Your Ultimate CSRD Checklist: 10 Steps for Successful Compliance

Recap on the Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD), was first introduced by the European Commission in 2021. It replaced the Non-Financial Reporting Directive (NFRD), which entered into force in 2014 as the EU's first attempt to standardise ESG reporting. The Directive, which is part of the Sustainable Finance track of the 2019 EU Green Deal legislative package, was adopted by the EU Parliament in November 2022. It entered into force on the 5th of January, 2023, and Member States will have to transpose it into national law by June 2024 at the latest.

The CSRD strengthens the requirements on sustainability information that companies need to report, as well as expands the scope of the NFRD. To help stakeholders implement the CSRD’s requirements in practice, the EU Commission mandated the European Financial Reporting Advisory Group (EFRAG), a private association, to develop a detailed and mandatory set of disclosure standards, also known as the European Sustainability Reporting Standards (ESRS).

CSRD Checklist: 10 Steps for Successful Reporting  

The process of generating your CSRD report may vary depending on several factors, such as your organisational structure and your company's maturity in terms of Sustainable Finance. However, there are ten fundamental steps that apply to most organisations embarking on their CSRD compliance journey.

1. Scope the Application of the CSRD
2. Consider the Level of Disaggregation of Material Information
3. Perform the Double Materiality Assessment
4. Familiarise Yourself with the ESRS
5. Engage with your Organisation and Communicate CSRD Requirements with Internal Stakeholders
6. Perform a Data Gap Analysis
7. Discuss with your Auditor
8. Streamline Data Collection and Monitoring
9. Embed Technology Tools for the Production of the Report
10. Ensure Continuous Learning on Latest Sustainable Finance Regulations
    

Let’s dive into each step.

Step 1: Scope the Application of the CSRD

When scoping the application of the CSRD for their company, organisations should take a thoughtful and comprehensive approach. This involves considering various factors, including their corporate structure, subsidiaries, consolidation requirements as well as the value chain. For example, subsidiaries must be included in CSRD reports and exemptions exist regarding their obligation to produce their own reports.

Companies are also expected to report on material impacts, risks and opportunities arising from their value chain. Having a clear mapping of the upstream and downstream value chain will be instrumental for identifying these impacts, risks and opportunities efficiently. Therefore, prior to looking at the standards themselves (ESRS), companies should determine the CSRD perimeter that applies to them.

Step 2: Consider the Level of Disaggregation of Material Information

Taking into consideration the level of disaggregation of data from the start of the reporting journey is essential to ensure a proper understanding of the impacts, risks and opportunities of the company. The ESRS specify that it should be considered before undertaking the Double Materiality Assessment, so that it is consistent throughout the whole reporting process.

However, during the Double Materiality Assessment, companies might identify impacts, risks, and opportunities that are subject to significant variations depending on the country or site they occur. In these cases, companies should disaggregate information by country or site, as not to obscure material information.

Step 3: Perform the Double Materiality Assessment

The CSRD requires companies to disclose sustainability information based on the impacts of their operations on people and the environment as well as on how sustainability matters affect them. The starting point to identify those is the double materiality assessment.

This process requires a thoughtful methodology, including stakeholder engagement to  identify and evaluate material impacts, risks and opportunities. It ultimately determines the ESRS that are applicable to the company and informs substantial parts of the company’s reporting.

Step 4: Familiarise Yourself with the ESRS

To ensure a seamless connection between the outcomes of the Double Materiality Assessment and reporting under the European Sustainability Reporting Standards (ESRS), companies should conduct a thorough analysis of the ESRS developed by EFRAG. The process of determining the applicable CSRD requirements for the company involves following a precise methodology and necessitates a complete comprehension of the guidelines.

Furthermore, it is worth noting that the CSRD introduces sustainability aspects that may pose complexity for organisations to fully grasp, such as the introduction of transition plans and the key performance indicators (KPIs) outlined in the EU Taxonomy.

Additionally, ESRS reports encompass a substantial amount of data, including up to 1,200 data points and over 80 disclosure requirements, which have the potential to interact with each other. Understanding the mechanics of these interactions is equally crucial for ensuring the successful execution of reporting obligations.

Step 5: Engage with your Organisation and Communicate CSRD Requirements with Internal Stakeholders

To successfully carry out reporting obligations under the ESRS, a collaborative effort is imperative, involving multiple teams within the organisation, including, among others, the sustainability, financial, and management teams. It is therefore crucial to educate all members of the organisation about ESRS to guarantee successful reporting. Effective communication of the CSRD requirements is also vital to assess the organisation's data readiness level and the anticipated effort, which leads to the next step.

Step 6: Perform a Data Gap Analysis

Analysing data availability and quality against CSRD requirements is an important step to understanding  the maturity of the company towards its CSRD compliance journey. This step requires identifying, for each data point required by the ESRS, whether  the data is available, where it is stored, and who are the responsible data owners within the organisation.

This consequent step requires a collaborative effort, where setting up  cross-functional team streams reveals to be essential as data is usually stored in different departments  and systems. Ultimately, it provides a precise evaluation of the data shortfalls essential for CSRD compliance, offering a solid groundwork for executing the necessary steps to procure the missing information.

Step 7: Discuss with your Auditor

This step should be undertaken throughout the entire CSRD reporting journey. The Directive mandatorily requires limited assurance on CSRD reports (with reasonable assurance potentially coming into play from 2028). Therefore, early engagement with a statutory auditor or an audit firm to understand how they consider the CSRD and its ESRS will considerably help companies in drafting compliant disclosures and evaluating pre-assurance readiness.

Step 8: Streamline Data Collection and Monitoring

ESRS cover a wide range of sustainability-related topics and thus require covering various domains of the organisation, including operations, finance, and human resources. As such, it requires the integration and analysis of data from various IT systems used in an organisation, such as enterprise resource planning (ERP), CRM, and HR Systems. IT systems need  to be harmonised and translated into validated KPIs with an auditable trail.

To achieve this, companies can leverage the power of data collection tools and softwares to efficiently compile data from a multitude of sources, creating robust Data Libraries. These ESG Data Libraries empower organisations to gather data from diverse sources, be it structured or unstructured, for a variety of applications.

The diligent efforts invested in constructing a Data Library can subsequently be harnessed for forthcoming reporting obligations, enabling organisations to navigate the ever-evolving landscape of sustainability with proficiency and foresight.

Step 9: Embed Technology Tools for the Production of the Report

Technology plays a pivotal role in simplifying ESG reporting. By utilising advanced software solutions, businesses can effortlessly gather and monitor data, significantly streamlining the reporting process. Cutting-edge reporting technology, such as the Greenomy solution, offers step-by-step walkthroughs, providing invaluable guidance throughout the reporting journey. This not only accelerates the process but also ensures accuracy and compliance with intricate ESG standards.

Additionally, these software solutions facilitate cross-departmental collaboration and enhance task and time management, allowing for a more coordinated and efficient approach. Incorporating such ESG software solutions not only optimises the reporting process but also empowers sustainability teams by reducing the manual workload associated with report orchestration.

Step 10: Ensure Continuous Learning on Latest Sustainable Finance Regulations

Remaining well-informed about ESRS advancements empowers businesses to take proactive steps in adjusting to the ever-evolving sustainability reporting standards. As EFRAG prepares to introduce new sector-specific standards, and unveils the forthcoming XBRL Taxonomy for digital tagging of sustainability statements in the coming months, it becomes imperative to stay up-to-date. Being attuned to these latest developments is essential for gaining early insights into critical subjects and proactively addressing potential challenges that may arise.

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