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CSRD – What does the new sustainability reporting directive mean for your company?

The European Union’s new Corporate Sustainability Reporting Directive (CSRD) will significantly change reporting practices. Now, more companies must annually disclose their impacts on the environment and society. Reporting is not just about collecting numbers; it requires a holistic view of how companies address environmental issues, social matters, and good governance in their operations.

The new reporting requirements will be implemented in phases. First, large companies with over 500 employees, which have previously reported under the Non-Financial Reporting Directive (NFRD), will begin reporting. For these companies, reporting starts in the fiscal year 2024. In the next phase, starting from the fiscal year 2025, reporting will expand to include large companies that meet at least two of the following three criteria:

  • More than 250 employees
  • Revenue over 50 million euros
  • Balance sheet over 25 million euros

In the third wave, listed SMEs will be included starting in the fiscal year 2026, followed by non-EU companies that meet these criteria:

  • A subsidiary or permanent establishment within the EU
  • Revenue exceeding 150 million euros within the EU

Unlisted SMEs and micro-enterprises are opted out. However, they may choose to report voluntarily according to simplified standards. This can be particularly beneficial for companies partnering with larger, reporting-obligated companies. Existing standards include the VSME (Voluntary Sustainability Reporting Standards for SMEs) and the NSRS (Nordic Sustainability Reporting Standard).

Addressing ESG matters through double materiality analysis

The reporting obligations of the CSRD are based on the European Sustainability Reporting Standards (ESRS). These standards encompass all ESG aspects: environmental responsibility, social responsibility, and good governance. While some standards are mandatory, others depend on the double materiality analysis (DMA).

The double materiality analysis is a tool that helps businesses determine which sustainability topics are most significant to their operations. The analysis assesses materiality from two perspectives:

  1. Impact materiality evaluates how a company’s actions affect the environment and people. For instance, an industrial company assesses the impact of its emissions on climate or the working conditions of its subcontractors in developing countries.
  2. Financial materiality examines how various sustainability factors influence business operations and finances. For example, increased drought may raise raw material prices, or stricter emissions regulations may require new investments.

Through this analysis, companies identify the sustainability themes they must report on, in addition to the mandatory standards. This ensures that reporting focuses on the most relevant sustainability aspects for that specific company.

Preparing for sustainability reporting

Meeting reporting obligations requires complex and time-consuming preparation. It is advisable for companies to start preparing at least 12-18 months before their first reporting period, even if their own reporting turn is not coming until later. Careful preparation enables a smooth transition to the new reporting requirements.

Preparation involves several stages: conducting a double materiality analysis, assessing the current state, planning and implementing data collection processes, training staff, assigning responsibilities, and acquiring necessary systems and tools. Additionally, it involves setting goals and metrics and integrating sustainability into the company's operational practices.

Actual sustainability reporting is the result of collaboration among multiple experts, typically including finance, production, HR, and communication specialists. Reporting also requires strong commitment from management, as sustainability themes must be integrated into the company's strategy and decision-making processes.

Etteplan's sustainability experts possess extensive knowledge across all areas of sustainability. We offer support at every stage of your sustainability reporting, from double materiality analysis to report preparation. We help businesses of all sizes develop efficient reporting processes tailored to their unique needs. Contact us today and ensure the quality and compliance of your sustainability reporting!

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Kari Nieminen

Project Manager

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