustainability Reporting Standards (ESRS). Currently, there are thematic or sector-wide standards for E, S, and G. The diversity of social and environmental indicators complicates the establishment of sector-specific standards. It is a challenge to balance the need for industry adaptation with the requirement for comparability and transparency but it is anticipated that these standards will also be available by 2024.

Data collection and data quality

Collecting relevant and reliable data is a key component for successfully reporting under CSRD. For many companies, a challenge will be ensuring data quality, especially concerning social and environmental goals. Implementing systems and processes to monitor, evaluate and improve data quality may therefore becomer relevant for certain companies. There are several systems on the market that can manage sustainability data and also support the new requirements of the CSRD directive.

Impact on the entire organisation

To succeed in their CSRD reporting, companies will need to analyse the impact that their operations and processes have from a sustainability perspective. Since there is a need to evaluate one's impact in the value chain from both an outward and inward perspective (double materiality analysis), this encompasses almost the entire organisation. A lack of knowledge and awareness within the organisation can become a challenge and it is therefore important to understand early which parts will be affected.

To manage this, companies need not only to be technically competent but also to change how they think and operate. Sustainability must be a fundamental part of corporate culture, not just something one does to comply with rules.

Let Omeo assist

Having a sustainable business is becoming an increasingly important competitive advantage. Customers, investors and other stakeholders want a clear and comparable picture of the company from a sustainability perspective.

CSRD reporting can provide valuable insights into what changes a company needs to make to continue attracting customers and other stakeholders. This may, for example, involve increasing engagement in social areas or developing a climate plan to become climate-neutral by a specific year.

It is easy to feel that CSRD just means a multitude of requirements for data collection and reporting, but it is also an opportunity to review and adjust one's operations to contribute to a better society. No one can do everything but everyone can do something.