CSRD and ESRS – phased implementation for compliance

The EU’s Corporate Sustainability Reporting Directive – CSRD – which was passed by the European Parliament in November, will place heavy demands on companies. And the requirements apply immediately when the legislation enters into force.

Jenny Fransson

Senior Director, Practice Lead Sustainabiliity Affairs

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The EU’s Corporate Sustainability Reporting Directive – CSRD – which was passed by the European Parliament in November, will place heavy demands on companies. And the requirements apply immediately when the legislation enters into force.

For those companies covered by CSRD and ESRS (European Sustainability Reporting Standards) in the first stage – which includes large listed companies for the financial year 2024 – it is important to have materiality analysis, data collection, internal controls, etc., in place as early as 2023 to be ready for reporting next year. For other companies – all large companies and small and medium-sized listed companies are only covered in 2025 or 2026 – there is a little more time. But what do you need to do and where should you start? We think about it like this:

  1. As a first step, all companies must carry out a materiality analysis from a dual materiality perspective. If you are already covered by CSRD/ESRS for the financial year 2024, it may be appropriate to perform the materiality analysis as soon as possible. It is worth noting that there will not be any guidelines from the EU on exactly how the materiality analysis should be done, but you have to interpret it yourself from the draft ESRS 1 General requirements.
  2. In step two, we propose that companies, based on the materiality analysis, conduct a GAP analysis against the relevant ESRS. According to the plan, the final ESRS is to be published in June 2023, but if you don’t have time to wait, you can also use the current drafts as a starting point (the adjustments will be marginal).
  3. As a third step, companies should make an inventory of what data is available for reporting in accordance with the CSRD/ESRS. They should ensure system solutions, reporting processes, and internal controls for the information you are expected to report on.

Companies must also think twice about how to create an effective reporting organization. It is not only the sustainability organization that is affected, but CSRD/ESRS also affects the work of the accounting and finance function, purchasing, etc.

In cases where you have the opportunity, in terms of time, to do a “pilot reporting” according to CSRD/ESRS already a year before you have to report, it is good. This allows you to test systems, processes, and internal control procedures and make adjustments for the live situation the following year. Only in a few cases will you be able to cite a lack of data/information as a reason for not reporting.

The CSRD requires an audit of the report. For those companies that do not already have an audited sustainability report, it is high time to start preparing. Only 44% of large listed companies audited their sustainability reports for 2021, so involve your auditors early on and set up a plan to become audit-ready.

“I have been working with sustainability accounting and reporting for almost 23 years, and no previous reporting requirements even come close to what CSRD/ESRS will require from companies. It should not be underestimated how extensive it is! It is important to start the implementation of CSRD/ESRS in time and to make a roadmap that step by step takes the company towards compliance,” says Jenny Fransson, Head of Sustainability Affairs at Hallvarsson & Halvarsson.

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