What areas does the CSRD cover?
Harald Rettich: It includes all the areas that fall under the term “sustainability” which affect people and the environment – environmental aspects, social issues and governance. More specifically, this means issues like pollution, water, biodiversity and the circular economy. Social sustainability will also play a greater role in the future, too, along with the issues of occupational safety and working conditions.
The CSRD replaces the existing Non-Financial Reporting Directive (NFRD) and greatly expands reporting obligations on a number of levels. The number of companies affected will increase up to fivefold in future, while both the breadth of data and the mandatory reporting items will increase. Each individual reporting item is highly comprehensive. For example, it can take up to a year just to calculate the carbon footprint that companies are required to submit. To ensure that long-term corporate strategies take proper account of the complex mandatory reporting area of “the climate”, we offer companies cooperative advice and support.
The standards for the ESRS are created by expert groups of the European Financial Reporting Advisory Group (EFRAG). The first part of this reporting standard (Set 1) was not only adopted by the European Commission a month later than planned, it was also watered down. What are the differences?
Harald Rettich: Here I see pros and cons. To begin, it’s a good thing that the sustainability reporting obligation was passed at all, and that companies will be obligated to address the mandatory topics. The planned time frame was also retained.
The version that has now been decided on differs from the planned draft primarily in the fact that, to begin with, only listed SMEs will be subject to a reporting obligation. SMEs with fewer than 750 employees will only be obliged to report in 2026. This really puts a brake on the desired effect of getting as many companies involved as possible. On top of that, some data points have been switched from mandatory to voluntary – particularly in the key areas of biological diversity and temporary employment.
How relevant are the CSRD and ESRS for European companies?
Harald Rettich: These reports are intended to improve the transparency and comparability of sustainability information and help investors and stakeholders to make well-founded decisions. So these reports are becoming more important. Certainly, the most significant change is to be seen in the area of comparability. That’s because, before the CSRD, companies were free to choose which framework to use for their reporting. The best-known of these frameworks are the GRI standard and the Sustainability Code declaration. And now the CSRD has come up with its own reporting standard, the ESRS. Companies now have to switch to this standard, so naturally these new regulations will be highly relevant for the affected companies.
Do these changes mean that companies will now have more time for sustainability reporting?
Harald Rettich: Yes and no. Before our last Cloud Talk we conducted a survey of the participating companies. From this survey it emerged that not even a quarter of the respondents had previously produced sustainability reports. More than half of the companies hadn’t dealt with the issue at all.
Even then we had to say – in terms of timing, they’re playing with fire. Because you could certainly spend a whole year generating a sustainability report. So I’d say to any company that they shouldn’t wait too long, but start as early as possible establishing a comprehensive strategy – especially as the implementation in national law still hasn’t been clarified. My advice to anyone who hasn’t started yet is really to do so as soon as possible.
But, in principle, companies can be a little more relaxed about approaching sustainability reports?
Harald Rettich: From an overall perspective, the aim is to position companies in such a way that on the one hand they can respond resiliently to the consequences of the climate crisis, which is already advancing, and on the other to ensure that they aren’t helping to accelerate it. All of the measures that a company undertakes flow into the sustainability report, and ultimately it delivers important insights about action areas. The time frame laid down by the EU has little to do with what is actually, urgently required in practice right now. The climate crisis won’t wait for deadlines.
Some may find this “reprieve” from the EU convenient to begin with, but it’s nothing but lost time for the climate. And then this is also an important issue with regard to company positioning and competition. Consumers look very carefully at which companies are living up to their climate responsibility, and they want transparency. All in all, a strong focus on sustainability issues is a win for the company.
At myclimate, we’ve specialised in supporting companies in exactly these areas, and as part of our climate strategy consultation we can put together a customised roadmap. The overall concept considers all relevant points, including reporting obligations, support programmes, internal and external requirements, and communications around carbon savings results. Because our survey also revealed that the major challenges for companies are oversight of the wide range of requirements and ordinances, along with the complexity of necessary operational measures.
Some people criticise the amount of administrative work that arises from reporting obligations. Are these concerns justified?
Harald Rettich: Naturally this is a task you need to tackle. But companies don’t achieve success by standing by and watching, but by positioning themselves on the market with a good idea and operational strategies. At myclimate, practice shows that companies that have integrated a climate strategy into their company processes are also successful in the long term. Naturally there’s room for improvement in some areas, but overall, we’re talking about standards that are in keeping with the times.
Why didn’t the European Commission follow the recommendations of the expert group EFRAG?
Harald Rettich: I was actually quite surprised by that. Then again, there are powerful forces at work in the EU committees that focus less on the benefits of comprehensive reporting and more on presenting the effort involved as almost monstrous.
How can companies prepare? What should their next steps be?
Harald Rettich: Managers can get information from our website or watch the recording of the myclimate Cloud Talk “What the new CSRD means for your company”. This answers many of the questions that may arise.
Otherwise, companies should get hold of information if and when they’re actually affected. Of course, it always makes sense to collate and review all previous reporting. Under the NFRD, some companies have had to report on non-financial information regarding environmental protection, social responsibility and so on since 2018. They will now need to shift from the NFRD to the CSRD, and get a good overview of the new and existing requirements.
So for the next steps, I’d recommend getting a partner on board who can provide the company with long-term strategic support. At myclimate, we offer an initial workshop on climate strategy for this first step. This gives the company a straightforward overview of the status quo, the quality of the reports they’ve compiled previously, and any required updates. Then we put together a high-level roadmap for the next three to five years, over which time we provide support. The modular structure of myclimate climate strategy consultation means that companies soon gain clarity around this complex issue. This creates space for effective, positive climate protection. I feel strongly that this not only helps to advance climate protection, but also the company itself in terms of market positioning and employees.