ESG: What are the requirements for sustainability reporting (CSRD)?

In July 2023, the European Commission adopted the first set of European Standards (ESRS) that will be mandatory for large companies to use when reporting on sustainability under CSRD.

There will be changes and additions to the way companies have been used to reporting. The following elements of reporting are part of the CSRD requirements:

• Double materiality (see below)
• Business strategy and model
• Sustainability reporting (part of the management report)
• Digital tagging of data
• Compliance with the EU Taxonomy Regulation (see below)
• Historical and forward-looking information (short, medium and long term)
• Reporting on the value chain.

What does 'dual materiality' mean?

Dual materiality reporting is an analysis of the company's impact on people and the environment and how sustainability issues affect the company from a financial perspective, focusing on the company's future development, performance and situation.

Expectation of openness

It is an expectation that companies disclose information about their business strategy and business model, how resilient they are to sustainability risks and what opportunities they have.

What is the EU Taxonomy Regulation?  

The Taxonomy Regulation establishes a classification system - a taxonomy - of economic activities that qualify as environmentally sustainable.

The regulation is central to the EU's strategy for the sustainable transition and will be the driving force to direct necessary investments towards sustainable economic activities and contribute to achieving the EU's climate and environmental goals. With the EU taxonomy as a foundation, financial institutions can integrate sustainability into their investment decisions to a much greater extent.

The purpose of the Taxonomy Regulation is overarching:

• To create common criteria across EU countries for when a company's activities can be considered sustainable (i.e. that they contribute significantly to achieving one or more of six climate and environmental goals without significantly harming other goals).
• To classify sustainable activities for use by both financial actors and companies in the EU, thereby channeling private financial flows towards green investments and sustainable activities. Private capital will help the EU reach its climate goals.
• Increase transparency around sustainable finance and investments.

For companies covered by CSRD, this means that they must comply with the EU taxonomy. It can also create new opportunities such as collaboration agreements, competitive advantages or favorable loans if companies can show that they are working to comply with the taxonomy.

Read more:

> What is ESG and why are the rules being introduced?

> Who do the rules apply to?

> What are the requirements for sustainability reporting (CSRD)?