Introduction to the Corporate Sustainability Reporting Directive
Sustainability reporting is on the rise – what do safety and health professionals need to know? Writing for RoSPA, consumer products and services regulation expert, Dominic Watkins, Partner and Global Lead Consumer Sector at law firm, DWF, explains all.
Corporate reporting is not a new concept, nor in the UK is reporting on non-financial measures with regimes existing for modern slavery, the gender pay gap, as well as batteries and packaging placed on the market, to name but four areas. For those operating in the EU, these duties are about to dramatically extend.
Many may be familiar the obligations of the Non-Financial Reporting Directive, but equally as many will not as it has been an area focused on by corporate governance teams and not safety professionals.
With many safety and risk professionals now having at least the ‘E’ of ESG in their remit, reporting and growing corporate transparency is something that is something that many businesses are having to embrace.
The EU Corporate Sustainability Reporting Directive (CSRD) (Directive EU/2022/2464) is one example of this, having a wide reach in terms of those companies falling within its scope with estimates of approximately 50,000 companies needing to comply. Entering into force in January 2023, as a Directive, member states had until July 2024 to implement it into their domestic law, and as a Directive this inevitably means that there are differences across the EU.
In Ireland, for instance, this is done through the European Union (Corporate Sustainability Reporting) Regulations 2024. These regulations amend the Irish Company law and insert a new Part 28 called ‘Sustainability Reporting’, which sets out the obligations of CRSD.
Environment, social and governance or ESG
The CSRD mandates companies within its scope disclose on a range of environment, social and governance (ESG) matters through a double materiality lens. This means that they must report on how ESG and sustainability related matters impact on the business and how they apply to the financial health of the company. Additionally, companies in scope must also report on the material impact of how the company through its activities has an impact on people and planet over varying time horizons and the context of the company’s upstream and downstream value chain.
Undertaking a materiality assessment is essential for deciding what information to disclose. The disclosures extend beyond the company’s operations to also cover material impacts, risks and opportunities stemming from its business relationships in its global value chain. And the disclosures made need to be assured by a third party.
The CSRD is underpinned by a set of generic and topic specific sustainability reporting standards, through its related European Sustainability Reporting Standards (ESRS). The general disclosures require all reporting companies to disclose information on governance, strategy, and impact, and risks and opportunities. The topic-specific standards consist of five environmental standards related to climate, pollution, water and marine resources, biodiversity and ecosystems and circular economy/resource use.
There are also four social standards related to the company’s workforce, the employees in its value chain, affected communities by its activities, and consumers and end users. Health and safety is a key component of both the social and environmental dimensions particularly in the context of identifying, mitigating and preventing potential risks and impacts on and by people.
When to report on ESG matters under the CSRD?
We should soon have a growing body of CSRD disclosures to identify good disclosure practices. The Directive adopts a phased-in approach to implementation starting with large public interest entities in the EU or their parent undertakings with over 500 employees on average.
This first tranche of companies – all previously subject to the CSRD’s precursor, the Non-Financial Reporting Directive (NFRD) – will be required to comply for financial years from 1 January 2024. Other large companies that did not previously have to disclose under the NFRD must comply for financial year 2025. Listed SMEs need to comply from financial year 2026. It also affects non-EU undertakings with an EU subsidiary or EU branch for financial years on or after 1 January 2028.
Relationship with other sustainability standards and frameworks
There are a number or related frameworks and standards on assessing the impacts of a company’s activities and the activities of its business partners in global value chains on people and planet. Many businesses are in the midst of preparing mandatory environmental, social and governance disclosures under the CSRD, in accordance with its ESRS. Subsequently some businesses may be tempted to postpone focusing on the voluntary Task Force on Nature-related Financial Disclosures framework and the wide-ranging environmental due diligence requirements of the EU Corporate Sustainability Due Diligence Directive (CS3D). This is a missed opportunity to enhance the quality of CSRD reporting and to benefit from a holistic approach to ESG impact assessment.
In terms of assessing climate-related risks and opportunities and disclosing these under the CSRD, companies can draw on their work in meeting the Task Force on Climate-related Financial Disclosures (TCFD). In a similar context, the Task Force on Nature-related Financial Disclosures (TNFD) framework can support the materiality assessment and action planning related to prevention and remediation of environmental impacts. TNFD’s LEAP (i.e. Locate your nature interface, Evaluate your impacts and dependencies on nature, Assess nature-related risks and opportunities, and Prepare your responses and reporting strategies) approach can be a useful tool for companies in conducting environmental materiality assessments required under both CSRD and CS3D.
TNFD also has the added benefit of focusing not only on environmental risks but impacts and dependencies, and adopts the forward-looking approach of the TCFD on opportunities. This can be invaluable as environmental remediation and prevention action plans are developed and implemented – many of which will need to have a strong health and safety component to them.
The Task Force on Inequality and Social-related Financial Disclosures (TISFD) launched in September 2024 and is expected to provide further guidance on the social dimension. With it we are likely to see an even greater emphasis on health and safety in global value and supply chains.
With sustainability reporting becoming gradually applicable across the period 2024 to 2028, starting with the largest companies, this is a topic that you need to be considering now. It should not be underestimated how time consuming an onerous this reporting obligation can be.
Introduction to the Corporate Sustainability Reporting Directive
Sustainability reporting is on the rise – what do safety and health professionals need to know? Consumer products and services regulation expert, Dominic Watkins at law firm, DWF, explains all.
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