Ins and outs of the CSRD
ESG reporting to soon become mandatory for all companies
Mieke Loncke, Marketing & Communication Director BDO Belgium
The results of our recent poll speak for themselves: the majority of companies (+70%) consider the European Corporate Sustainability Reporting Directive (CSRD) to be a driver for change. The impact, risks and opportunities of this mandatory transparency reporting directive should not be underestimated. Even though unlisted SMEs are not required to submit a sustainability report before 2027, the trickle-down effect – the pressure from investors, banks, governments, suppliers, customers and other stakeholders – will compel them to do so anyway. Precisely because the CSRD will be such a game changer for businesses, we believe that it is important to proactively inform our clients and the market about the “why”, “for whom”, “when” and “what” of the new directive.
In June 2022, the Council and the European Parliament reached a (provisional) political agreement on the Corporate Sustainability Reporting Directive (CSRD), which seeks to increase transparency in the context of the European Green Deal. The new directive amends the current Non-Financial Reporting Directive (NFRD), which applies to some 12,000 companies that operate in the EU. The new CSRD, however, applies to a much larger number of companies – around 49,000 according to a rough estimate – across all industries. In-scope companies will also have to prepare management reports following a uniform reporting standard. A (limited) assurance requirement will also apply. This means ensuring accurate, complete and consistent reporting.
“Transparency about ESG performance provides investors, banks, governments, customers and other stakeholders with accurate information that informs their decisions to invest in or cooperate with companies. In a sense, this ESG information is like the missing link in the bigger picture.”
Tessy Martens, Sustainability Services Lead
Why sustainability reporting?
While the CSRD may just seem like a reporting obligation, the directive is designed to provide the fundamentals for companies to become more sustainable and increase long-term resilience. Therefore, careful definition of your ESG objectives (environmental, social and governance) and reporting on their performance will thus become an essential complement to your financial performance. The CSRD provides a framework for the harmonisation of non-financial reporting, ensuring information is relevant, comparable, reliable, easy to access and usable. “Transparent reporting provides companies with a framework to measure and improve their performance and sustainability ambitions effectively and consistently,” Tessy Martens explains. She is the Sustainability Services Lead and together with Pierre Poncelet is building the Sustainability Centre of Excellence team at BDO Belgium. “It also provides investors, banks, regulators, clients, suppliers and other stakeholders with additional information that they can use to inform their decisions. Finally, it also reduces the risk of greenwashing.”