Reforest’Action / The Corporate Sustainability Reporting Directive (CSRD): compliance requirements for companies (2/2)
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The Corporate Sustainability Reporting Directive (CSRD): compliance requirements for companies (2/2)

Stratégie et RSE

**The new Corporate Sustainability Reporting Directive (CSRD)**[1], effective since January 5, 2023, imposes new reporting rules on environmental, social, and governance issues (link: see article 1/2). This directive imposes greater transparency on companies, but above all encourages them to embark on a transformation project that profoundly reexamines the companies’ impact on their environment – as well as the impact of the environment on the company. CSRD thus encourages the demonstration of the projects’ impact and the need to support the companies’ transformation.

I. CSRD, an opportunity for business transformation

The CSRD directive encourages companies to embark on a transformation project that profoundly reexamines the companies’ impact on their environment – as well as the impact of the environments on the company.

CSRD commitments must be incorporated as part of a business transformation project, which will involve the company establishing:

1/ Transition plans

Sustainability reports must describe the company’s transition plans. CSRD introduces a mandatory requirement for companies to describe their action plans. Prior to the CSRD, regulated disclosures were limited to the company’s ESG results and outcomes for the past year. Henceforth, companies’ sustainability reports will have to disclose:

  • biodiversity and ecosystem protection and restoration: how biodiversity issues can impact the company’s activity, the contribution and impact of the company’s activity on biodiversity (impact materiality);
  • their carbon trajectory, their climate strategy’s compatibility with the Paris Agreement and Europe’s 2050 carbon neutrality objective;
  • related financial and investment plans;
  • if appropriate, the company’s exposure to coal, oil, and gas activities.
  • For instance, concerning circular economy, the company can provide information on how it limits its use of non-renewable resources. It can also discuss how it integrates practices or procedures into its business to regenerate renewable resources.

2/ Objectives of objectives

Sustainability reports must include:

1. Quantified objectives, determined over time, linked to the sustainability commitments made by the company.

2. Greenhouse gas emission reduction targets for 2030 and 2050, on a science-based foundation.

3. State whether the environmental objectives are science-based.

Specifically, this means, for instance, that the company has to describe how its activity impacts climate change and its strategy to limit it, in order to meet the 1.5°C warming target set by the Paris Agreement. Yet the directive does not impose targets.

3/ Enabling standardization

1. European harmonization means that companies will no longer have to deal with overlapping standards and inconsistent stakeholder demands.

2. It will be easier for companies to get the information they need from their partners (suppliers, customers and investee companies).

3. Reducing these demands will allow each company to save between €24,200 and €41,700 per year (according to the European Parliament).

4/ The expanded role of the Audit Committee

1. The Audit Committee's duties will be broadened to include ESG sustainability reporting and the assurance to be provided by the auditors (initially with limited assurance; later moving to reasonable assurance).

2. This includes monitoring the reporting process, including the electronic format.

3. It will also be in charge of monitoring the effectiveness of ESG risk management systems and internal quality controls of ESG data.

5/ External audit

With the CSRD enactment, appointing a sustainability reporting auditor is no longer an option but a mandatory requirement for all reporting entities.

6/ Digitalization

As with financial information, non-financial reporting must be comprised of comparable information. Sustainability reporting must therefore enhance the information quality, reliability, and accessibility for stakeholders and suppliers by providing easy access to ESG data through the digital presentation of qualitative, quantitative, prospective, and retrospective information[2].

II. CSRD and the demonstration of the corporate projects’ impact

The CSRD directive encourages companies to embark on a transformation project that profoundly reexamines the companies’ impact on their environment – as well as the impact of the environments on the company. To meet the companies’ needs, Reforest’Action is committed to measuring the projects’ long-term impacts by using robust tools and methodologies.

We aim to assess the impact on carbon stocks, biodiversity preservation and socio-economic benefits. Reforest'Action seeks to provide companies with data on the impact of the projects they support, specifically agroforestry projects in value chains. This is crucial to comply with new regulatory frameworks and to foster a low-carbon and biocircular economy.

Operationally, since 2021, Reforest’Action has a Research and Innovation unit devoted to forecasting and measuring impacts. This developing project –the Forest Information System–aims to provide innovative solutions to develop and monitor (agro)forestry projects and their impacts on ecosystems over a 30-year period to support their stability. The tool will allow to perform impact projections based on robust methodologies, which will then be compared with the actual measurements obtained through the deployment of technological tools. It will provide companies with a complete analysis of the impact of their actions, according to their objectives. The project is deemed operational on the carbon component, and is still being fine-tuned on the biodiversity, soil and social components, which are currently being developed and should be completed in the course of this year 2023.

Thus, CSRD encourages companies to prepare and comply with new conformity requirements, but above all it should foster the companies’ transition towards a more sustainable model. The standardization of the sustainability report is indeed a major challenge to their role and their governance.

Within this context, RA assists and supports companies with adapted and efficient solutions, enabling them to act in favor of the climate, biodiversity, water and soil quality, while having a positive socioeconomic impact for local communities.

References :

[1] On November 28, 2022, the EU Council granted its final approval to the Corporate Sustainability Reporting Directive, based on the European Parliament’s position of November 16, 2022. It came into force on January 3, 2023. See: Corporate climate reporting was previously governed at the European level by Directive 2014/95/EU (amending Directive 2013/34/EU, the so-called “Accounting Directive”), requiring companies with more than 500 employees to include a non-financial statement in their annual report that includes a climate section, among others.

[2] Companies will be required to draft the sustainability report in the single European electronic format (ESEF, XHTML format), and to tag their sustainability report, including the information referred to in Article 8 of the Taxonomy Regulation (“digital tagging”). No exemption is granted to companies not listed on a regulated market.