Is Your ESG Data Ready for the European Corporate Sustainability Reporting Directive?

February 19, 2024

As the spotlight continues to shine on ESG reporting standards in the European Union, the newly minted Corporate Sustainability Reporting Directive (CSRD) is taking centre stage. Birthed out of the larger European Green Deal initiative, the CSRD replaces its predecessor, the Non-Financial Reporting Directive (NFRD) of 2014. The former legislation was deemed inadequate for addressing gaps within current EU sustainability reporting frameworks, thus giving rise to the CSRD. Agreed upon provisionally by the European Parliament and Council on June 21, 2022, the new directive, coupled with the Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation, establishes a cohesive reporting framework, propelling the European Green Deal further.

What Are the January Updates for CSRD 2024?

The CSRD is officially taking over from NRFD, and it aims at being more extensive than its predecessor, thus providing greater transparency regarding corporate sustainability practices. Despite this, NFRD Directive 2014/96/EU and current exposure drafts have established certain disclosure obligations.

Starting January 1, 2024, companies that fall under the previous jurisdiction of the NFRD will face  changes in regulations. Companies exempt from NFRD that have a workforce of at least 250 employees may feel its impact starting on January 1, 2025, and SMEs beginning in early to mid-year 2026. Non-European establishments that operate within EU boundaries with net turnovers exceeding €150 million should also brace themselves to disclose and authenticate their ESG effects.

The CSRD encompasses obligatory disclosures pertaining to environmental and social indicators like employee-related topics, human rights, and integrity issues. The directive also highlights the significance of corporate governance specifics regarding management bodies, their composition, and the framework for enterprise risk management. Furthermore, it underscores how sustainability is integrated into a company’s strategy and managerial methodologies.

The guideline is based on the concept of double materiality, which considers both the effects of a company’s activities on sustainability and the influence of sustainability issues on the company, thereby giving equal weight to both aspects. An independent auditor must verify disclosures, as it is a strict requirement. This measure will make it more difficult for companies to engage in greenwashing and aligns with the directive’s objective of ensuring trustworthy data while also preventing such problems.

How Can I Prepare My Data for CSRD Regulation?

Affected companies will need to ensure that their sustainability data is accessible in the XBRL Data format. To facilitate this, a digital tagging system utilizing an XBRL taxonomy is currently under development. The reporting format will be electronic XHTML, adhering to the standardized categories established by the XBRL taxonomy for easy machine readability. Consequently, ESG data and disclosures need to be made digitally available and reported by the end of the financial period in the annual report. This underlines the importance of implementing robust reporting processes and controls to build an ESG data infrastructure that enables organizations to future-proof their sustainability reporting.

The proficiency in managing ESG data varies greatly among companies. Some still rely on disjointed manual processes with inadequate IT support and multiple information sources, while others maintain structured and traceable data that aids in making informed strategic decisions. This is where Adastra’s data-driven ESG solution comes into play. It ensures effective collection practices, which are crucial as you scrutinize your organization’s current data architecture for decentralized systems or a lack of coordination between platforms and technologies that could impede progress.

Our solution masters ESG data collection with a thorough review aimed at cleansing the existing cache along with testing its accuracy. This proactive approach helps avoid potential stumbling blocks during foundational reporting further down the line, significantly impacting scoping upfront. Additionally, we prepare final ESG detailed reports along with recommendations related to the current state analysis of ESG for entities moving forward. Adastra’s data-driven ESG solution is ready to tackle your CSRD challenges.

Do not hesitate to contact us and find out more at the ESG Reporting page.