The Corporate Sustainability Reporting Directive (CSRD) will impact over 50,000 companies with significant business in the EU. Under the CSRD, companies will need to include detailed ESG data in their annual reports in line with the European Sustainability Reporting Standards (ESRS). Because of CSRD complexity and the potential for non-compliance penalties depending on where a company is located, sustainability officers may wonder if new sustainability software is needed and how to make CSRD reporting easier.
CSRD is introducing more detailed reporting requirements on company impacts on the environment, human rights and social standards and sustainability-related risk. The CSRD took effect from the beginning of 2024 for large public-interest companies, with the first reports to be issued in 2025, followed by medium sized companies in the following year, and listed SMEs one year later. The CSRD also introduces a “double materiality” approach to sustainability reporting, which includes reporting both on the risks and impact of sustainability issues on an enterprise, as well as on the enterprises’ impacts on environment and society.
ESMA publication
EU markets regulator the European Securities and Markets Authority (ESMA) announced the issuance a Public Statement on the first application of the European Sustainability Reporting Standards (ESRS), aimed at helping companies prepare for new sustainability reporting and supervisory requirements under the CSRD, with the first reports set to begin next year.
The new publication highlights key areas of relevance for companies preparing to issue their first CSRD reports, including the establishment of governance arrangements and internal controls, designing and conducting materiality assessments, being transparent about transitional reliefs provided by the regulation in the first years of application, preparing a digitization-ready sustainability statement, and creating connectivity between financial and sustainability information.
Additional areas of guidance highlighted in the report included a need for companies to reconsider the materiality process, particularly to meet the needs of the CSRD’s double materiality reporting requirements, and to provide full transparency on the materiality process. ESMA also noted the need for sustainability reports to be clearly structured and digitization-ready, and for companies to ensure the connectivity of financial and sustainability information, including being able to report connections within the sustainability statement as part of the disclosures on current and anticipated financial effects.
Data collection is key
In several areas of the report, ESMA stresses the importance of preparing data collection and management systems to meet the requirements of the CSRD. Among the key pieces of guidance provided in the report is a call for issuers to “carefully set up their systems of data collection and analysis, as well as internal controls” in order to meet the ESRS’ detailed reporting requirements and to conduct double materiality assessments. The regulator stressed that even companies that have experience with sustainability reporting under prior regulatory systems should assess if there existing systems are still fit-for-purpose under the CSRD.
The CSRD regulation includes transitional relief for the first three year of reporting for companies unable to obtain information from their upstream and downstream value chains. In the report, ESMA encourages companies to perform gap assessments regarding value chain information in order to enable continuous improvement as they begin reporting, and reminds issuers that “the ESRS do not envisage cases in which the lack of data justifies the omission of disclosure of material information.”
Data collection and management systems
Several considerations are important to select new or expand current software capabilities and to make CSRD reporting easier and more robust:
- Regulatory requirements : First and foremost, you should check the specific regulatory requirements in your jurisdiction related to CSRD reporting. Different regions or countries have different compliance requirements, deadlines, and reporting formats. Ensure that your current software can accommodate these specific requirements.
- Software readiness : Assess your existing software. If you are using outdated software that does not support the latest CSRD reporting standards, you may need to upgrade or switch to a different software solution that is compliant with the current reporting requirements.
- Reporting complexity : The complexity of your CSRD reporting can also influence the need for software upgrades. Due to the volume and detail of data needed for CSRD compliance, you might require more advanced software to handle the task efficiently and accurately.
- Data collection and integration : Consider how your software handles data collection, integration, and analysis. Ensure that it can easily gather relevant sustainability data from various sources and perform necessary calculations.
- Workflow efficiency : Evaluate the efficiency of your current reporting workflow. Upgrading to software with features like automation, data validation and report generation can save time and reduce the risk of errors.
- Support and updates : Check whether your current software provider offers regular updates and support for CSRD compliance. If your software is no longer supported or updated, it may be necessary to switch to a more reliable solution.
- Training and transition : Factor in the time and resources required for training your staff and transitioning to new software if needed.
- Cost and budget : Consider the cost of upgrading your software compared to the potential benefits, including improved compliance and reporting efficiency. Assess your budget and weigh the costs against the advantages.
So, how to make CSRD reporting easier?
In conclusion, it’s essential to prepare data collection and management systems to meet the requirements of the CSRD. Therefore, review your current software’s compatibility with these reporting requirements, assess your specific reporting needs, and consider the regulatory environment in your jurisdiction. If your current software does not meet these criteria, upgrading or switching to suitable software may be necessary to ensure compliance and streamline your reporting processes.
