In January 2023, the EU implemented the Corporate Sustainability Reporting Directive (CSRD), requiring companies in its 50 member states to adhere to CSRD Reporting Standards starting from January 2024.
The anticipated impact is significant, with the number of companies subject to sustainability reporting obligations expected to surge from 11,700 to 50,000. Of these, 10,000 are from non-EU entities, and approximately 3,000 are American.
Beyond promoting sustainable practices and investments, the CSRD aims to bridge the gap between investors’ information needs and the available corporate sustainability information. The introduction of consistent standards under the CSRD is designed to enhance accountability, trust, and transparency. This initiative enables investors to access comparable non-financial data, facilitating assessments of companies’ societal and environmental impacts, as well as evaluations of risks and opportunities related to sustainability issues.
What is the situation?
EU CSRD Impact: Grasping ESRS 1, Complying with ESRS 2
At the core of the Corporate Sustainability Reporting Directive (CSRD) lies the European Sustainability Reporting Standards (ESRS), which consist of a total of 12 standards, including two overarching ones: ESRS 1 and ESRS 2. Within these, ten additional standards address corporate sustainability disclosure, encompassing five environmental standards, four social standards, and one governance standard.
It is crucial for all companies to take note of the following:
- ESRS 1 is essential reading for those preparing to meet sustainability reporting obligations.
- ESRS 2 is obligatory for all organizations falling under the scope of the CSRD.
For a more in-depth understanding of EU Sustainability Standards, additional information is available through the European Financial Reporting Advisory Group (EFRAG).
The Crucial Role of Double Materiality in CSRD Compliance
A fundamental initial step towards CSRD compliance involves conducting a double materiality assessment in European sustainability reporting. Organizations are required to analyze both the impact of their actions on people and the environment and how sustainability issues influence their financial standing. This dual evaluation is obligatory for all entities subject to CSRD Reporting Standards and encompasses:
- Impact Materiality: Examining how the company influences people and the environment.
- Financial Materiality: Assessing the effects of sustainability on the company’s financial position.
Adopting a double materiality approach significantly enhances corporate transparency on sustainability, proving to be advantageous for businesses. Notable statistics supporting this include:
– Nearly 85% of investors consider sustainability factors when making investment decisions.
– An impressive 96% of employees expect their organizations to embrace a sustainability agenda.
– 83% of consumers believe that companies should actively engage in sustainability practices.
Moreover, investing in sustainability initiatives has broader benefits such as attracting top talent. Deloitte’s 2023 Global Human Capital Trends survey indicates that 84% of employees believe a company’s success is closely tied to its commitment to sustainability. Additionally, sustainable business practices contribute to overall workforce well-being, making them attractive to prospective employees.
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