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How to Prepare for the Corporate Sustainability Reporting Directive (CSRD)

CSRD Preparation for US Companies

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US companies operating in the EU may soon be required to meet CSRD requirements. Here’s how to prepare.

The Corporate Sustainability Reporting Directive (CSRD) is a common reporting framework that will require nearly 50,000 companies operating in the European Union (EU) to disclose the impact of their corporate activities on the environment and society. This is one of three rules that make up the EU’s sustainability reporting framework, alongside the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. The CSRD replaces the Non-Financial Reporting Directive (NFRD), requiring more stringent reporting by more companies with assurance provided by third-party audits. The European Financial Reporting Advisory Group (EFRAG) is working on a final draft of the European Sustainability Reporting Standards (ESRS) that will inform further obligations under the CSRD, with an expected due date in June 2023.

What Is the CSRD?

The CSRD is a new EU rule that aims to create a common reporting framework for companies to disclose non-financial activities as they relate to the environment and society, and will replace the NFRD which was not mandatory and affected only 11,000 companies. While the CSRD mainly affects EU companies, some US businesses or their subsidiaries may be within scope of the new rule, so it’s critical to stay informed. In a previous post, we covered the details of the recently passed CSRD. In this post, we’re going to explain why this new EU rule matters for some United States (US) businesses and what you should do now to start preparing if your organization is within scope of the new rule.

CarbonBetter helps organizations take proactive steps to ensure compliance with potential new regulations, including the CSRD rule, the proposed SEC rule and the proposed federal supplier rule. Reach out today to get started.

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Why You Should Start Preparing Now

The new EU rule will only affect select US businesses and even then not for a few years, so why begin preparing now? Time. It takes time to make a plan, build a team, secure a budget, and execute your plan. Even if your organization does not meet the criteria for companies affected by the rule today, that may change before the rule goes into effect.

How to Prepare
Criteria For Disclosure Requirements

The following companies will have to follow the disclosure requirements laid out in the CSRD:

  1. Large EU companies (including subsidiaries and branches of non-EU parent companies) exceeding at least two of the following criteria:
    • 250 employees on average over the financial year
    • A balance sheet total of €20 million
    • A net turnover of €40 million
  2. Companies listed on the EU regulatory market, regardless of size
  3. Non-EU companies that have a turnover greater than €150 million in the EU
What Does This Mean For US Businesses?

As noted above, US companies that have a turnover greater than €150 million in each of the past two years consecutively, or subsidiaries of US companies that are located in the EU and meet the requirements above, will have to comply with the CSRD requirements.

“The new EU rule will only affect select US businesses and even then not for a few years, so why begin preparing now? Time. It takes time to make a plan, build a team, secure a budget, and execute your plan.”

Dominic Sung ON Why You Should Start Preparing Now For The CSRD Requirements
SUSTAINABILITY REPORTING OVERVIEW

Sustainability reporting serves as a valuable tool to achieve corporate commitments and better manage climate-related business risks. This white paper walks you through what’s typically included and what should be considered.

Where to Start

Since there are so many factors involved, including whether a business or its subsidiaries operates in the EU, the number of employees in an organization, and the amount of business a US-based company does in the EU, no two organizations will follow exactly the same path to meet the compliance requirements of the CSRD. So, what should you do first?

The first step is to talk to CarbonBetter. We’ll start with an applicability assessment and gap analysis to understand if you are subject to the CSRD as well as the difference between your organization’s current sustainability efforts and the CSRD requirements by walking through some key questions. Those questions may include:

  • What branches or subsidiaries are in scope of the CSRD, and are there any branches or subsidiaries that may be within the scope of the CSRD before it goes into effect? It’s important to pay attention to the criteria, because the CSRD affects many more businesses than the NFRD did. If you are unsure, contact us and we can help determine if your company or its subsidiaries will be affected by the new EU rule.
  • Are there changes needed to current processes and controls in anticipation of the new ESRS? There are specific reporting requirements that must be met if your company is within scope of the CSRD, so it’s important to perform a gap analysis and create a plan to align your current reporting with the upcoming CSRD requirements and the anticipated June 2023 publication of the ESRS.
  • Are you gathering applicable data in conformance with requirements under Task Force on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI) standards, which will be leveraged in developing the ESRS? If not, it’s important to get started today so your company is prepared before the rule goes into effect. A partner like CarbonBetter can help you and your team navigate the process most effectively. Contact us today to learn more.
  • How does your company’s current Environmental, Social, and Governance (ESG) strategy align with the objectives of the CSRD? Identify what gaps exist and form a plan to close that gap before the CSRD requirements go into effect for your organization.
  • At what level of the organization should reporting requirements be applied? It’s important to know who the key stakeholders are and who will ultimately be responsible to carry out the reporting requirements.
  • How can this compliance requirement be expanded to maximize value creation for stakeholders by developing and executing a sustainable business model? Start thinking about what a sustainable business model will look like for your organization, and how you can create the most value out of the CSRD requirements. For example, many consumers expect companies to adopt more sustainable business practices. By incorporating that messaging in your marketing, you can create even more value out of the work you put in to meet the CSRD requirements.
  • What processes and controls will be needed to report current period information and forward looking information that will be subject to assurance requirements? You’ll want to make sure you have the right team and resources in place, as well as any additional budgeting requirements, to be able to meet the verification requirements.
  • Do current processes allow for sustainability reporting at the level of detail required by CSRD (i.e., subsidiary-level reporting)? If not, identify what needs to be updated in the process and create a roadmap to allow for the level of reporting that will be required when your organization is affected by the requirements.

Conclusion

The right sustainability partner will be critical in meeting CSRD regulatory deadlines and mitigating risks associated with noncompliance. CarbonBetter helps organizations navigate the complexities of voluntary and mandatory climate-related efforts no matter where in the process you are. Reach out today with questions or to get started.


Dominic Sung

About the Author

Dominic Sung is Director of Business Development for CarbonBetter. He joined the company in 2022 with a focus on growing the Climate Services business by partnering with clients on their sustainability journey to measure, report, and reduce their emissions in a transparent, traceable, and pragmatic way.


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