While we are waiting to see what the finalized SEC GHG emission requirements might look like, the EU continues to lead the way and be a driving force in increase regulation.
On January 5, 2023, the Corporate Sustainability Reporting Directive (CSRD) went into effect, replacing the Non-Financial Reporting Directive in an effort to modernize and strengthen the requirements of ESG disclosures.
The CSRD is a necessary step forward in supporting the common mission of high-quality, comparable, and useful sustainability disclosures that can be used by investors, consumers, employees, and governments. The bar for sustainability disclosure requirements has risen due to the CSRD, which covers both public and private companies with over 250 employees or with a balance sheet greater than $22.25m.
It is estimated that there are 50,000 European businesses that will be within the purview of this regulation, with ~10,000 additional companies outside of the EU because of their significant operations in Europe. Companies that will meet these requirements will have to begin reporting in compliance with the CSRD starting in 2025 with 2024 data, and SMEs will have an additional year to comply.
The short answer is holistic sustainability disclosure will be required under the CSRD, not just emissions data. CSRD will require businesses to disclose audited holistic sustainability data to their stakeholders. The exact nature of these disclosures will rely on the upcoming EU Sustainability Reporting Standards or ESRS (we know, too many acronyms), which will require companies to disclose the full spectrum of sustainability: across the E, the S, and the G.
The CSRD is going to standardize ESG disclosures, requiring companies to publish information that relates to its:
Although this will be a tall task, the CSRD is a necessary step forward for businesses to begin operating for the long term about their impact on the environment and their people; and instituting the necessary structures to manage these operations transparently.
Sustainability at its core is about focusing on the long term. To prepare your business for the oncoming regulation, here is what a company can focus on today:
Build trust in their ESG reporting programs by focusing on transparency, accountability, and documenting the entire process.
Implement processes that enable their data collection to be compliance ready by implementing controls and governance that provide necessary oversight.
Continue to stay on top of the ever evolving regulatory landscape and understand what gaps exist in your data collection processes.
We are excited about the impact the CSRD will have on the business world. There will be more effort in the short term, but the benefits of increased transparency and accountability around sustainability and ESG disclosures will be invaluable for all.
