How to prepare for CSRD?

The CSRD, or Corporate Sustainability Reporting Directive, will be phased in gradually in 2024. The first companies affected will be those already subject to the NFRD, which will have to report their 2024 ESG data by January 1, 2025.

The application of this new regulation will then be extended until 2027 to European Union companies meeting at least 2 of the following criteria: 

• 250 or more employees
• generate sales of 50 million euros or more
• have a balance sheet of €25 million or more

This will also apply to listed SMEs and non-European companies with EU sales in excess of €150 million.

Eventually, this will represent 50,000 companies across the European Union, and 75% of the sales of all EU companies.

By way of comparison, the NFRD only concerned listed companies or companies with over 500 employees, i.e. just over 11,000 companies across the EU.

While certain CSRD principles are still under construction, notably sector-specific reporting standards, it is important for companies to prepare for them now.

The first companies concerned, already subject to the NFRD, often have an initial data collection structure that will need to be adjusted and extended. For the others, starting from scratch, even if the horizon of 2026 or 2027 may seem remote, they will need to prepare as soon as possible to avoid finding themselves up against the wall in the face of an exercise that could quickly prove Dantesque.

Here are a few tips to help you prepare for the CSRD and its various deadlines.

Adjusting governance mechanisms

The first step will be to adapt your governance mechanisms to meet the new regulatory requirements. Following the introduction of the NFRD, many large companies have already begun this process, but still need to deepen it.

The subject of CSR, a pillar of CSRD, must be addressed at the highest levels of your company. For example, EY, in its 2022 Governance Panorama, noted that corporate Boards of Directors have begun to take ESG issues more rigorously into account in their decision-making. In 2022, 34% of them had included analysis of the impact of climate change in their work themes, whereas 2 years earlier the figure was close to 0.

Similarly, they noted the growing importance of CSR committees within these Boards, with a particular focus on topics related to climate risks and their impact on their company's business.

The shortcoming today lies with audit committees, which are still relatively unaware of these issues. They note that only 12% of the audit committees of SBF120 companies currently have a member trained in CSR issues. Yet they are in the best position to check that reporting complies with regulatory requirements.

The ideal governance model would be that of a CSRD strategy steered by the CSR Committee. It would be responsible for defining the broad lines and objectives of ESG issues.
The Audit Committee would be involved only at the end of the process. Armed with its knowledge of the company's structure and operations, it would be responsible for checking the conformity and quality of reports.

From an operational point of view, it would be best to have an overall department which would centralize the implementation of the data collection and analysis plan. This department would be divided into two sub-departments. A financial sub-directorate to deal with financial performance issues, and a CSR sub-directorate to deal with environmental performance issues.

Managers and directors also need to integrate the ESG dimension into their risk management policies. This should be a separate category, fed by the double materiality analysis imposed by the CSRD.

By isolating this dimension in your risk management matrix, you'll be able to have a clear vision of the ESG impacts on your company's activity and value chain. It will also enable you to carry out a more in-depth analysis of these issues and the resources you can mobilize to anticipate their consequences on your business, as required by European regulations.

Integrate reporting standards

One of the key points of the CSRD is that it is accompanied by a set of reporting rules drawn up by the European Financial Reporting Advisory Group (EFRAG ) to harmonize the reading of ESG data transmitted by companies at European level.

These ESRS (European Sustainability Reporting Standards), some of which are still being drawn up, should serve as a guideline for companies in drawing up their CSRD reporting. 

The monitoring of these reporting formats therefore requires a high level of involvement on the part of company audit committees, which will need to be trained in these issues as soon as possible, given the tight schedule for implementing the CSRD.

Another new feature of the CSRD is that these reports will have to be audited by Statutory Auditors specifically trained in sustainability reporting, or by independent third-party bodies accredited by COFRAC.

Control your data collection chain

The greatest challenge facing companies will be that of collecting ESG data. Companies that have already carried out a quality carbon footprint - by which we mean one based on physical, non-monetary data - are already aware of the scope and complexity of the subject.

For these companies, the hard work is done. The analysis of a company's activity data to establish a carbon footprint using a scientific methodology represents the most important aspect of CSRD in terms of collection.

Map your data

The first phase of your work is to identify all the data you need to collect. Study in depth the European reporting standards, ESRS, which will provide you with the necessary framework for drawing up the list of data you need to transmit and their format.

From this list, you will need to divide the data into 3 main categories: 

• existing data which, as is or after processing, can be integrated into your reporting system
• existing data that need to be completed in order to be processed and/or to deepen your analysis and integrate reporting
• new data to be collected from your various stakeholders

Choosing the right tool

Given the sheer volume of data required to meet CSRD requirements, you will need a tool that can support you not only in the data collection process, but also in data analysis and the implementation of action levers to positively impact your social and environmental performance.

