Three Rs for successful implementation - Part 1: Responsibility
As part of the EU’s European Green Deal and ambition to strive to be the first climate-neutral continent, the Corporate Sustainability Reporting Directive (CSRD) was entered into force on January 5th, 2023. The new legislation aims to harmonize the field of corporate sustainability reporting and provide more transparent and comparable information to stakeholders, especially investors. CSRD reporting becomes gradually compulsory for nearly 50,000 EU companies and affects even more indirectly.
The enforced standardization ends the debate in most companies on whether to disclose sustainability information and to what extent. Voluntary becomes mandatory and at the same time predictable and regulated, as CSRD requires similar approach to audibility, governance, and quality control as with financial reporting. These new similarities between sustainability and financial disclosures have clear synergies and integrating sustainability work at least partly into finance departments increases value. CSRD brings sustainability work to the financial professionals’ table, increasing the CFOs responsibility. Below a few remarks from the CSRD that directly engage CFOs:
Sustainability information is included in the management report, which means that the financial and sustainability information are prepared and published simultaneously.
In the double materiality assessment companies are asked to evaluate the financial impact of sustainability matters (financial materiality). This assessment is considered as an efficient first step for CSRD compliance. Therefore, the CFOs should be involved from the beginning to assess the sustainability matters’ influence on for example cash flows, risks, and access to funding.
Third-party auditing is initially introduced as limited assurance that bases on the organization’s own statements. Later, CSRD demands reasonable assurance, which includes the examination of operations, processes and controls related to the disclosed information.
New policies and processes are required in most organizations to ensure CSRD compliance. The amount and quality of sustainability information increases, which challenges the existing data gathering systems. In addition, CSRD affects the organizations’ governance by demanding for example risk management and internal control related to sustainability.
CSRD compliance is phased currently from 2024 through 2029. The First Phase of CSRD implementation has already started, as large companies subject to NFRD are publishing new reports in 2025 from the fiscal year 2024. Later other large companies, listed SMEs and even non-EU companies with significant EU subsidiaries will follow. The companies subject to CSRD report in accordance with the European Sustainability Reporting Standards (ESRS), of which the first set was adopted in July 2023.
The CSRD challenges the existing reporting procedures and organizational structures, offering an intriguing opportunity to reform practices. The implementation has just started, and the legislation itself is still under development. With the combination of partly unfinished mandatory requirements and a subjective, value-based topic, both success and other stories will be written in the upcoming years. Understanding the possibilities and taking responsibility of the ongoing change ensures landing on the greener side of this transition.
Written by
Aura Koikkalainen
ESG & Financial Consultant
+358 405730723
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