The CSRD's New Rules: What It Means For You

Starting in January 2024, the CSRD is set to become the new cornerstone of ESG regulation in the E.U. and European Economic Region. While the effectiveness of CSRD can only be judged in practice, what is clear is that it will increase both the scope and rigour of required carbon disclosure, all while affecting more, and smaller, entities.

The CSRD has opted for a staggered inclusion of companies, with some required to adopt in time for reports published in 2025, and some (listed SMEs, for instance) technically able to opt out until later. The legislation will also affect international companies with significant activity in the E.U. Overall, around 50,000 companies are estimated to be in the sights of the fully-fledged CSRD. As ever, in as fast-developing a space as sustainability reporting, it always pays to report voluntarily ahead of what is currently mandatory.

One of the largest adjustments for many companies will be the long-awaited inclusion of Scope 3 in reporting requirements. The 15 categories of this scope capture emissions across a company’s supply or value chain, and can be notoriously difficult to gather data for. Companies who have anticipated this change through voluntary reporting will be able to hit the ground running, quantifying impact in more difficult categories such as employee commuting and freighting. Those less familiar with Scope 3 reporting may benefit from bespoke out-of-house guidance, to quickly acquire the skills needed for a mature and comprehensive Scope 3 delivery.

Also worth noting are the new requirements for Limited Assurance – essentially a third-party audit of reported emissions data. The carbon accounting sector is adapting fast to expand its capacity for verification services, but given the large numbers of mandated companies, establishing a robust audit process early on will be crucial – especially if the EU moves towards requiring higher levels of assurance, as is currently intended. This will likely mean a shift, both in carbon accounting services and for their clients, towards tighter reporting cycles, with a stronger emphasis on clear data-sources and audit paths.

This transparency may be made more possible by the EU’s push towards a standard of digitized reporting. The CSRD requires all affected EU companies to provide disclosure in XHTML format, in accordance with the soon-to-be-adopted European Sustainability Reporting Standards (ESRS). An early familiarity with these standards, and with the XHTML reporting format required, will be an asset to all entities in the sustainability reporting space.

One further development is the requirement for target-setting. While target-setting is already the subject of considerable market interest, these new requirements are likely to renew supply-side interest in providing such targets. Above all, for these third-party targets to be useful, they should be a clear synthesis of baseline emissions data and well-evidenced commitments to reduction improvements. A robust and reputable target will reward its company long-term far more than a pledge that is under-evidenced and over-promised.

Having been active for over 10 years in the sustainability sphere, Carbon Responsible is no stranger to the challenge of keeping up with the ever-shifting demands of sustainability reporting. With our suite of bespoke data tools for analysing Scope 3 data, our growing expertise in Limited Assurance and emissions verification, and our in-house target modelling software, we are well-equipped to help our clients through the years of change, and growth, ahead.