Video transcript: Lisa O'Donnell on CSRD

Transcript

What is CSRD?

EU CSRD is the European Corporate Reporting Sustainability Directive. It’s expected to impact over 50,000 businesses globally, and marks a significant step change in sustainability reporting.

In my view, CSRD is transformative as it requires over 1,000 data points, and it’s the first regulation to cover the E, the S and the G. It also introduces the concept of double materiality which has two dimensions, both impact and financial materiality, looking inside out and outside in.

Underpinning CSRD are the standards set by European Financial Reporting Advisory Group (EFRAG), referred to as European Sustainability Reporting Standards (ESRSs). It also builds on the EU’s existing reporting framework, the Non-Financial Reporting Directive (NFRD), and the first year of reporting will kick in from FY24.

There’s a couple of key concepts to highlight:

• Firstly, there are over 1,000 data points - this includes metrics as well as qualitative data. Whilst this can be phased in over three years, organisations are also required to report not only on topics that are material to them, but also data gathered from their value chain.
• And lastly, there is limited assurance required in your first year of your reporting, followed by reasonable assurance in subsequent years.

What challenges does CSRD present for firms?

There are three key challenges:

• Entity scoping - although it may appear straightforward to apply the thresholds, we’re seeing many large multinationals make the same mistakes here. There are also many nuances in applying the guidance.
• Secondly, the volume of regulation and lack of convergence is a huge challenge for every organisation right now.
• And finally, data - both the lack of data, the quality of data available and the robustness of that data, plus the ability for data to stand up to audit scrutiny.

How can firms overcome these challenges?

So the first critical steps for organisations to take are:

• First of all, perform that entity analysis and if you’re unsure I would really recommend getting a second review because we have seen many organisations fall into the same pitfalls. If you get this wrong, you’re baselining your entire programme on an incorrect assumption.
• Next, decide on, document and get sign off on that reporting strategy.
• Next, map out the value chain. Perform your double materiality assessment to identify those material topics.
• And finally get that gap analysis completed to identify where you have gaps in your data. From there, you can map out that full implementation plan.

CSRD is about so much more than compliance. It’s an opportunity for companies to transform their approach to sustainability, in a way that creates value for both their organisation and wider society. As a result, we expect to see more businesses embedding key sustainability-related performance indicators into their decision-making processes.