What opportunities does the EU’s Corporate Sustainability Reporting Directive (CSRD) present for companies?
The CSRD represents a significant shift from treating sustainability as a box-ticking exercise to recognising it as a strategic imperative. Companies that have already established a solid foundation in sustainability practices – defined strategies, targets and strong programmes to deliver on them – will find complying with CSRD reporting requirements to be a smoother process. And for companies that are earlier on in their sustainability journey, the CSRD can act as a guide for thinking and planning, to help them demonstrate their intent to adopt a long-term approach to sustainability and position themselves for long-standing success in an increasingly sustainability-focused world.
How do I report to CSRD?
The most common question we are getting from clients right now is, “what format should my CSRD disclosure take?” While the CSRD mandates the inclusion of sustainability disclosures in a company’s management report, this isn’t the end of the story. We recommend a tailored approach that aligns with your current progress and allows you to build upon the groundwork you’ve already established.
We see a continuum on which companies can respond to CSRD depending on their current standing, stakeholder needs and, importantly, their ambitions.
1. First-time reporters with minimal systems in place for data collection and who are solely seeking ESRS compliance will want to begin by doing a double materiality assessment and subsequent ESRS gap analysis and alignment. The ESRS disclosure should then be reported in the sustainability statement, located in the annual management report.
2. However, many companies have important sustainability stakeholders that may not be served by reading the annual report or only viewing the information provided in the ESRS response. For these companies, we recommend continuing to produce both separate annual and sustainability reports. ESRS disclosures covered in the annual report fulfil compliance requirements, while a separate sustainability report can cater to broader stakeholder needs, providing context and strategic information in an engaging way. They can be tailored to important audiences that may never read an annual report.
3. As companies become more mature in their understanding of their sustainability risks and opportunities, they should connect their sustainability actions with their financial data to illustrate how sustainability efforts directly influence financial results, and vice versa.
4. Finally, we suggest that leading companies will want to produce an annual report that integrates ESRS-related sustainability information into broader financial reporting, while simultaneously constructing a more comprehensive, audience-centric sustainability communication ecosystem to address a wider range of stakeholder needs.
A comprehensive reporting ecosystem encompasses an array of audience-led communication channels, including the company’s website, interactive data platforms like social media pages, video, and other means of sharing information. This scenario offers a multitude of advantages, ranging from enhanced stakeholder engagement to reinforcing a company’s commitment to transparency and sustainability.
Not sure which of these scenarios is applicable for you or how to get to where you want to be? Please get in touch with nesla.babu@luminous.co.uk for more information.
