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CSRD: the new sustainability directive will have major implications for UK firms

We are on the cusp of a seismic cultural shift, with businesses and consumers already demonstrating awareness of their carbon footprint. Millennials and Gen Zs are selecting their brands of choice and often their employers based on their Net Zero policy.

Against the backdrop of this shift, the Corporate Sustainability Reporting Directive (CSRD) is bringing a host of new requirements for businesses across the EU, UK, and international businesses headquartered in Europe. It will mandate a new approach to sustainability combined with a demand for annual reporting and adjusted strategic planning, all of which will be regulated and adhered to in compliance. In due course, sustainability reporting will be equally important to financial reporting, and a company’s sustainability rating will have a significant impact on its commerce, vendor ecosystem, and stakeholders.

What is CSRD? The Corporate Sustainability Reporting Directive (CSRD) requires companies to begin reporting on how their business operations affect the environment. The directive was passed in 2022 and had significant scope, encompassing both large-scale businesses and small and medium businesses. And though the directive is for the EU, it will considerably impact UK businesses with parent companies in the EU or that operate within the EU.

As of March 2023, the UK is still developing its own green taxonomy, which will likely be based on the EU structure with separate scoring thresholds based on the UK’s priorities and political context.

The CSRD will impact all EU-based companies with a net turnover of €40 million or more, at least €20 million in assets, or 250+ employees, which is an increase from the 11,000 companies impacted by the previous Non-Financial Reporting Directive (NFRD) to around 50,000 companies. The CSRD will also affect non-EU companies with EU-based subsidiaries or with securities on EU-regulated markets with a net turnover of over €150 million within the EU.

However, the Institutional Investors Group on Climate Change (IIGCC) has asked the UK’s Department for Business, Energy and Industrial Strategy (BEIS) to consider including smaller companies with under 250 employees that operate in material sectors to these regulations. Acknowledging that smaller companies may need more time to improve their reporting capabilities, the IIGCC has proposed that initial changes could operate under a ‘comply or explain’ basis before gradually introducing mandatory measures.

The CSRD aims to make sustainability reporting in the EU more consistent, allowing financial firms, investors, and the broader public to better understand companies’ sustainability performance. The CSRD also anticipates the establishment of the European Single Access Point (ESAP), which will require undertakings to prepare their financial statements and management report using a single electronic reporting format and markup their sustainability reporting.

The CSRD will be rolled out gradually, and businesses have time to learn, understand, and adjust to its requirements — but leaders must begin to prepare now by: Reviewing current reporting practices

The biggest change coming for UK (and EU) companies is that, if they are not already tracking and measuring their progress toward net zero, they must begin now. While many companies across the world are beginning to understand the implications of their business operations on the environment—and the need for accountability in this area—many companies are still in the initial stages of this process.

Business leaders must understand that CSRD will truly hold them accountable for every facet of their business, from the environmental impact of business travel to how their team members’ idle devices waste energy.

One clear example of technology that will support companies under CSRD is digital experience management (DEM) or End User Experience Management (EUEM) software, which can track, measure, and report the status of a company’s entire device and application portfolio to measure energy usage and carbon footprint. With this data, business leaders will obtain clear observability of energy efficiency and resource optimisation—two key elements of sustainability. And it’s this type of data that companies must begin tracking now so that they can set standards and measure progress against benchmarks.

Reassessing data collection and management processes

Once companies identify gaps or opportunities within their sustainability reporting practices, the most pressing question will be how they continue to measure and report under the directive. Business leaders will need to reassess whether their tech stack supports such a robust and continuous reporting initiative or whether they need to invest in new technology.

Meeting CSRD requirements will be a massive undertaking for most organisations, especially ones that have not tracked or measured environmental impact until now. Compliance with CSRD will require certain forms of automation so that companies can collect, manage, and report on large volumes of data. Monitoring technology will be an essential part of this.

Developing a sustainability reporting strategy

There is no sustainability reporting strategy without clear benchmarks. In order to set measurable goals and make progress toward them, companies must understand their current sustainability status. This must begin now. Before leaders can develop a strategy with clear steps to meet CSRD requirements, they must begin with a clear understanding of their company’s current output and that of their partners.

Under CSRD, businesses will also have to account for the sustainability of their partners and suppliers, and their green initiatives will factor into the company’s overall performance.

This could mean major disruption for companies that do not comply with or adjust to CSRD. If a business is not actively and measurably moving toward ESG initiatives, it may be quickly taken out of the running for desirable suppliers. Alignment with CSRD may soon become the difference between a business’s success and a failing company.

CSRD has the capacity to create real movement toward a more sustainable business world, and companies will benefit from this change. The new directive will help organisations set, track, and adhere to the changes that are essential components of making a more sustainable world. With streamlined technology and processes, companies can thrive under CSRD and improve ESG contributions.

By Ayelet Elstein, SVP Global Strategy & EMEA Operations, Lakeside Software

This was posted in Bdaily's Members' News section by Lakeside Software .

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