If you’ve been worried about complying with the European Union’s CSRD (Corporate Sustainability Reporting Directive), or if you just wanted more time to figure out how its standards (the European Sustainability Reporting Standards, or ESRS) apply to you, there’s good news: The EU’s European Commission may have given you a deadline extension. (Take a deep breath!)
The EU Commission recently announced a two-year delay in adopting some of the reporting requirements laid out in the CSRD, citing the heavy administrative burden that the process could put on companies racing to comply with the legislation’s ambitious goals.
The first set of reporting standards (ESRS) was adopted back in July 2023 and includes 10 topical standards that depend on outcomes of a double-materiality assessment (table 1), as well as more general requirements that apply to all businesses regardless of sector. These standards are not impacted by the announced delay.
Table 1: Adopted topical ESRS
| E | E1 Climate change | S | S1 Own workforce | G | G1 Business conduct |
| E2 Pollution | S2 Workers in the value chain | ||||
| E3 Water and marine resources | S3 Affected communities | ||||
| E4 Biodiversity and ecosystems | S4 Consumers and end-users | ||||
| E5 Circular economy |
However, additional reporting requirements were also issued for specific industries such as oil & gas, energy production & utilities, and food & beverage (among others), and set for adoption by June 2024. These additional requirements now will not be in effect until June 2026.
It’s important to clearly understand if and how the CSRD delay affects your business, but it very well may offer you a window of opportunity to marshal resources and prepare properly for ongoing disclosure requirements. The additional time can let many companies develop an internal ESG reporting infrastructure that serves across relevant frameworks and constructively drives climate action.
CSRD in the ‘Alphabet Soup’ of Reporting Frameworks
The various reporting frameworks and standards you may encounter comprise a veritable soup of acronyms, and the differences between them can seem perplexing and obtuse. For the purposes of this discussion, it’s worth differentiating CSRD from the International Sustainability Standards Board, or ISSB, which you may have encountered as well.
The CSRD is an EU-based framework developed by the European Commission for business operating in and with the European Union. It was developed with the cooperation of all EU member states’ governments and is administered by the European Commission. Again, its associated standards are known as ESRS.
The International Sustainability Standards Board (ISSB) is an independent standard-setting organization. In 2023, the ISSB released its own International Financial Reporting Standards (IFRS) S1 and S2. These standards are based on, and also meant to consolidate, several other pre-existing reporting frameworks: The Global Reporting Initiative (GRI), the Task Force on Climate Related Financial Disclosures (TCFD), the Climate Disclosure Standards Board (CDSB), and the Sustainability Accounting Standards Board (SASB). Companies may continue to use any of these standards, but the intention of the ISSB was for the IFRS standards to emerge as one common, global set of disclosure requirements for all companies and investors.
So, What’s the Difference?
The European Commission and the ISSB report to have worked together to ensure “interoperability” between the CSRD’s reporting standards (ESRS) and the IFRS. So, what’s the difference?
In broad terms, the two organizations have different but potentially overlapping audiences and overarching goals. CSRD is a broader, governmental program that affects not only a businesses’ financial materiality but the social implications of its practices as well. A major concern is transparency, from financial disclosures to its role within the larger community.
The ISSB is concerned not only with EU businesses but any international business, and focuses more on financial information and its implications. Analysts responsible for financial forecasts and the investors who operate on those forecasts care about the impact of climate change on corporate operations. They need transparency on corporate goals, actions, and progress. The new generation of disclosure standards, (including both ESRS and IFRS), work to make this transparency possible.
The integration of ESG metrics into financial forecasting will likely become more comprehensive and robust, leading to new implications for corporates. According to SEC Chair Gary Gensler, “Investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.”
Over time, a company’s performance on ESG metrics will increasingly depend on project implementation, which in turn can depend on access to capital. ESG is becoming increasingly key for an organization’s social perception, which can greatly affect overall performance. To ensure a company can secure better financing, showcase progress against its ESG goals, and maintain public regard and trust, accurate reporting is imperative.