ESG data must be collected throughout your value chain. With regard to carbon data, the CSRD applies to your company's scopes 1, 2 and 3. The tool you choose must therefore enable you to work collaboratively with all the stakeholders concerned by this exercise, from your various departments, sites and employees to your suppliers of products and services.

The Excel spreadsheet will no longer be sufficient to process all this data. From now on, you need to take into account the fact that the data collected will be processed from several angles to calculate its impact on different indicators. For example, an action that is beneficial in terms of GHG emissions may be detrimental to biodiversity indicators.

Your tool's processing system should therefore be sufficiently advanced to take into account all the variables listed by the CSRD, so that you can identify the most relevant levers for taking substantial action on the social and environmental dimensions.

To find out more about best practice in carbon data collection, see our article on the subject.

Preparing a dual materiality analysis

Dual-material analysis is one of the major new features of the CSRD.

Where you previously had to report only on a list of data, with no constraints on reporting format or analysis, the CSRD now requires you to take into account not only the positive or negative impact that social and environmental changes will have on your business, but also the impact that your business has on social and environmental dimensions.

The CSRD requires you to carry out this analysis not only on your direct activity, but also on your entire value chain. So it's no longer enough for you to analyze the quantity of GHGs emitted by your suppliers; you also need to be able to estimate the impact that climate change could have on them, and therefore on your business.

Dual materiality analysis is a complex subject. It requires the collection of quality data, as well as the ability to take a short, medium and long-term view of your development. Finally, you need to be able to estimate the potential social and environmental impact of your future growth.

Don't hesitate to enlist the help of experts to take stock of the situation and map out the implications of social and environmental changes for every aspect of your business, and vice versa.

Keep abreast of changes in CSRD regulations

The CSRD is the latest regulation in the Green Deal for Europe, which aims to make the European Union carbon neutral by 2050.

One of the key objectives is to redirect investments towards companies that have taken initiatives to implement "sustainable" growth.

For financial players, the SFDR and green taxonomy aim to increase the transparency of investment strategies and financial investments for investors.

On the extra-financial front, the CSRD, which replaces the NFRD regulations, informs the general public and, of course, financial players about the extent to which companies have taken ESG criteria into account, and about their vulnerability or solidity in the face of anticipated social and environmental changes.

This legislation is constantly evolving, being added to and refined over the years at an extremely rapid pace. It is therefore essential to keep a constant watch on new regulations.

Generic ESRSs have already been published by EFRAG (European Financial Reporting Advisory Group), but a dozen or so sector-specific ESRSs are still under development, with more to follow. The European taxonomy and the SFDR are also set to evolve over the next few months, in line with the CSRD.

What about transposition into French law?

The government had until December 9, 2023 to transpose the CSRD into French law, which it did on December 7 with Ordinance no. 2023-1142. This transposition has clarified the implementation of the regulation for French companies, particularly with regard to the risks and levels of penalties in the event of non-compliance with reporting obligations.
As part of this transposition, the French government has also defined the persons authorized to audit CSRD reports, and the authority that will oversee the auditors . EFRAC-accredited Statutory Auditors and Independent Assurance Service Providers (IAPs) will therefore be the only ones authorized to carry out these audits, after completing a specific 90-hour training course on sustainability issues and ESG criteria.

The Haut Conseil du Commissariat aux Comptes, now known as the Haute Autorité de l'Audit (H2A), will be the authority responsible for monitoring and sanctioning these professionals.

In conclusion, companies that are already affected by the CSRD, or will be by 2027, need to get into gear now to integrate the structural changes in reporting that this regulation implies.

The task may seem immense, especially as it requires the involvement of all the company's stakeholders. You therefore need to ensure that you have the human and software resources in place as soon as possible.

Traace can support you in this process. To find out more, please contact us directly via this form.

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Sources: 

• "First Set of draft ESRS", EFRAG
• "Corporate Sustainability Reporting Directive, PwC
• "Statutory auditors, ITOs or PSAIs... who are the future players in sustainability auditing?", compta-online, 26/09/2023
• "ESG reporting: first steps towards transposing the CSRD into French law", Novethic Essentiel, 22/09/2023
• "CSRD sustainability reporting: preparing for the new obligations", AMF, 20/06/2023
• "Governance Panorama 2022: Acceleration of ESG"EY, 26/01/2023‍
• "Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022".Official Journal of the European Union, 16/12/2022