From 2025, medium-sized companies will also be required to report on their sustainability impact
On Nov. 10, the Corporate Sustainability Reporting Directive (CSRD) was adopted by the European Parliament, which is estimated to affect ± 50,000 European companies, of which nearly 7,000 in the Netherlands. This directive ensures that companies as of 250 employees, € 40 million turnover and € 20 million balance sheet total, will have to provide transparency through approximately 80 KPIs. Both on the effect of their activities on people, market and environment and on the (financial) sustainability risks on their business model now and/or in the near future.
THE CSRD stems from the EU's ambition to become the first climate neutral continent. And the EU ambitions on other necessary sustainability transitions such as for example biodiversity, circular economy, equal opportunities and remuneration for all workers in chains covered by the Green Deal. Companies play an important role in these transitions and therefore the CSRD helps companies to make their impact concrete, measurable, and manageable. And makes companies accountable for their impact on people and the environment. The CSRD also helps with the transition to a sustainable business model, to discover new sustainable market opportunities, and drive sustainable innovation. The CSRD also makes it easier to attract ESG investors and make sustainability impact concrete for employees and customers.
What does the CSRD mean for companies? In essence, it means that companies will be asked to report on the sustainability issues they impact and vice versa. These include climate change, pollution, material use, impact on health and safety of all people in the value chain, ethical business practices and the sustainable behavior of their end customers. A total of 12 topics are involved, divided into three categories; Environment, Social and Governance (ESG). All companies are also required to make a CO2 (GHG) footprint for scope 1, 2 and 3 and to reduce their CO2 eq. emissions by 57% by 2030. And, as a company, you must set measurable goals and KPIs and make transition plans on how you plan to achieve the goals. To ensure the reliability of the information, the reporting will be audited by an external auditor. This will put financial and sustainability reports on equal footing and provide all stakeholders with comparable and reliable data.
When to start and report? That depends on which category your company falls into:
- Fiscal year 2024: public interest companies (with more than 500 employees) already covered by the Non-Financial Reporting Directive (NFRD). First reporting in 2025.
- Fiscal year 2024: public interest companies (with more than 500 employees) already covered by the Non-Financial Reporting Directive (NFRD). First reporting in 2025.
Fiscal year 2026: listed SMEs and other companies. First reporting in 2027.
Steps to getting there
All in all, quite a change task for a company. And also an opportunity because this clarifies how to get sustainability at the heart of corporate strategy and operations. And clarifies both the negative and positive impact. A lot of work but also a great opportunity for positive impact, sustainable "license to operate" and new market opportunities. According to our methodology, the CSRD requires six steps from a company:
- Create a double materiality matrix
- Measure your Green House Gas (GHG) -CO2 eq.- emissions
- Create a sustainability strategy, including transition plans
- Define quantitative and qualitative goals
- Set up CRSD reporting
- Create an internal and external communication plan
In our experience, this takes about 24 months from start to finish, depending on what is already in place and the available capacity and knowledge. So if you have to start reporting about 2025, and most companies do, you will have to start in January 2023. So no time to waste, start now!
