Sustainability reporting under CSRD

The European Union's Corporate Sustainability Reporting Directive (CSRD) marks a significant change in how companies report on their sustainability impact. This article will provide an overview of the CSRD, its requirements and its importance, as well as how companies can leverage their accounts payable and supplier management systems to meet these requirements.

What is CSRD?

The CSRD is an update of the previous Non-Financial Reporting Directive (NFRD) and aims to improve the quality and scope of corporate sustainability reporting. The CSRD entered into force on January 1, 2024 and now covers over 50,000 companies in Europe, compared to the previous 11,000 under the NFRD. The new reporting standards, called European Sustainability Reporting Standards (ESRS), require companies to report on their environmental, social and governance (ESG) impacts.

The background to CSRD is the EU's goal of zero net emissions of CO2 by 2050 and the decoupling of economic growth from resource consumption.

The aim is also to promote transparency and a long-term approach to sustainability and to steer capital flows towards more sustainable activities.

The CSRD has four main objectives

1. Improve the completeness, accuracy and reliability of the information collected.
2. Extend reporting obligations to more companies.
3. Raise awareness of companies' environmental impacts, including ESG risks.
4. Standardize balance sheets across the EU.

The main differences between the CSRD and the NFRD include the extension of reporting requirements to more companies, more detailed European declaration standards and requirements for independent audits of the reports.

Which businesses are affected?

The CSRD covers all large companies and listed small and medium-sized enterprises (SMEs) in the EU, as well as international companies with significant operations in the EU. To be considered a large company, the company must meet at least two of the following three criteria:

• At least 250 employees.
• An annual turnover of over €50 million.
• A balance sheet of over €25 million.

Smaller companies are also covered if they are listed and meet certain thresholds.

Double materiality is the basis for reporting under CSRD

A key concept in CSRD is 'dual materiality', which means that companies need to consider both how external factors affect their economy (financial or outside-in perspective) and how their activities affect the environment and society (impact or inside-out perspective). This means that companies need to identify and report both financial and non-financial risks and opportunities.

Considering the whole value chain

A value chain encompasses all the activities and processes that a company or organization undertakes to take a product or service from concept to consumption. This includes all steps from the initial source, such as the extraction of raw material, to the production of materials, distribution, marketing, delivery to customers and waste management. For ease of understanding, the value chain can be divided into three parts: upstream, own operations and downstream.

Upstream

Upstream includes all activities that take place before the raw materials reach our company. These include:

• Extraction of raw materials: The process of extracting necessary raw materials from nature.
• Materials manufacturing: processing of raw materials into usable materials.
• Subcontractors: Suppliers who provide parts or components needed for production.
• Logistics and transportation for our business: Transportation and logistics solutions that move materials and products to our business.

Own activities

This part of the value chain deals with the activities that take place within our own business. It includes all internal processes necessary to manufacture, process, sell and distribute products or services.

Downstream

Downstream covers all activities that take place after products leave our company, including:

• Transportation from our company: logistics and transport solutions to deliver products to intermediaries or end customers.
• Intermediary work: Activities carried out by distributors or retailers to get the product to the final customer.
• Customer use: how the customer uses the product, including any maintenance and servicing.
• Recycling and waste management: How the product is recycled or managed at the end of its useful life, including waste management.

Implementation scheme

The implementation of the CSRD takes place in several stages:

January 1, 2024: Large companies already covered by the NFRD.

January 1, 2025: Other large companies.

January 1, 2026: Listed SMEs with more than 10 employees

January 1, 2028: International companies with significant activities in the EU.

How businesses can prepare

To prepare for CSRD, companies need:

1. Analyze the new requirements and understand which departments are affected.
2. Conduct a dual materiality analysis to identify relevant ESG issues.
3. Collect and organize data required for reporting.
4. Perform a gap analysis to identify differences between current practices and the CSRD requirements.
5. Educate and engage internal stakeholders to ensure a smooth transition.

An important source for your sustainability reporting

Your supplier invoices contain information about the materials and products you have purchased. The level of detail depends on how you receive your invoices and how much information you choose to include in your system. There are great opportunities here to obtain data on, for example, resource consumption including materials, energy and water. In addition to the management of supplier invoices, many systems also offer expanded opportunities for managing the company's suppliers, so-called Supplier Relationship Management. Here it is also possible to manage the qualitative parts of CSRD reporting. Conrab Opto offers modules for managing both supplier invoices and the company's suppliers.