What are the CSRD and the ESRS, and what is the relationship between these two?
In January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force in Europe. The EU law requires companies to disclose information about how their business activities impact people and the environment, and how sustainability issues arise risks and opportunities for the business. There are twelve topics set to report on, the European Sustainability Reporting Standards (ESRS). These requirements are divided into three categories: Environmental, Social, and Governance. The new regulation aims to get better insights into organizations’ sustainability performances and make it more convenient to make comparisons between organizations.
A double materiality assessment is the basis for sustainability disclosures. On the one hand, impact materiality helps an organization discover how its business activities affect people and the environment (inside-out). On the other hand, financial materiality assesses how sustainability issues such as climate change affect the company’s financial performance and future viability (outside-in).
Besides conducting double materiality assessments, companies subject to the CSRD have to report these results according to the European Sustainability Reporting Standards (ESRS). The CSRD and ESRS can therefore not be seen separately.
What are the reporting standards?
These reporting standards can be seen as guidelines for proper sustainability reporting. There are twelve standards of which ten are in the Environmental, Social, and Governance categories. The other two are general and apply to all companies, regardless of industry. In coming years, the ESRS will be clarified with sector-specific standards, including textile sector-specific ESRS standards.
Who must comply with this reporting directive?
The first companies in scope of the CSRD will report against the ESRS in 2025 for the financial year 2024. This means that data must be collected this year.
- First report in 2025 – Companies that already comply with the Non-Financial Reporting Directive (NFRD) – Large companies in the EU that are public interest entities and have more than 500 employees on average.
- First report in 2026 – Companies that are incorporated in the EU and meet at least two of the following criteria: 1) balance sheet total of at least 25 million EUR, 2) annual net turnover of at least 50 million EUR, and/or 3) an average of 250 employees.
- First report in 2027 – SMEs incorporated in the EU that are listed as EU-regulated markets and meet at least two of the following criteria: 1) balance sheet of at least 4 million EUR, 2) annual net turnover of at least 8 million EUR, and/or 3) an average of 50 employees.
What are practical steps you can take as a brand?
- Conduct a materiality assessment. You can access the Implementation Guidance of EFRAG ‘EFRAG IG 1 Materiality Assessment’ to better understand how to conduct this assessment.
- Review the different standards (ESRS) and assess your current data availability. Decide if you should refine your existing data collection methods or implement new procedures to gather the required data.
- Decide and communicate your data needs to your stakeholders, including suppliers, allowing them sufficient time to gather the necessary information.
Join us in preparing for sustainability reporting
Pactics Cambodia attempts to follow these reporting standards as closely as possible. We foster a culture of continuous learning and improvement within Pactics, including our reporting practices. We are aware that customers need our data to report on their sustainability practices and are happy to work closely with them to provide the desired data.
References:
(1): Directorate-General for Financial Stability, Financial Services and Capital Markets Union. Corporate sustainability reporting. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
(2): Directorate-General for Financial Stability, Financial Services and Capital Markets Union. Corporate sustainability reporting: Commission welcomes guidance on interoperability of European and global sustainability reporting standards, 2 May 2024. https://finance.ec.europa.eu/news/corporate-sustainability-reporting-commission-welcomes-guidance-interoperability-european-and-global-2024-05-02_en