Introduction
With global warming on the rise, corporate companies are increasingly being required to publicly disclose precise information regarding their sustainability efforts. The UK remains committed to achieving Net Zero emissions by 2050. Every person and organisation must significantly contribute to reducing their carbon footprint. As climate change becomes a continuous crucial issue, the pressure is on for companies to provide corporate transparency regarding their sustainability efforts. One way which corporate companies can contribute towards a healthier planet is through implementing a Corporate Sustainability Reporting Directive (CSRD) into their Environmental, Social and Governance (ESG) policies.
CSRD was drafted by the European Commission in April 2021 and is a legal requirement where companies publicly disclose their carbon reports. This includes details on ESG information using the European Sustainability Reporting Standards (ESRS).
In this blog, we explore how you can contribute to this sustainable movement by implementing CSRD into your ESG policies, what it means, and what the benefits are.
“The financial system plays a crucial role in the delivery of the EU Green Deal, and significant investments are required to green our economy. We need all companies to play their part, both those already advanced in greening their activities and those who need to do more to achieve sustainability. Today’s new rules are a game changer in finance. We are stepping up our sustainable finance ambition to help make Europe the first climate-neutral continent by 2050. Now is the time to put words into action and invest in a sustainable way.”
Mairead McGuinness, EU Commissioner for Financial Services
What is CRSD?
CSRD vs NFRD
In 2014, the Non-Financial Reporting Directive (NFRD) required large companies to disclose their ESG information.
Issues with NFRD
- Inconsistent reports: there was a vast flexibility in how different companies reported their ESG data and this made it difficult for investors to compare information.
- Limited scope: only around 11,000 large companies were required to report under NFRD (Sustainable Finance and EU Taxonomy 2021).
- Lack of verification: Reports were often unverified, reducing reliability for investors and stakeholders.
As a result of these issues, the European Green Deal (2019) and the EU Sustainable Finance Agenda pushed for stronger, extensive corporate sustainability reporting.
- In April 2021, CSRD was officially proposed, pitching the notion that companies should expand and strengthen their sustainability reporting requirements.
- In November 2022, the European Parliament approved CSRD.
- In January 2023, CSRD was officially put into force.
- From 2024: Phased implementation began, with different categories of companies needing to report in certain stages. CSRD primarily required companies to disclose a series of information regarding their environmental, social and governance policies.
Key Features of CSRD
- Company information: business models, sustainability risks, opportunities and double materiality assessments.
- Environmental disclosures: climate change, scope 1, 2 and 3 greenhouse gas emissions, pollution, water and waste reduction etc.
- Social disclosures: workforce conditions, diversity, human rights, gender pay gap etc.
- Governance disclosures: ethics, board diversity, risk management, anti-corruption and bribery.
- Sustainability goals and targets: tracking progress in alignment with CSRD.
Who Needs to Comply with CSRD
CSRD applies to large EU companies with over 250 employees, or those who are reaching specific financial thresholds such as a turnover exceeding £40 million.
It applies to both public or private companies. From 2025 onwards, companies are required to make annual disclosures according to the general sustainability standards set by the EU in order to provide corporate transparency for investors and customers.
Benefits of Integrating CSRD
“Investors are demanding more transparency around environmental, social, and governance issues. Businesses that embrace sustainability will attract more investment, while those that don’t may be left behind.”
Mary Barra, CEO of General Motors
With global warming becoming an increasingly prominent issue, companies who disclose their sustainability records are now likely to gain a better corporate reputation. Nowadays, 85% of investors consider ESG factors in their investments and 70% would divest from companies with a poor ESG performance (PwC, 2022). Therefore, compliance with CSRD is an important value for your corporate reputation and here’s why:
- CSRD ensures environmental compliance, aligning with ESG standards.
- Demonstrates transparency to customers on the workings of your business.
- Shows shared values with customer and company values.
- Builds trust with stakeholders, builds a respectable reputation and provides accountability.
- An opportunity for companies to demonstrate their commitment to global issues.
The Role of Stakeholders in CSRD Compliance
Compliance with CRSD can increase the success rate of investment into your company. Stakeholders ensure that companies remain accountable and transparent in their sustainability efforts and targets. About three quarters of companies who are preparing to file under the EU directive claim they are factoring sustainability into their decision making to a much larger extent, or are planning to do so.
Investors look for transparency in ESG practices in order to make informed decisions. This has a knock on effect to customers, who prefer to support businesses with sustainable practices. As a result, employees will desire to work for companies that prioritise sustainability, transparency and accountability. Compliance with CSRD assists companies in meeting these legal requirements as well as giving back to the environment.
“CSRD is a game-changer for corporate transparency. It ensures that companies are held accountable for their sustainability efforts, which is crucial for building trust with stakeholders.”
Sabrina Freitas.”
Deloitte UK
Penalties for Non-Compliance
CSRD has a series of strict standards in place which companies must follow to remain compliant. Non-compliance with CSRD can result in a variety of serious consequences:
- Fines and sanctions.
- Legal liability for company directors.
- Reputational damage, leading to a lack of trust and transparency between partners and stakeholders.
These consequences assist in enforcing strict compliance with the new legislations, encouraging companies to comply with these legal standards and make a stand against climate change.
To Summarise…
Enistic is a UK-leading, all inclusive monthly service for sustainability, carbon reduction targets and legal compliance. We’re here to help you make a positive difference to people and the planet with our 360 degree support service. As one of the most recent directives, Enistic is one of the only organisations which can assist companies with integrating CSRDs into their sustainability goals.
We offer:
- 100% guaranteed compliance with the relevant standards.
- An experienced, named and allocated carbon analyst to help you with regular project meetings.
- Effortless carbon accounting.
- Low-disruption solutions.
- Trusted solutions since 2002.
- Tailored support.
- Enhanced support with preparing and filing your reports.
- Unlimited support with any questions, queries, or concerns.
Our convenient service makes carbon accounting effortless, allowing you to reach your sustainability goals and join the movement towards a healthier, greener planet.
Book a call to explore how Enistic is used by companies to track, analyse and report their carbon emissions! Seek custom solutions and receive tailored support when you start your sustainability journey with us today.