The requirements for CSRD sustainability reporting are high.
This set of rules presents companies with unexpected challenges at various levels.
We clear the fog and show you how you can meet these requirements practically, step by step.
What requirements does the CSRD place on reporting?
If a company is subject to the CSRD reporting obligation, the company must prepare and publish a sustainability statement in accordance with ESRS standards.
This sustainability statement is a mandatory part of the management report of the annual or consolidated financial statements.
With the financial orientation, the legislator is underlining the new importance of sustainability.
The CSRD defines a large number of requirements regarding the form, quality, type and content of the information that must be conveyed in sustainability reporting.
While many of these requirements are based on principles and concepts, there are clear specifications for the structure of reporting.
The sustainability declaration represents the output of all requirements and summarizes them as an information package.
The sustainability declaration has the following structure:
| Part of the management report | ESRS-
Codification |
Title |
|---|---|---|
| 1. general information | ESRS 2 | General information, including the information required under the application requirements for the
ESRS can be provided for specific topics. |
| 2. environmental information | Not applicable | Information according to Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation) |
| ESRS E1 | Climate change | |
| ESRS E2 | Environmental pollution | |
| ESRS E3 | Water and marine resources | |
| ESRS E4 | Biodiversity and ecosystems | |
| ESRS E5 | Resource utilization and circular economy | |
| 3. social information | ESRS S1 | Own workforce |
| ESRS S2 | Workforce in the value chain | |
| ESRS S3 | Communities concerned | |
| ESRS S4 | Consumers and end users | |
| 4. governance information | ESRS G1 | Corporate policy |
Source: Appendix D of ESRS 1
However, not all topics are mandatory for every company according to the ESRS codification.
All topic standards (E1 to G1) are subject to the materiality analysis and only need to be addressed if a company has classified them as material.
This is why it is so important that each company knows how to identify its own sustainability topics for reporting.
Here is an example of a fictitious company “Goldback GmbH”, which produces and sells baked goods in the EU.
Goldback has structured its sustainability declaration as follows:
Goldback has concluded that the following 5 out of 10 ESRS sustainability topics are material for the company:
- E1- Climate change
- E5- Resource utilization and circular economy
- S1- Own staff
- S4 consumers and end users and
- G1- Corporate policy
Due to their minor importance for Goldback, the remaining 5 sustainability topics (E2, E3, E4, S2, S4) are not relevant for reporting.
Accordingly, Goldback does not have to report separately on these topics and does not have to carry out a materiality analysis.
The example shows that the sustainability declaration is very different for each company.
How can my company meet these requirements?
Meeting the CSRD requirements requires careful planning because the necessary preparations for preparing the sustainability report are demanding.
While the ESRS standards of the CSRD provide clear guidance on the content of the report, they are agnostic as to how to arrive at the information to be reported.
As this information is only secondarily related to data sourcing, it is essential for each company to develop its own approach to processes and decisions.
We have developed a method of approach.
This practical method consists of 5 overarching elements and leads step by step to fulfillment of the CSRD reporting requirements.
| Step | Description |
|---|---|
| 1. overview | First, get an overview of the concepts of the CSRD and the general requirements for the sustainability declaration that apply to your company. |
| 2. sustainability issues | Map the elements of your value chain and identify the main stakeholders for your company. In conjunction with the ESRS1 AR16 list published by the CSRD, you can then determine the sustainability issues that are important for your company. |
| 3. materiality analysis | For each sustainability topic identified, analyze the impacts, risks and opportunities, the so-called IROs, and assess them for their materiality. |
| 4. management IROs | For the key IROs, describe your company policy, define the relevant metrics for the IROs and formulate measurable objectives and action plans. |
| 5. sustainability report | Summarize the information and report according to the sections A. General information, B. Environmental information, C. Social information and D. Governance information. |
Further details, the workflow and important tips for preparing the information can be found in our guide.
What are the challenges of implementation?
The implementation of CSRD requirements poses completely new challenges for most companies.
In addition to the technical challenges of data availability and quality, these lie primarily in the management and potential strategic tasks that need to be mastered.
What management tasks are involved in implementation?
On the one hand, the principles-based standards provide a rough framework for reporting, but on the other hand leave plenty of scope for individual assessments and company-specific circumstances.
In addition, the standards have not yet been tested, which means that there are ambiguities and conflicting objectives at one point or another.
The company management must therefore set the guidelines for the responsible team.
In particular, it is important to set the course for the applicability of the individual requirements and the interpretation of the standards in relation to your own company.
The process for carrying out the materiality analysis must be tailored to the situation of the company and the team.
Last but not least, it is a management task to develop the strategy for managing the material sustainability issues.
Why is CSRD reporting important?
CSRD reporting is important because it complies with applicable German law and is therefore mandatory.
At the same time, it helps companies to make their sustainability performance visible, improve it and make a clearly identifiable contribution to overall social resilience.
Conclusion
The CSRD places high demands on companies’ sustainability reporting.
However, it also offers the opportunity to position oneself as a responsible and future-oriented company.
The human, procedural and financial resources that need to be made available as part of the reporting process should not be underestimated.
With careful planning and implementation, companies can overcome the challenges and reap the benefits of CSRD.
Find out more about the exact requirements of sustainability reporting and how you can fulfill them step by step in our guide.
