The business landscape is ever evolving and today, it is faster than ever. In the current times, businesses are not just instrumental in producing goods and offering services to make profits, but also have a social and environmental responsibility. Against this backdrop, the Corporate Sustainability Reporting Directive (CSRD) has proven to be a potential driver of balance and social equity. CSRD reporting allows businesses to incorporate environmental and social considerations within the internal business operations along with due stakeholder interactions. It is not something companies have a choice about – it is the need of the hour. Businesses, big or small, should create an innovative CSR program that aligns with sustainable goals and gives back to the planet to create a more sustainable future. While sustainability in business can mean different things to different people, in the present context it is best described in a study published by Harvard Business School which states that sustainability is the process of running a business without bringing about any negative impact to the community as a whole.
It is not just creating a sustainable business plan where the companies manufacture goods using waste materials or organic materials, but a choice that an organisation makes in opting for a long-term approach to fundamentally engineer all its offerings based on the mitigation of environment hazards. Sustainability also includes changes to the manufacturing process using renewable energy sources. This could mean deriving electricity from solar panels and optimizing various operations to reduce greenhouse gas emissions.
Let’s understand what CSRD could offer in global business practices.
The Corporate sustainability reporting directive can be defined as a legislative framework taken up by the European Union for enhancing sustainability consulting services and improving transparency on a host of environmental as well as social problems that arise within business organizations. Even though it’s a part of the objectives set out in the European Green Deal, it has an ell-embracing scope and effectiveness that involves a broader range of businesses and stakeholders.
Early compliance with this approach also gives a business an upper hand in navigating the non-financial indicators associated with corporate activities. For instance, cost savings for businesses are now not only limited to energy reduction but also bringing about innovations in the process of production.
Climatic considerations are also far reaching at present and any business should keep in mind that further uncompromising legislation will be enacted in the coming days. Needless to say, the impact will not remain constrained to larger organizations but also cover SMEs. This framework allows businesses to streamline the production process and supply chain from the prospect of sustainability. This enables the business to come into strategic partnerships and navigate potential bottlenecks when they are at a nascent stage.
CSRD is primarily meant for businesses operating within the European Union. However, if a business is working outside the EU but has an annual turnover of over €150 million, then it also comes under CSRD compliance. It was introduced in January 2023 while the final draft of ESRS or European Sustainability Reporting Standards was released in July. Here are the compliance requirements that a business is expected to abide by:
The first thing that a business needs to report about is pollution, waste reduction, greenhouse gas emissions, biodiversity, and mitigating climate change. It also requires the business to report about inclusivity, diversion, and even human rights.
Businesses are expected to prepare their reports as per the ESRS and this must include a detailed guideline on the disclosure regarding each ESG framework. Also, these reports must be prepared in a format compatible with the ESEF so that the requisite data can be accessed and compared across the European Union.
Information regarding sustainability needs to be integrated into the business management report. This ensures that the ESG compliance is adapted to the core management processes.
Lastly, businesses are required to update information regarding sustainability disclosures to improve the reporting procedures. This also helps them to analyse where they stand in terms of the fundamental strategic management processes.
Business corporations under the CSRD directive are required to report on the entire value chain which might also include obtaining information from the line of suppliers. Although it can be painstakingly challenging, it would encourage better sustainability and clarity throughout the supply chain. The CSRD reporting is an integral aspect of global effort to drive uniformity and above all, a global baseline. The Global Reporting Initiative and the European Financial Reporting Advisory Group have together claimed to showcase a higher level of interoperability. This collaboration also involves an improved tagging system and digital correspondence to foster interoperability of digital classification.
CSRD is synonymous with a business’s commitment to the economy, society, and the environment. It comes with a self-regulating model that gives ample freedom to companies so that they can be accountable to all the stakeholders as well as themselves. Here are some important benefits of CSRD reporting.
When a business invests in CSRD, it doesn’t limit itself to the immediate gains of customer satisfaction and enhanced brand loyalty. It is also a wider scope of attracting a broader audience that aligns with the social norms. After all, when your business reputation is developed on fair practices, recognition is easier to achieve.
CSRD isn’t just an external perception but it works within the internal dynamics. As the employees become more responsible to society, they are better able to share a sense of purpose while working with such a business corporation. This suggests employee retention becomes attainable with CSRD on board.
CSRD is a proactive means to identify and acknowledge social and environmental risks. It acts as a shield against environmental negligence, discrimination, or any sort of unethical practices which can eventually lead to unforeseen legal and financial penalties.
Although CSRD reporting is undeniably beneficial for the planet Earth, its highly complex and comprehensive nature can make business organizations apprehensive. And why not? The 1144 data points included in the ESRS demand an unprecedented level of prescriptiveness.
Also, the main pillar of CSRD which is the double materiality principle plays a critical role in shaping the class of sustainability information that businesses collect and the procedure involved in it. But it’s worth mentioning that the odds of making mistakes there are much higher. And right mindset coupled with thorough guidance is the best bet to overcome the challenges.
The Corporate Sustainability Reporting Directive is not just limited to box-ticking for businesses now. It’s an essential recalibration of corporate requisites, further enhanced by the double materiality principle. While sustainability information can be obtained at any given time, it was devoid of consistency and quality.
Moreover, the ever-increasing environmental risks have propelled the need for a wider and more reliable corporate disclosure. The CSRD has effectively aimed to address this issue by mandating that businesses have to audit, standardize, and also, digitize the company’s sustainability reporting. In simple words, the European Union has set up an exceptionally high standard for global sustainability reporting through its CSRD directive.