CSRD: businesses must prepare for change in sustainability reporting

CSRD

CSRD rules begin on 1st January 2023 and businesses affected should act now in order to comply with the new regulations.

CSRD, the EU’s new Corporate Sustainability Reporting Directive, introduces new sustainability reporting criteria and LRQA urges those affected to act now and review existing strategies, processes and management systems.

Data collection will commence from 1st January 2023 for the first set of businesses affected, with a view to submit data in 2024. This includes those already subject to the Non-Financial Reporting Directive (NFDR).

According to global assurance provider, LRQA, organisations must assess their current approach and identify critical areas for improvement. They recommend that this is done in advance to ensure that the data and information to be collected from 1st January will be valid and appropriate to the organisation.

Olga Rivas, sustainability specialist at LRQA, said: “With the spotlight on sustainability ever-intensifying, businesses are under more pressure than ever to back up their Environmental, Social and Governance (ESG) commitments. Consumer trust drives business success so to maximise their potential, businesses must work with, not against, the ‘prove it’ culture which is emerging.”

The incoming proposal for the CSRD is about standardising the way ESG data is reported. However, almost all (93 per cent) of sustainability leaders surveyed in the report – Climate Focus – identified at least one internal barrier to achieving the environmental targets in their overall ESG approach. A lack of knowledge, resourcing, complexity and cost were all cited as problematic.

In terms of wider ESG strategy past approaches to supply chain due diligence simply involved yearly checks, now the incoming directive requires reported information to be audited and digitally tagged to feed into the European single access point. As such, LRQA is recommending a year-round risk-based monitoring and mitigation programme.

“Businesses must look to embed ESG into their extended supply chains, endorse a code of conduct, and then perform due diligence,” said Rivas. “This is especially important when you consider that reputations are at stake for brands connected to unsustainable practices or human rights violations.”

One way for businesses to prepare for the changes is by completing a risk assessment, to understand the readiness of existing processes. Rivas explained: “Businesses should ask themselves if they are prepared for the new directive, identifying gaps in policy, corporate governance and business culture. If any major deficiencies are highlighted in the management system, a period of consolidation and maturity is vital. From a wider perspective, companies will need to shift their thinking and focus. All team members must be engaged to enable successful collection, reporting and verification of data. It will require collaboration from the entire workforce. With this in mind, organisations must consider what this looks like from an organisational planning perspective.”

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