Affected companies must act now to prepare for CSRD reporting
In early 2023, the EU’s Corporate Sustainability Reporting Directive (CSRD) came into force, as part of the work to implement the European Green Deal and drive sustainable investment standards.
The CSRD sets out consistent environmental, social and governance (ESG) reporting and disclosure standards for businesses, and stipulates the data provided must be to an auditable standard.
CSRD compliance is a huge task for businesses, and they need to start now.
In scope for CSRD? Many don’t know
PwC very recently ran a short survey amongst over 130 of its Irish clients which highlighted the level of complexity and awareness regarding the new rules. Close to 30% of Irish businesses don’t know if they’re in scope for CSRD. Of those surveyed by PwC, 7% didn’t know if they were in scope and a further 22% weren’t sure.
Which businesses are in scope?
Numerous businesses will fall into the CSRD disclosure pool on a phased basis from next year.
The first group set to make CSRD disclosures must do so next year on their 2024 data. This group comprises most publically listed companies and any others already reporting under the EU’s Non-Financial Reporting Directive (NFRD).
For their 2025 financial year, large private companies that meet two of these three criteria will fall into scope:
more than 250 workers;
€50m+ in turnover; and/or
over €25 million in assets.
Where to start - Understand the value chain obligation
If your small business is a vendor supplying larger private businesses (or is buying from one), you may also need to gather data so the larger companies can meet its obligations to gather data up and down its value chain. Failing to do so may lead to losing existing business contracts or being precluded from tendering for new ones.
It’s early days for most in CSRD preparation
Slightly under half of Irish businesses are at the scoping and planning phase for their CSRD reporting requirements and 27% are yet to start preparations.
Of those that are beyond the planning phase, 14% are gathering and assessing their double materiality data, while 10% are in the midst of implementing their strategic plan for CSRD reporting.
What are the CSRD reporting requirements for Irish businesses?
To comply with CSRD requirements, companies will have to supply detailed information about the ESG impact of their activities and use of resources. This could include metrics relating to:
climate change
pollution
biodiversity
the circular economy
workers in their business and in other companies across their value chain
consumers, clients and suppliers
governance and business conduct.
Stringent emissions reporting requirements
Companies don’t just have to report on their own direct greenhouse gas emissions, which are called Scope 1 emissions.
They must also report on Scope 2 emissions, which are those they cause indirectly through energy use, and Scope 3 emissions, which come from up and down a company’s value chain.
What is double materiality?
The CSRD introduces a new concept of double materiality for organisations, which means they must assess for example, the impact the environment has on their business, the outside-in perspective, but also the impact of their business on the environment and society, the inside out perspective.
Businesses not audit-ready on climate change standards
Many organisations already report some sustainability data, such as Scope 1 and 2 GHG emissions, but CSRD requires them to report on this, and all other data, to an auditable standard, a game changer for non-financial reporting.
To assess the readiness of Irish businesses to comply with European Sustainability Reporting Standard (ESRS) E1, which relates to climate change, we asked business leaders if they had gathered the appropriate data.
This could relate to strategies for climate change mitigation, ways to reduce Scope 1, 2 and 3 emissions, ways to cut the energy consumption of the business and more.
Specifically, we asked them to quantify what percentage of ESRS E1 data they had ready to an auditable standard. The results were concerning.
Only 3.7% of those surveyed said they had between 80% and 100% of the data ready. A further 6% said they had between 60% and 80% set for audit.
About 17% of business leaders estimated they had between 40% and 60% of the data prepared, while 25% had 20% to 40%.
Overall, close to half told us they had some progress with more work to do – 48% of those we asked said they had somewhere between no data and 20% of the necessary data ready to an auditable standard.
Why it’s critical for businesses to speed up data gathering
Not only is it a compliance risk not to have the necessary data gathered to auditable standards and ready for reporting, it could also cause other knock-on effects.
First and foremost, of course, it’s vital for our planet as we collectively strive to reach Net Zero in good time.
Specifically from a business perspective, companies seeking to put their best foot forward with customers, investors and other stakeholders will need to show they’re leading on this front. Banks are starting to require more and more sustainability data in order to continue to provide even day to day business financing.
Investment analysts, journalists and other stakeholders will be able to compare data easily within and across sectors. Companies at the forefront will benefit hugely in terms of reputation.
Extensive work needed to collate hundreds of data points
Gathering audit-ready CSRD data won’t be a quick task. At the most, a business might have to report on up to 1,200 separate data points from right across its organisation.
Not only that, it will also have to show improvement in these data points over time in addition to further sector specific disclosures still to be published.
All this means multiple parts of your organisation will now have to collate and provide audit-ready data. That means data will have to be to the same standards of accuracy and comparability as applies to financial statements.
This audit assurance requirement is what sets CSRD apart from and well above any previous standards.
Across the business, teams such as risk, sustainability, procurement, HR, production and tax will have to collaborate on producing the data. They’ll also have to work with the board and audit committee who oversee this reporting.
Competitive advantage provides an upside
While the reporting requirements are onerous, CSRD disclosures offer companies an effective way to tell their ESG strategy and story. They’ll give investors, consumers and other stakeholders increased transparency and confidence around your company’s sustainability strategy.
As the CSRD aims to drive sustainable and transparent investment, by ensuring investors can trust ESG data, it means companies that comply should find it easier to access finance and the capital markets in the years to come.
Key actions businesses can take today
1. Begin to map your CSRD strategy
If you understand your business to be in scope for making CSRD disclosures in the next year or two, it’s time to make a plan.
Look at the reporting requirements in detail and understand which data points your business is likely to have to report. Then start to plan for gathering that data, always remembering it must be to an auditable standard.
2. Assign senior responsibility for CSRD
If your organisation does not have a sustainability lead, consider appointing one. It’s vital to have a CSRD champion and strategic lead who will propel the organisation’s work forward and insist on the appropriate scale and standard of data gathering.
If a sustainability lead is not or not yet in place, assign responsibility to a senior leader. Many companies have given this responsibility to a C-suite member such as their chief financial officer or chief human resources officer.
3. Get an assurance team up and running
Making a successful CSRD disclosure demands a truly cross-functional effort. Draw together a team made up of a CSRD lead from each department and work through the data-gathering plan with them.
Ensure they understand their stringent responsibilities with regards to audit assurance of CSRD data. They’ll need strict controls in place to guarantee data will meet the audit threshold.
4. Collaborate with your value chain
CSRD data gathering does not stop at the perimeter of your organisation. Companies also need to collect verifiable data from their suppliers. In turn, that means these suppliers must have the same data standards and governance, which may not be the case yet.
It’s time to talk to your suppliers, understand where they are on their CSRD journey and how you can collaborate with them for both of your benefit.
Likewise, if you’re supplying other businesses, seize the chance to be competitive, by making this aspect of their CSRD reporting as pain-free as possible.
5. Prepare for double materiality
This involves understanding your company’s wider impact. Determine the data disclosures your company needs to make under the CSRD. That will involve:
engaging with the right stakeholders
putting the right data gathering processes in place
having appropriate governance and policies to oversee them.
We are here to help you
With deep experience in guiding companies in developing and implementing ESG strategies, and in preparing for CSRD compliance, our ESG and assurance teams are ready to help you.
Counter CSRD-related risks and take full advantage of the opportunity for companies at the forefront – get in touch today.
About the survey
On 9 July 2024, PwC held a CSRD webcast including an online poll of 130 Irish business leaders. The responses elicited on the poll are the basis of the statistics provided in this analysis.
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