About a year ago, the European Commission adopted the Corporate Sustainability Reporting Directive (CSRD). This directive will make it mandatory for around 50.000 companies in Europe to report on their sustainability performance.
The “who” and “when” of this new legislation were already clear (see next paragraph for a quick recap). Now also the “what” has become clearer as the draft European Sustainability Reporting Standards (ESRS) have been released.
This blog aims to summarize the main insights, with a focus on climate-related metrics. Note that the ESRS are still in draft phase and under review. So things might still change towards the final version.
A quick recap of the CSRD
Who? All European companies that either publicly listed and/or larger than a SME fall under the CSRD. This includes all companies with more than 250 FTE and either €40M turnover or €20M balance sheet total.
When? These companies will need to report on their sustainability performance for the first time in 2024, for the fiscal year 2023.
What? The exact details of the sustainability metrics to be reported on, i.e., the European Sustainability Reporting Standards (ESRS), have been worked out by EFRAG and made public early May 2022 for public consultation.
Insight 1: 11 topics, 111 disclosure requirements
The ESRS requires to report on 11 sustainability topics, each with a set of specific disclosure requirements. This adds up to exactly 111 questions that companies will need to answer. It seems that the people composing these reporting standards like the number “1”.
An overview:
- Environment:
- Climate change: 17 disclosure requirements
- Pollution: 7 disclosure requirements
- Water and marine resources: 7 disclosure requirements
- Biodiversity and ecosystems: 10 disclosure requirements
- Resource use and circular economy: 9 disclosure requirements
- Social:
- Own workforce: 26 disclosure requirements
- Workers in the value chain: 6 disclosure requirements
- Affected communities: 3 disclosure requirements
- Consumers and end-users: 6 disclosure requirements
- Governance:
- Governance, risk control and internal mgt.: 10 disclosure requirements
- Business conduct: 10 disclosure requirements
Insight 2: Extensive on climate change
The disclosure requirements on climate change are comprehensive. They require companies to report on:
- Both actual performance (i.e., how are you doing today) and climate strategy (i.e., how to you survive in a climate-neutral economy)
- Both their impact on climate change and the impact of climate change on them (i.e., double materiality principle)
- Full carbon footprint, covering not only scope 1 and scope 2 emissions but also scope 3 emissions
See below this blogpost for a detailed overview of the climate-related disclosure requirements.
Insight 3: Need for professional software
The CSRD and the underlying ESRS are the end of ad-hoc gathering and processing sustainability data in spreadsheets. Companies and sustainability experts will need to rely on professional software to ensure that their sustainability reporting is:
- Correct, complete and standardized according to latest regulations;
- Auditable by a third party, as the CSRD introduces the concept of light assurance;
- Efficient to minimize the cost of recurrent reporting;
- Exportable in a digital format, as the CSRD introduces digital reporting requirements.
Note that this first set of European Sustainability Reporting Standards is only the beginning. More detailed standards are expected to follow over the course of the coming years, focusing on specific sectors or company types (e.g., SMEs).
Feel free to reach out to us if you want to explore how our carbon accounting platform can help you preparing for the CSRD.
Appendix: detailed climate change related disclosure requirements
| Disclosure requirement | Description | |
| E1-1 | Transition plan for climate change mitigation | The company shall disclose its plans to ensure that its business model and strategy are compatible with the transition to a climate-neutral economy and with limiting global warming to 1.5 °C in line with the Paris Agreement. |
| E1-2 | Policies implemented to manage climate change mitigation and adaptation | The company shall disclose its policies related to climate change mitigation and its policies related to climate change adaptation. |
| E1-3 | Measurable targets for climate change mitigation and adaptation | The company shall disclose the climate-related targets it has adopted. |
| E1-4 | Climate change mitigation and adaptation action plans and resources | The company shall disclose its climate change mitigation and adaption action plans and the resources allocated for their implementation. |
| E1-5 | Energy consumption and mix | The company shall provide information on its energy consumption. |
| E1-6 | Energy intensity per net turnover | The company shall provide information on the energy consumption associated with activities in high climate impact sectors per net turnover of these activities. |
| E1-7 | Scope 1 GHG emissions | The company shall disclose its gross Scope 1 GHG emissions in metric tons of CO2 equivalent. |
| E1-8 | Scope 2 GHG emissions | The company shall disclose its gross indirect energy Scope 2 GHG emissions in metric tons of CO2 equivalent. |
| E1-9 | Scope 3 GHG emissions | The company shall disclose its gross indirect Scope 3 GHG emissions in metric tons of CO2 equivalent. |
| E1-10 | Scope 3 GHG emissions | The company shall disclose its total GHG emissions in metric tons of CO2 equivalent. |
| E1-11 | GHG intensity per net turnover | The company shall disclose its total GHG emissions per net turnover. |
| E1-12 | GHG removals in own operations and the value chain | The company shall disclose GHG removals from own operations and the upstream and downstream value chain in metric tons of CO2 equivalent. |
| E1-13 | GHG mitigation projects financed through carbon credits | The company shall disclose the amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain it has financed through the purchase of carbon credits. |
| E1-14 | Avoided GHG emissions from products and services | The company may disclose its estimated total avoided GHG emissions from its products and services in metric tons of CO2 equivalent. |
| E1-15 | Potential financial effects from material physical risks | The company shall disclose the estimated potential financial effects from its material physical risks. |
| E1-16 | Potential financial effects from material transition risks | The company shall disclose the estimated potential financial effects from material transition risks. |
| E1-17 | Potential financial effects from climate-related opportunities | The company shall disclose its potential financial effects from material climate-related opportunities. |
