The Carbon Border Adjustment Mechanism (CBAM)
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In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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How to comply with the CSRD reporting requirements
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With the European Union’s Corporate Sustainability Reporting Directive (CSRD) now in effect, businesses are facing a new era of non-financial reporting, one that strengthens and modernizes environmental, social, and governance (ESG) disclosures.
For companies operating within or connected to the EU, understanding and implementing the CSRD is crucial. This isn’t just about ticking boxes for compliance, it's about being part of a transformative movement towards sustainable and responsible business practices.
👉 In this guide, we'll take you through what it means to comply with the CSRD reporting, offering practical steps to ensure your business stays ahead of the curve in this evolving corporate landscape.
Understanding the CRSD
Introduced by the European Commission in 2021, the Corporate Sustainability Reporting Directive (CRSD) significantly elevates the standards of non-financial reporting among companies, improving the way environmental, social, and governance (ESG) factors are reported and evaluated. Its primary objective? To enhance transparency and consistency in publicly available corporate sustainability information.
The evolution from NFRD to CSRD
The CSRD is a more ambitious successor to the Non-Financial Reporting Directive (NFRD). While the NFRD laid the groundwork for sustainability reporting, the CSRD takes this a step further. It aims to close the gaps left by the NFRD, introducing more stringent, detailed reporting requirements. This change mirrors the increasing global focus on sustainable business practices and the growing investor demand for comprehensive ESG information.
Objectives and impact
The CSRD isn't merely a regulatory requirement, it represents a significant shift towards integrating sustainability into the core of corporate strategy. Its objectives are clear: ensure that sustainability reports across the EU are more consistent, comparable, and comprehensive. By doing so, the CSRD not only holds businesses accountable for their impacts on society and the environment but also plays a critical role in guiding investment decisions towards more sustainable business models.
A global reach
Importantly, the CSRD’s reach is not confined to the EU. It extends to non-EU companies that have substantial business activities within the EU, making its implications global. This broader scope underlines the EU's commitment to leading global efforts in sustainable development and corporate transparency.
👉 To learn more about the CSRD reporting requirement head over to our comprehensive guide.
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Who needs to comply with the CSRD?
A wide range of organizations fall under the scope of the Corporate Sustainability Reporting Directive. Here’s a breakdown of the entities that need to gear up for compliance:
Listed undertakings
Scope: This category includes companies listed on an EU-regulated market exchange. However, there's an exception for 'micro undertakings' that do not meet two of the following criteria on consecutive balance sheet dates:
- Total assets of at least EUR 450,000
- Net turnover (revenue) of at least EUR 900,000
- An average of at least 10 employees throughout the year
EU-based large undertakings
Definition: These are companies, whether listed or not, that fulfill at least two of these three criteria on any two consecutive balance sheet dates:
- Total assets exceeding EUR 25 million
- Net turnover greater than EUR 50 million
- An average of 250 employees or more during the year
Third-country undertakings
Non-EU parent companies: The directive also casts its net over non-EU parent companies with annual EU revenues of at least EUR 150 million in the most recent two years. These companies must also own:
- A large EU-based undertaking, or
- An EU-based subsidiary with securities listed on an EU-regulated market exchange, or
- An EU branch office with a net turnover of at least EUR 40 million
Key requirements of CSRD reporting
Understanding the specific requirements of the CSRD is essential for companies to effectively comply with its reporting mandates. The CSRD sets a new standard in corporate sustainability reporting, demanding a level of detail and clarity that goes beyond previous directives.
Comprehensive reporting requirements
Companies are expected to provide extensive information on their impacts related to social, environmental, and governance issues. This includes not just the company's direct impact but also how it manages risks and opportunities related to these areas. The reporting must cover a broad range of topics from climate change and environmental damage to social rights and employee matters.
Technical standards and metrics
Under the CSRD, reporting is standardized through the European Sustainability Reporting Standards (ESRS). These standards are designed to ensure that the reports are consistent, comparable, and provide a clear picture of a company’s sustainability performance. Companies are required to report on a variety of metrics and indicators, which are crucial for assessing their ESG impacts comprehensively.
Double materiality in CSRD reporting
An important element of the CSRD is 'double materiality', requiring companies to report not just on how sustainability issues impact their financial performance (financial materiality) but also on how their operations affect the environment and society (environmental/social materiality). This dual focus ensures a comprehensive view of a company's sustainability impacts and responsibilities.
Regular and consistent reporting
The directive emphasizes the need for regular and consistent reporting. Companies must integrate their sustainability reporting into their annual reporting cycles. This integration ensures that sustainability is not an afterthought but a core aspect of the company’s strategic and operational planning.
Auditing and verification
To enhance the credibility of the reports, the CSRD requires that they be verified by independent auditors. This verification process ensures that the information disclosed is accurate and meets the specified standards. The move towards independent auditing marks a significant shift towards greater transparency and reliability in sustainability reporting.
Steps to comply the CSRD reporting requirements
When it comes to ensuring compliance with the CSRD’s reporting requirements it’s crucial to develop and implement an action plan for compliance. This process requires preparation, careful execution, and ongoing management. We’ve created a roadmap to guide companies through this journey:
1. Initial assessment and gap analysis
- Understanding your current position - Begin with an assessment of your current reporting practices. How does your existing sustainability reporting align with the CSRD requirements? Identify the gaps and areas that need enhancement.
