The Sustainability Reporting Policy CSRD

The European Union’s Corporate Sustainability Reporting Directive (CSRD): A Game-Changer for Businesses

Introduction

In 2023, the European Union (EU) introduced the Corporate Sustainability Reporting Directive (CSRD), a pivotal regulation aimed at enhancing transparency in corporate sustainability performance. This directive mandates companies to disclose detailed sustainability data, thus fostering investor confidence and supporting long-term business competitiveness. The introduction of CSRD marks a significant shift in how companies approach environmental, social, and governance (ESG) factors.

Who Does the CSRD Affect?

The CSRD applies broadly to companies across the European Union, specifically targeting large capital market-oriented companies, equivalent partnerships, and businesses that employ more than 500 individuals annually. The timeline for reporting obligations in Germany, for instance, is as follows:

- By January 1, 2025: Companies with over 250 employees or financial thresholds exceeding EUR 40 million in sales or EUR 20 million in balance sheet total must comply (with reports due in 2026).

- By January 1, 2026: Reporting will extend to listed small and medium-sized enterprises (SMEs) and other firms, with submissions due in 2027.

In Germany alone, approximately 8,000 companies are affected by this directive.

Key Reporting Obligations

Under the CSRD, businesses are required to disclose critical information about their sustainability practices, focusing on both environmental and social dimensions. The directive will encompass the following key areas:

- Environmental Aspects:

- Climate Change

- Pollution

- Water and Marine Resources

- Resource Use and Circular Economy

- Biodiversity and Ecosystems

- Social and Governance Factors:

- Employees in the value chain

- Own workforce conditions

- Impacted groups (e.g., communities)

- Consumers and end customers

- Business behavior and ethics

In addition, companies must provide key figures on:

- Energy consumption

- Waste production

- Employee turnover

- Age demographics

- Sales in countries with corruption risks (as defined by the Corruption Perception Index by Transparency International)

The full scope of these requirements will be outlined by the European Commission through the European Sustainability Reporting Standards (ESRS), expected to be released in June 2023.

The Benefits of Sustainability Reporting

The CSRD’s primary objective is to encourage companies to improve their sustainability metrics, benefiting not only the planet but also boosting their market position. Comprehensive sustainability reports will aid investors in making well-informed decisions by providing clear insights into a company’s long-term viability. Moreover, businesses that demonstrate sustainability are likely to enhance their competitiveness, as consumers and stakeholders increasingly prioritize sustainable practices.

Sustainability is also gaining importance in discussions with financial institutions. Companies are now being asked questions such as:

- Does your company provide independent sustainability reports?

- What measures are in place to reduce emissions?

- Are you using renewable energy sources?

By integrating sustainability into business strategies, companies not only comply with legal requirements but also position themselves as forward-thinking, responsible market leaders.

Conclusion

As the CSRD comes into effect, businesses need to embrace these changes, not just as compliance obligations but as opportunities to create a more sustainable, competitive future. Detailed sustainability reporting will not only ensure legal compliance but also foster trust with investors, consumers, and financial institutions, strengthening companies' reputations in an increasingly eco-conscious world.