CSRD: New rules for reporting on corporate social responsibility

Sustainability is the prominent topic of the 21st century. This applies to climate protection and “clean” investment as well as to good, socially responsible, sustainable corporate governance. This is often referred to as corporate social responsibility (CSR). Corporate Social Responsibility describes the voluntary contribution of business to sustainable development that goes beyond the legal requirements. CSR is thus a key concept in corporate ethics and manifests itself, for example, in the promotion of work-life balance, diversity and inclusion management, the prevention of misconduct through auditing and compliance mechanisms and climate risks, or in the implementation of mission statements and codes of conduct, risk management and even whistleblowing systems.

CSRD: new guideline on corporate sustainability reporting

Important: Shareholders and stakeholders are increasingly demanding an appropriate and measurable representation of corporate social responsibility in reporting. In addition, asset managers must also measure and evaluate such risks and opportunities in their portfolios as part of their fiduciary duty. That is why professional sustainability reporting is a decisive contribution to business success – and is also demanded politically. Because now the change in sustainability reporting is in the starting blocks.

The new corporate sustainability reporting directive, the Corporate Sustainability Reporting Directive (CSRD), revises the disclosure of non-financial information and ensures the robustness of companies’ obligations by introducing the following new features:

• Extension of the scope to all large companies and all companies listed on a regulated market (with the exception of listed micro-enterprises);
• Requirement for an audit of sustainability reporting;
• more detailed and standardized requirements for companies’ disclosure obligations;
• Improve access to information by requiring publication in a separate section of companies’ management reports.

Transition to a sustainable economy to be promoted

“These changes will increase corporate accountability, prevent divergent national standards, and facilitate the transition to a sustainable economy,” the European Commission says. And further: “The proposal aims to fill gaps in the current rules for the disclosure of non-financial information, the quality and comparability of which has so far been insufficient to allow investors to take proper account of it. These shortcomings hinder the transition to a sustainable economy. This directive confirms the European Union’s pioneering role in setting sustainable standards. Harmonization of sustainability data will be made possible by setting standards for sustainability reporting, which will be adopted by the European Commission through a delegated act after technical advice from the European Financial Reporting Advisory Group (EFRAG) and several European agencies.”

Disclosure of information on non-financial aspects of companies

The German Sustainability Code reports: “The CSR Directive Implementation Act requires the disclosure of information on non-financial aspects, at least on environmental, employee and social issues, respect for human rights and the fight against corruption and bribery. In this context, those disclosures must be made on the individual non-financial aspects that are necessary for an understanding of the company’s business performance, business results and situation, as well as the effects of its activities on the non-financial aspects.”

The new CSR Directive follows the so-called double materiality perspective. This means that companies must clarify the effect of sustainability aspects on the economic situation of the company and the impact of operations on sustainability aspects. CSRD-compliant reporting therefore includes the naming of sustainability goals, a description of the role of the Executive Board and Supervisory Board, an overview of the company’s most significant adverse effects, and on intangible resources not yet recognized in the balance sheet.

Around 15,000 companies in Germany must implement CSRD reporting obligations

The new directive affects a large number of companies. As a result of the EU Commission’s draft Corporate Sustainability Reporting Directive, from 2024 even non-capital market-oriented companies will have to report on social and environmental aspects if they meet two of the following three criteria:

• Balance sheet total > 20 million euros
• Net sales > 40 million euros
• Number of employees > 250

It is estimated that the new rules will affect around 50,000 companies in the EU. In Germany, the CSRD directive affects around 15,000 companies, which will have to report on 2024 from 2025. Based on these regulations, a company with a balance sheet date of December 31, 2023, must prepare the CSR report on fiscal year 2023 by April 1, 2024. This means that companies that have to comply with CSRD obligations should prepare for implementation at an early stage.

Services related to the Corporate Sustainability Reporting Directive

At Höppner Management & Consultant, we support compliance with the Corporate Sustainability Reporting Directive with the following services:

• Status analysis: We check which components of the mandatory legal provisions have already been implemented in your company and where there is a need for improvement.
• Materiality analysis: We review non-financial topics or business activities and material fields of action (taking into account official standards/initiatives such as GRI, OECD, GHGP, SBTIs, etc.); the exclusion of immaterial non-financial topics is documented with reasons. Based on these topics, we perform the “Double Materiality” check.
• Data management: Collection of performance indicators
• Sustainability management: Together we implement the requirements of one or more guidelines in your company and build a team for it.
• Reporting: The actual reporting refers to the results from data management and sustainability management. We deliver guideline-compliant text modules.

Generally speaking, sustainability and CSR performance is an important factor for all stakeholders. Sustainability indicators to measure this performance are fundamental and significant variables of corporate success, and sustainable, socially responsible business is more than ever the adjusting screw and focus of a sustainable organization.

—
Image Source: © Photo by Marek Piwnicki on Unsplash