- Gap analysis - Conduct a detailed analysis to understand where your current practices fall short of the CSRD standards. This involves reviewing existing sustainability initiatives, data collection processes, and reporting mechanisms.
2. Data collection and management
- Robust data gathering - Data is the backbone of CSRD reporting. Establish a systematic process for collecting accurate and comprehensive data across all relevant ESG aspects.
- Integration of systems - Ensure that your data management systems can handle the complexity and volume of data required for CSRD reporting. Consider investing in software or tools that can aid in data aggregation and analysis.
3. Develop a reporting framework
- Aligning with ESRS - Adapt your reporting framework to align with the European Sustainability Reporting Standards. This includes determining the metrics and indicators that are relevant to your business.
- Structured reporting process - Develop a structured process for compiling the report. This should include guidelines for data inclusion, document formatting, and a timeline for report preparation.
4. Training and capacity building
- Internal training - Prepare your team with the necessary knowledge and skills. Conduct training sessions on the CSRD requirements, ESRS, and the importance of accurate reporting.
- Engaging with stakeholders - Involve various stakeholders in the process, including employees, suppliers, and customers, to ensure a comprehensive view of your company’s sustainability impact.
5. Verification and audit preparation
- Internal review - Before the external audit, conduct an internal review of your report. This helps in identifying any inconsistencies or areas that need further clarification.
- Audit preparation - Prepare for the external audit by gathering all necessary documentation and evidence to support the data and statements in your report.
6. Continuous improvement and updating
- Regular updates - The world of sustainability is always evolving. Keep your reporting process dynamic by regularly updating it with new information, standards, and best practices.
- Feedback loop - Create a feedback loop where you can learn from each reporting cycle. This will help in continually enhancing the quality and accuracy of your reports.
“ Compliance with the CSRD is not a one-time effort but an ongoing process that requires dedication and attention to detail. By following these steps, companies can not only comply with the CSRD reporting but also embed sustainability deeply into their business strategies, reaping long-term benefits and contributing positively to global sustainability efforts. ”
Challenges and solutions in CRSD reporting compliance
Navigating the CSRD’s requirements presents its unique set of challenges for businesses. Understanding these hurdles and having strategies in place to overcome them is crucial if you want to comply with the CSRD reporting requirements.
We’ve outlined a few of the main challenges that companies encounter along with solutions to help you overcome them.
Identifying common challenges
- Complex data management - One of the significant challenges is managing the vast amount of data required for comprehensive reporting. This includes data collection, verification, and analysis across various ESG aspects.
- Resource allocation - The resources required in terms of personnel, time, and financial investment can be substantial, especially for businesses new to detailed sustainability reporting.
- Staying abreast with standards - Keeping up with evolving standards and regulatory requirements can be daunting, as the landscape of sustainability reporting is continually changing.
Practical solutions and best practices
- Leveraging technology - Utilise software and technological tools designed for sustainability reporting. These can streamline data collection, management, and analysis, making the process more efficient and accurate.
- Building internal expertise - Invest in training and development for your team. Building internal expertise in sustainability reporting ensures that the process is well-understood and correctly executed.
- External consultation - Don’t hesitate to seek external expertise. Consulting with sustainability experts or auditors can provide insights and guidance on best practices and compliance strategies.
Incorporating flexibility and scalability
- Adaptive systems - Develop systems and processes that are adaptable to changes in reporting standards and requirements.
- Scalable approaches - Ensure that your approach to CSRD compliance is scalable, especially if you are a growing business. This means creating processes that can be expanded or adjusted as your company grows.
Communication and transparency
- Stakeholder engagement - Maintain open channels of communication with stakeholders, including employees, investors, and customers. This ensures transparency and can provide valuable feedback.
- Clear internal communication - Ensure that the objectives and requirements of CSRD reporting are communicated clearly within the organization. This helps in aligning efforts and ensuring that all departments contribute effectively to the process.
By proactively addressing these challenges and implementing effective solutions, companies can navigate the complexities of CSRD compliance more effectively. This not only ensures adherence to regulatory requirements but also strengthens the company’s overall approach to sustainability and corporate responsibility.
How Greenly can help you to comply with CRSD reporting requirements
Greenly offers a tailored solution to simplify the CSRD reporting process. With the support of cutting-edge software and expert insights, our platform makes CSRD reporting more streamlined and manageable.
- Efficient data collection and reporting - Navigate CSRD requirements seamlessly with Greenly. Our platform simplifies data collection in line with ESRS guidelines and centralizes your data, streamlining your reporting process for years to come.
- Audit-ready tools and support - Our platform is designed to be audit-ready, offering ease of access for auditors and facilitating efficient monitoring of progress. Prepare for CSRD report submission with confidence, knowing that Greenly's tools will export your report in the compliant XHTML format, ready for XBRL tagging.
👉 Leverage Greenly’s dedicated CSRD solution to make your compliance journey smooth, efficient, and comprehensive.
Greenly's carbon management solution
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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