Key takeaways and implications
With the approval of the EU’s CSRD, all large companies are now required to disclose information on the way they are measuring and managing ESG issues. In practical terms, companies will need to report on a host of ESG metrics, both qualitatively and quantitatively, align to new sustainability standards and obtain limited assurance over this information.
Which companies are impacted?
All large companies established in an EU Member State that meet 2 or more of the below requirements will be subject to CSRD:
€40 million in net turnover;
€20 million on the balance sheet;
250 or more employees.
What are the timelines for implementation?
CSRD will impact entities in a phased approach:
Large companies already subject to the NFRD will be impacted first: from 2024, with their first CSRD-compliant annual report published in 2025.
Large companies not subject to the NFRD will then need to comply from 2025, with their first annual CSRD-compliant annual report published in 2026.
Listed SMEs will also be in scope from 2026, with their first annual CSRD-compliant report published in 2027. An opt-out may be possible for listed SMEs, exempting them from reporting until 2028.
What information needs to be disclosed?
More detailed disclosures are now required covering a host of sustainability matters from the environment, to social and governance factors. To make reporting consistent, the Commission tasked the European Financial Reporting Advisory Group (EFRAG) with developing specific European Sustainability Reporting Standards (ESRS). Key concepts introduced by the ESRS include:
- Double materiality
- Boundary
- Sustainability strategy and business model
Double materiality
Identifying all potential negative and positive impacts on people and environment, from the company’s own operations and its value chain. Materiality is assessed from a financial and impact perspective.
Boundary
A company’s reporting boundary has expanded to include the entire value chain in measuring and reporting social and environmental impact. This covers all suppliers, both upstream and downstream.
Sustainability strategy and business model
Companies are required to set a strategy to respond to these matters, and disclose the business model’s resilience towards sustainability-related risks and climate scenarios. This includes stakeholder engagement, the setting of targets, drafting of policies, internal risk management, and setting up governance structures.
What should you be doing next?
Start with a materiality assessment to identify sustainability topics and align to ESRS.
Have a discussion to ensure alignment with the CSRD assurance requirements.
Measure your baseline environmental and Greenhouse Gas (GHG) performance (as per GHG Protocol - Scope 1, 2 and 3 emissions).
Assess the social considerations within the company and in your value chain.
Consider setting reduction targets on a company level, with a view to then approve these at board level.
Monitor Key Performance Indicators (KPIs) whilst gaining insight on a product and process level. Consider the impact of your value chain and identify areas of improvement.
It’s clear that the pendulum is swinging toward more regulatory action on ESG, with businesses needing to take proactive steps and demonstrate this action through quality reporting. Data and knowledge are sure to be pain points for most companies, so now is the time to consider the implications of CSRD to be better positioned for future reporting.
How PwC can help
Reach out if you’d like our support to assist you with the expertise and tools needed to ensure your business is meeting its current and future reporting commitments.