If You’re Affected by the CSRD Delay, Use the Time to Organize Your Internal Reporting Infrastructure
At Coho, we’re encouraging affected companies to use the delay in CSRD’s implementation to assemble a team and develop an approach to disclosure with an eye towards behavior change and project implementation. If you’re a sustainability manager tasked with wrangling the CSRD for your organization, these are some steps you can take now.
Identify Your Network of Key Personnel and Start Talking
The CSRD requires companies to report on their material ESG topics. In the past, the materiality of a topic was assessed based on its impact on company operations. By contrast, CSRD now requires companies to undergo a double-materiality assessment to identify the largest risks (the ESG topics most impactful to people and the environment) and the largest risks to the bottom line.
Sustainability managers must engage a wide variety of colleagues across corporate departments to perform this double-materiality analysis. Different perspectives are needed to identify what data needs to be collected (i.e., which topics are material), and how.
A mapping exercise is helpful to identify groups who should be involved in the process early on. These stakeholders must include those most familiar with company operations as well as those best equipped to speak to the company’s exposure to ESG risks. For companies with a large geographic footprint, it’s also important to consider how stakeholders “on the ground” can contribute to data collection, as they are most familiar with site-level risks, opportunities, and limitations that could affect data access.
Engaging stakeholders for the CSRD disclosure process must go beyond data collection during the double-materiality assessment stage. All identified stakeholders must come together to strategize on an approach to each disclosure, which should include both a clear goal of the disclosure as well as the means and methods.
This can be tricky. Stakeholder groups that rarely cross paths day-to-day must collaborate closely to ensure collection of reliable and useful information. Develop a meeting plan that allows all involved to air concerns and present ideas to keep the process as smooth as possible.
Be Prepared to Adapt to Local Context
Establishing clear, two-way communication channels allows organizations to increase their decision-makers’ understanding of actual on-site capabilities, provide support in a timely and resource-efficient manner, and inform guidance given to specific sites.
For companies with global footprints, stakeholder coordination is already complicated by differing geographic regions, time zones, languages, and cultural realities. These organizations must be intentional and attentive to their disclosure processes, as each site will be unique, and the differences will directly impact opportunities for improvement and appropriate implementation approaches.
For example, a manufacturing site in Arizona and one in Beijing both face water scarcity issues;, however, there are major differences in how they might address this risk. In Arizona, municipal water providers typically supply manufacturing sites with drinking-quality water, which can strain potable water availability in this extremely dry area. An on-site water reuse solution could reduce a site’s unnecessary drinking-water purchase and leave the drinkable water for drinking.
Beijing, on the other hand, has already recognized its water scarcity issue, and mandated back in 2003 that all commercial and residential buildings larger than 100,000 cubic feet implement an on-site water reuse solution. It would be logical in this case to focus instead on the condition and efficiency of water assets and equipment already in place.
Seize This Opportunity to Create a Platform for Action
By deferring enforcement of CSRD requirements for two years, EU officials have provided a window of opportunity for corporations to build reporting processes and implement ESG projects proactively.
Use this time to identify and tackle your organization’s internal inefficiencies, evaluate focus areas for project implementation and improve communication channels between stakeholders. CSRD, like other financial reporting requirements, will need input and engagement from operators on the ground to top leadership.
With data-driven disclosure comes increased public visibility into ESG activities, so accuracy is paramount. As disclosure data becomes more integrated into financial forecasting and markets, implementation of projects for ESG metrics will be a key lever to improve investor sentiment and in turn expand access to capital markets.
With some proactive planning, your organization can lean on regulatory requirements like those in the CSRD to help shape an action platform to accelerate your impact and progress against ESG metrics and goals. If you’re looking for expert advice on where to start or how to continue, give us a call. We’d be happy to help you leverage this window of time to put a solid, actionable plan in place, no matter where you are in your reporting and disclosure evolution.
