The Corporate Sustainability Reporting Directive (CSRD) is a new European Union directive that is reshaping corporate reporting by expanding the scope and depth of sustainability disclosures.
Set to replace the Non-Financial Reporting Directive (NFRD), the CSRD aims to standardise and enhance transparency around corporate ESG (Environmental, Social & Governance) practices, ensuring companies are accountable for their environmental and social impacts.
As the CSRD deadline approaches, many businesses are preparing to meet the directive’s stringent requirements. While not all small and medium-sized enterprises (SMEs) will need to comply immediately, understanding CSRD and preparing for future compliance is crucial. Here’s what you need to know to stay ahead.
What is CSRD?
CSRD was introduced by the European Commission to address the need for consistent, reliable, and comparable sustainability reporting across the EU. By mandating that companies disclose detailed information about their impact on society and the environment, the CSRD seeks to align corporate activities with the EU’s sustainability goals, including the ambitious target of net-zero emissions by 2050.
Who Needs to Comply?
The CSRD will initially apply to large companies, specifically those that meet two out of the following three criteria:
- Over 250 employees
- More than €40 million in annual revenue, or
- Total assets exceeding €20 million.
Why Should SMEs Care?
Even if SMEs are not required to comply with the CSRD immediately, the directive is setting a precedent for future reporting expectations. As larger companies implement the CSRD, they will likely seek sustainability data from their smaller suppliers, making ESG practices an integral part of doing business. SMEs that are proactive in aligning with CSRD principles can position themselves as preferred partners in the supply chain, enhancing their appeal to larger corporations and investors.
Key Elements of CSRD Compliance
- Expanded Reporting Requirements: Companies will need to report on a comprehensive set of ESG metrics, covering environmental impact, social factors, and governance practices. This includes carbon emissions, resource use, diversity metrics, and human rights impacts.
- Assurance of Data: The CSRD mandates independent assurance of reported data, meaning that companies will need to verify the accuracy of their ESG disclosures through external auditing.
- Alignment with International Standards: The CSRD is designed to align with the standards set by the Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), and others. This ensures comparability and reliability of sustainability data across sectors.
- Digital Reporting Requirement: Reports will need to be filed in a standardised digital format, making sustainability data accessible to stakeholders across the EU.
Checklist for SMEs
- Understand Your ESG Impact
Start by assessing your company’s environmental and social impact. This includes measuring your carbon emissions, waste management practices, resource use, employee diversity, and social contributions. - Define ESG Goals and Metrics
Set clear, measurable ESG goals aligned with your company’s values and the standards of the CSRD. Determine which metrics will help you track progress toward these goals. - Establish Data Collection Processes
Put in place processes to collect and manage relevant ESG data. This might include carbon emissions tracking tools, HR analytics for diversity, or supplier assessments. - Engage with Stakeholders
Communication is key. Engage your employees, suppliers, and customers to align on sustainability goals and identify areas where collaboration can improve ESG performance. - Prepare for Future Reporting
Even if you’re not required to report yet, familiarise yourself with reporting frameworks like GRI and TCFD. Setting up basic reporting practices now will make compliance easier in the future. - Explore Digital Reporting Options
With digital reporting likely to become the standard, start exploring digital platforms that can help you streamline ESG data collection and reporting. - Seek Expert Advice
If ESG and reporting frameworks are new to you, consider consulting with an expert who can guide your compliance preparation and ensure you’re aligned with emerging expectations.
CSRD represents a significant shift in corporate sustainability reporting, with the potential to impact all businesses, large and small. While compliance may not be mandatory for SMEs right away, preparing now can give you a strategic advantage. By taking proactive steps, you not only position your company to meet future regulatory demands but also strengthen your appeal to values-driven customers and partners.