What is the CSRD and how can you prepare?
As of January 5th, 2023, a new ground-breaking EU directive came into force: The Corporate Sustainability Reporting Directive (CSRD).
The directive promises to fill in the gap between policy and action when it comes to sustainability in the corporate world. It aims to do this by changing the way sustainability topics are viewed by both corporations and the many stakeholders who invest or otherwise interact with them.
Of course, this isn’t a new concept: the region has already had rules in place that required companies to report the purported social and environmental opportunities and risks they face in what is essentially an official disclosure of ESG topics.
But with this new directive, that’s being expanded further – with a particular focus on sustainability.
So, what is CSRD? How does it impact your business? And how can you prepare?
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is a kind of regulatory framework that was introduced to enhance transparency and accountability in the business world.
Under this directive, “large and listed companies” operating in the European Union are required to report on a wide range of factors relating to sustainability and societal impact.
It’s a progression of the Non-Financial Reporting Directive (NFRD), a previous ruling in the EU that was narrower in scope, targeting only large public-interest entities (PIEs). The CSRD expands on this to other entities with the aim of strengthening and harmonizing sustainability reporting requirements across the EU.
Why CSRD was introduced
There are many reasons why the CSRD was introduced.
The EU set itself lofty sustainability targets as part of the European Green Deal. The headline of this deal is to become the first climate-neutral continent by 2050. [1]
With the implementation of these new reporting requirements, the EU will enable better tracking of the environmental impact of businesses in the region.
It’s not just the EU that benefits: the CSRD also provides more transparency for those outside the company – think potential investors, customers, and other stakeholders – to make informed decisions in their own pursuit of sustainability.
In short, it’s a big step towards a greener, fairer, and more responsible business landscape and ensures the commitment of businesses to sustainability.
But who exactly will be impacted by the CSRD?
Who is affected by CSRD?
According to the CSRD, large companies are those that meet two out of three of the following criteria:
- More than 250 employees
- Turnover of over €40 million
- Over €20 million in total assets
A listed company refers to those whose securities are traded on a regulated market in the EU.
Even non-EU companies are impacted by the CSRD: Those with a net turnover of €150 million in the EU and with at least one subsidiary or location will be required to comply.
All in all, the CSRD is estimated to impact around 50,000 companies.
When will it be implemented?
The directive came into force at the beginning of 2023, but its implementation is staggered into three stages:
- Companies already subject to the NFRD have had to comply with CSRD as of January 1st, 2024
- Large companies not subject to the NFRD will have to comply with CSRD from January 1st, 2025
- Listed SMEs will have to comply with the CSRD from January 1st, 2026.
These companies will need to start tracking this data at the beginning of the mentioned financial year, with the first reporting taking place the following year. [2]
So, what exactly should be included in a corporate sustainability report?
What should be included in a corporate sustainability report?
While the EU is developing common standards, tools, and methodologies to make the process smoother for businesses and inform what needs to be included, there is no set instructions for what needs to be reported on.
There are a few different concepts to understand to fully comprehend what the CSRD entails: Double materiality and Scope 3 emissions.
Let’s look at double materiality first.
Double materiality
Materiality is an accounting term/concept that dictates what should (material) and shouldn’t (immaterial) be reported in a financial statement.
Something would be classified as ‘material’ if it has an impact that can be seen as significant – to the point that it would have an effect on how someone reading the statement would view the company or the opinion they form of it.
It’s not a one-size-fits-all concept, being pretty relative and depending on many factors like the size of the company.
In other words, the CSRD recognizes that sustainability issues can have both direct and indirect financial implications. For example, a company's environmental impact, such as greenhouse gas emissions, may have regulatory consequences or affect its reputation, which in turn could have financial implications.
Similarly, social issues like labor practices or supply chain management can impact a company's financial performance through factors like employee productivity, consumer perception, or legal compliance.
By incorporating double materiality into the reporting framework, the CSRD aims to provide a more comprehensive picture of a company's sustainability performance – including Scope 3 emissions.
Scope 3 emissions
For the purposes of tracking, measuring, and reporting greenhouse gas emissions that a company produces or is otherwise responsible for, three different categories or ‘scopes’ were defined by the Greenhouse Gas Protocol as follows:
- Scope 1 emissions are direct emissions from sources that are owned or controlled by the company or organization, such as fuel combustion, vehicles, machinery, heating, and cooling systems, etc.
- Scope 2 emissions are indirect emissions from the generation of electricity, heat, or steam that the company or organization purchases and consumes.
- Scope 3 emissions are indirect emissions from sources that are not owned or controlled by the company or organization, but are related to its activities, such as suppliers, customers, business travel, waste disposal, etc. [3]
Scope 3 emissions in particular are interesting as they are almost entirely out of the control of the company itself – and yet often make up a significant portion of a business’ carbon footprint. It therefore comes down to thoroughly vetting the partners, customers, and services they use in a kind of due diligence process.
Most importantly for the directive, the corresponding emissions they generate need to be reported. There’s a lot that can be said about controlling a travel policy effectively, but the reporting requirement can be difficult where the data is lacking.
Thankfully, the business travel market is already well prepared for the CSRD.
How you can prepare
When it comes down to it, businesses need to be proactive in identifying, quantifying, tracking, structuring and reporting this data. Here’s a quick overview of the workflow:
- Conduct a materiality assessment
- Develop a sustainability strategy
- Implement a robust reporting process
- Gather the sustainability data on a digital platform
- Review your work with goals and KPIs
- Align risk management with your business’ sustainability strategy
- Integrate reporting
Clearly, this is a multi-discipline, cross-team undertaking. But, as mentioned, it’s become simpler to quantify or even offset the emissions from many aspects of travel right when booking. Think of Lufthansa’s green fares as an example of this in action - something that can be built into your travel policy.
Then there are solution providers that help you at every step.
Where we come in
We offer a reliable solution that enables you to receive detailed and transparent analyses for your business-related flights, which can then be used when compiling your emission balance reports: AirPlus Green Reports.
Green Reports provide a clear and detailed emissions balance sheet which automatically calculates the emissions of every flight paid with the AirPlus Company Account. This is an important basis for your corporate sustainability report. Even better is that the calculated values are itemized in a spreadsheet, and the management summary provides an overview of the key figures.
And to truly get ahead of the curve, your payments should also get in on the sustainability action.
Good news: AirPlus is a climate-friendly corporate payment and settlement provider, certified with the Impact Label of the international climate protection organization myclimate. This applies to all our products worldwide, from our procurement solutions to our business travel and travel trade payment suites. [4]
All in all, we – as well as the business travel market as a whole – are well-positioned to offer insightful and trackable reporting on the environmental impact of business travel – ideal for your Scope 3 and CSRD reporting needs.
Get prepared for the CSRD
So that’s a summary of what the CSRD entails and solutions you can use to get on track with scope 3 reporting. It’s important to be ready for the regulation sooner, rather than later. And with the risk of significant fines, penalties, and reputational damage looming for non-compliance, there’s plenty of incentive.
Business travel isn’t going anywhere and the market is adapting to make travel more sustainable – something to be excited about even outside the CSRD discussion.
The CSRD is the latest of a long line of EU regulations. Subscribe to our newsletter today as we cover more news like this.
Photo by Andrea Piacquadio from Pexels
[1] The European Green Deal | Commision.Europa.eu
[2] Corporate sustainability reporting | Finance.EC.Europa.eu
[3] You've probably heard of Scope 1, 2 and 3 emissions, but what are Scope 4 emissions? | WeForum.org
[4] AirPlus takes responsibility for its carbon footprint | AirPlus.com
