On 5 January 2023, the EU Corporate Sustainability Reporting Directive (CSRD) entered into force.

➡ The CSRD is an EU “directive” (2022/2464) – a legislative act that sets out a goal that EU countries must achieve.

The CSRD supports the Union’s legal framework and the objectives of the EU Green Deal.

The EU Green Deal is the new growth strategy of the European Union, which aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases (GHG) by 2050, while leaving no person and no place behind.

It will contribute to the EU objective of building an economy that works for the people, strengthening the Union’s social market economy, helping to ensure that it is ready for the future and that it delivers stability, jobs, growth and sustainable investment.

To succeed the Green Deal, it is necessary for the EU to reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth, manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues, and foster transparency and long-termism in financial and economic activity.

Disclosing relevant, comparable and reliable sustainability information amongst companies is a prerequisite for meeting those objectives.

The EU Commission was therefore empowered to adopt mandatory common sustainability reporting standards, to ensure that information was comparable, and that all relevant information was disclosed consistent with EU needs.

Building on the double materiality principle, the standards needed cover all information that is material to users of that information.

The development of mandatory common sustainability reporting standards was also necessary to

✔ Enable the assurance and digitalisation of sustainability reporting

✔ Facilitate its supervision and enforcement

✔ Reach a situation in which sustainability information has a status comparable to that of financial information

➡ The adoption of such mandatory common sustainability reporting standards was completed by means of a delegated act on the first set of European Sustainability Reporting Standards (ESRS) on 31 July 2023.

ESRS is now to be used for sustainability reporting by all undertakings subject to the CSRD.

These mandatory sustainability reporting standards (ESRS) specify the information that undertakings are to report in accordance with CSRD articles 19a and 29a-b.

🍃 ESRS is where sustainability meets company strategy and sets the stage for real transformation.

You will need CSRD-compliant and ESRS-ready sustainability strategy & reporting software to succeed.

➡ Contact us if you are interested in a two-month trial of the SaaS solution Cleerit ESG for 65 € per month and user.

ESRS 2, SBM-1 datapoint 40, compulsory for all companies subject to CSRD, require companies to disclose detailed information about the key elements of its general strategy that relate to or affect sustainability matters:

➡ description of significant groups of products and/or services offered

➡ description of significant markets and/or customer groups served

➡ where applicable and material, products and services that are banned in certain markets

➡ breakdown of total revenue by significant ESRS sectors

➡ where applicable, a statement indicating, together with the related revenues, that the company is active in the following sectors

✔ fossil fuel (coal, oil and gas)
✔ chemicals production
✔ controversial weapons
✔ cultivation and production of tobacco

➡ its sustainability-related goals, including an assessment, in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders

➡ the elements of the company’s strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.

The objective of this Disclosure Requirement is to provide an understanding of the company’s exposure to impacts, risks and opportunities and where they originate.

Disclosure requirement E1-1 also requires the company to disclose its transition plan for climate change mitigation, to ensure that its strategy and business model are compatible with the transition to a sustainable economy and the objective of achieving climate neutrality by 2050, in alignment with EU Climate Law and Benchmark Regulation.

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The European Sustainability Reporting Standards (ESRS) have now been adopted for use by all companies subject to the CSRD. If you are aiming for a good ESG rating, it’s time to get started.

ESRS is major opportunity to build awareness, resilience, efficiency and sustainable growth opportunities. It’s where sustainability meets strategy.

What better way to start than to see it on your screen, fully digitized? Ready to navigate, learn, share and get CSRD-ready.

The science-based SaaS solution Cleerit ESG helps you factor in risk exposure, identify and manage material topics, unlock the potential of your materiality assessments and create actionable roadmaps for strategic success

– while preparing CSRD and automating your sustainability reporting with ESRS-ready templates.

Contact us if you are interested in a two-month trial of the SaaS solution Cleerit ESG for only 65 € per month and user.

Under CSRD & ESRS, conducting stakeholder surveys to define what sustainability matters are material to your organization is no longer fit for purpose. Nor is a narrow focus on data collection.

Stakeholder concerns and evidence of actual and potential impacts are now in focus, not ranking the relative importance of different sustainability matters.

ESRS is process oriented. Numerical data only account for 30% of the disclosure requirements.

70% of ESRS is about contextual narrative disclosure, and more than 40% of the disclosures require accounting for policies, targets and actions for material topics, according to detailed Minimum Disclosure Requirements (MDR).

The material topics are to be found in the list of 92 topics provided in ESRS 1 (AR 16) that the company shall consider, together with entity-specific material topics.

When asked, “from a data collection point of view, how should business adapt to meet the requirements of mandatory regulations?”, Chiara Del Prete (Sustainability Reporting TEG Chair EFRAG), answered:

“I wonder whether collection of data is entirely capturing the transformational element of what we are trying to achieve in terms of direction of travel.”

“To the extent that they have policies, targets and actions in place to identify, mitigate, prevent and account for their impacts on people and environment – those data will be the same as those we would like to see coming into reports.”

“This is to say that there is much more than collection of data.”

CSRD & ESRS support the European Green Deal – a new growth strategy that aims to transform the Union into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use.

In 2022, McKinsey estimated that to reach net zero emissions, an additional $3.5 trillion a year must be invested in physical assets for energy and land-use systems until 2050.

That is the greatest reallocation of capital in history.

So, surveys and data collection will not be enough. Building awareness, skills and transparency – and closing the gap between sustainability, strategy and execution – will be key to success.

Exit stakeholder questionnaires. Enter robust due diligence processes.

Exit narrow focus on data collection. Enter efficient risk management and strategic plans supported by evidence, actions & resources and KPIs.

And, exit manual spreadsheets and glossy ESG-brochures.

Enter holistic, inclusive, fit-for-purpose system support supporting both sustainability strategy and reporting.

Reporting is necessary, but if we are looking to transform, reporting is only a means to an end, not the end.