Latest updates on the CSRD

With the Corporate Sustainability Reporting Directive (CSRD) published in the European Union’s Official Journal, we’d like to dive into the most recent changes, and how it affects businesses. Since publishing our last blog on the CSRD timelines, two major changes have taken place:

  1. The directive has reached its final steps. In November 2022, the CSRD was adopted by the EU parliament and the EU council. On the 14th of December 2022, the directive was published in the Official Journal of the European Union, making CSRD officially binding.
  2. In November, the EFRAG handed over the final draft of the European Sustainability Reporting Standards (ESRS) to the EU Commission. The EFRAG published a first draft set of standards in February 2022, and a second set in April 2022, which was followed by a public consultation. Based on the consultation results, the EFRAG revised the draft standards before handing them over to the EU Commission in November for final approval.

Finalizing the directive

There is a lot to uncover when figuring out the CSRD. Previously we have shared its expected timeline trajectory. For this blog post, we will focus on the differences in the ESRS drafts and what it entails.

Before we dive into it, let’s start with a little recap of the CSRD Alphabet Soup:

Who’s involved?

The European Commission appointed an external party, the EFRAG, to develop the European Sustainability Reporting Standards (ESRS) required under the CSRD.

What do these standards entail?

The ESRS are subdivided into cross-cutting standards and topical standards. The cross-cutting standards are the general disclosure requirements, and the topical standards are the disclosure requirements regarding environmental, social and governance. Per topical standard there are different topics and different disclosure requirements indicated.

Main changes in the standards since public consultation

The EFRAG reviewed the draft ESRS in November 2022 and submitted its final draft to the European Commission. The standards are planned to be adopted by the European Council and Parliament in June 2023. Please note that this means that the current standards are still subject to adjustments.

CSRD Report Structure new
The EFRAG has incorporated changes based on the public consultation, where responses requested a reduction in the number of disclosure requirements, more alignment with international sustainability reporting standards (ISSB & GRI) and a reconsideration of the approach to materiality. We want to highlight a couple of changes that might impact most companies’ reports:

1. Restructure of the standards

Let’s start with the structural changes. At a glance, it may seem that, the workload for compliance has decreased, as there are now ten topical standards instead of eleven and the total number of disclosure requirements has been reduced as well. However, many requirements have been merged instead of eliminated, meaning the workload has not changed significantly.

2. Changes in reporting on materiality

The ESRS still require double materiality, that has not changed. However, the way the results of the materiality analysis are used in selecting the relevant topical standards for an entity has changed. The prior draft of the ESRS used the so-called rebuttable presumption. This meant that all topical standards (including all disclosure requirements) were applicable for every company unless they could provide evidence that a particular topic was not material for their business. In practice, this meant that for every disclosure requirement, a company needed to explain in their report why it was not relevant to them.

This has been replaced by a different approach, comparable to the one we recognize from other reporting frameworks like the Global Reporting Initiative (GRI). Now, the results of a company’s materiality analysis determine the relevant topics to be included in its report. Companies no longer need to explain why they do not include a specific disclosure requirement. However, if they leave out an entire topic (e.g. ESRS E2 Pollution), they will have to explicitly mention that this topic is not material for their organization.

3. More explicit obligated disclosures

In the prior section we discussed that the sub-topics of topical standards to be included in the report are now based on a company’s double materiality analysis. However, some of the standards need to be included by every company, regardless of the double materiality analysis results. These are the following:

  • ESRS 2 General disclosures
  • ESRS E1 Climate change
  • ESRS S1 Own Workforce
    • Companies with 250 employees or more will have to comply with half of the requirements, making it partially mandatory. The other half of the requirements are to be included based on a company’s materiality assessment.
  • In all the other standards, there are specific disclosure requirements that every company needs to include in their report. These are based on for, example, other EU regulations or directives.

4. Report structure

In the prior draft standards, there were three options for structuring your content. In the latest draft standards, only one option remains – using the same sequence as the standards (shown in the image below). Note that this needs to be included in all company’s management reports, published together with their financial results.

latest updates CSRD Report Structure

What to expect and how to prepare now

This blog post summarized the most recent changes to the CSRD. As indicated in this blog, the standards are still in the draft stage, and thus, still subject to change. The EU will adopt the standards by June 2023, which will make the standards final.

Wondering how this would affect your company and what you should do to start preparing? Don’t hesitate to reach out to us. Want to know more about CSRD? Keep a lookout for our next blog post within the CSRD series which explores the benefits and repercussions of CSRD compliance for your organization.

Authors
Fia Fuchs

Fia Fuchs

Senior Consultant, Sustainalize

Aurélia Bichet

Aurélia Bichet

Consultant, Sustainalize

Samantha Gan Kristensen

Samantha Gan Kristensen

Consultant, Sustainalize

Don’t hesitate to reach out to our colleagues if you need any help or assistance in the process.

Published on: 12 January 2023

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