While organisations are aware that sustainability and environmental; social and governance (ESG) must be embedded into their processes for business growth, the European Union (EU) is still deliberating how this will look.
As a result, corporations await a standardised approach to transparency—the roll out of the Corporate Sustainability Reporting Directive (CSRD), which will govern how companies disclose their impacts and the metrics they will provide to do so. The EU’s ESG response has been brewing for quite some time, and it looks like there are more conversations to be had. This will inevitably delay the CSRD for certain sectors and the subsequent European Sustainability Reporting Standards (ESRS) that will form the basis of a qualifying report.
We’ve previously covered the CSRD and what it means for businesses, however the EU announced that sector-specific industry regulation rollout is set to take place in 2026—the previous deadline was 2024.
With further discussions to take place, this setback means that privately held corporations as well as publicly traded organisations—including EU-trading countries from outside of Europe—will await updates.
Why is the CSRD so important?
The CSRD is a method of standardisation to compare and contrast the actions of businesses. It sets a criteria meant to steadily put them on the path to net zero global impact and greater contribution to social causes.
Without a recognised approach to ESG, businesses could be shooting in the dark when it comes to analysing their success towards a much larger climate goal. Those that fail to meet reporting standards will face potential setbacks in the future when it comes to investment.
Investment potential has been used for decades as a way of assigning value to business growth and authorities recognise this can be leveraged as a driver of sustainable activity as well.
Could businesses act sustainably without the CSRD?
The CSRD currently applies to businesses that previously adhered to the Non-Financial Reporting Directive (NFRD), which applied to certain corporations and subsidiaries since January 2023.
The answer is yes, businesses can still play their part by developing their organisations with environmental and social impacts in mind, however, when it comes to showcasing this, many of them are playing to variances in how their businesses operate. For example, an organisation that delivers sustainably sourced consumer goods wouldn’t necessarily approach ESG in the way that a maritime logistics business would despite the potential links between them. Sustainability leaders assess their efforts based on the key credentials they can measure, making it difficult to form a comparison between them.
The recent update to the CSRD deadline is partly brought on by further discussions to create standards that are specific to certain industries. The European Financial Reporting Advisory Group (EFRAG) responsible for delivering the ESRS sought to deliver sector-specific standards, adding a new level of complexity to the overall framework.
How will the CSRD impact ESG reporting of non-EU organisations?
As many global companies from outside of the EU will continue to trade within its jurisdiction, clarification is needed as to how they disclose ESG in order to do business with member countries.
This is what makes the CSRD so crucial for corporations across the globe as they rely on, for example, Chinese imports of electronics and components for a new energy network. In order for the EU to deliver sustainable solutions, such as electric vehicles (EVs) and renewable energy and storage, suppliers await confirmation of the EU’s standards to determine whether they must adapt their disclosure requirements.
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