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What to Know about the Corporate Sustainability Reporting Directive (CSRD)

February 21, 2025

Article

Introduction

The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation designed to enhance corporate transparency regarding mandatory sustainability reporting throughout the EU. To prepare for its implementation and avoid substantial fines, companies operating in or with the EU must fully grasp the implications and requirements of the CSRD.

This article will explore what the CSRD is, why it matters, who it impacts, critical steps companies must take, and how Exiger technology can facilitate compliance with the new regulations.

The CSRD: What It Is and Why It Matters

Effective from Jan. 5, 2023, the CSRD requires all large entities and all listed companies — excluding micro-enterprises — to report on their social and environmental risks, with the first reports under this directive due for the 2024 financial year, with publication expected in 2025. The regulation significantly impacts how companies will now approach sustainability reporting, namely:

Enhanced Transparency: The CSRD aims to ensure companies provide clear, comprehensive information about their sustainability practices, allowing investors, consumers, and stakeholders to evaluate corporate sustainability performance effectively.
Informed Investment Decisions: By requiring detailed disclosures on how business activities impact people and the environment, the CSRD enables investors to assess financial risks and opportunities associated with climate change and other sustainability challenges.
Standardization of Reporting: The regulation standardizes sustainability reporting practices across sectors, promoting comparability of ESG data. This harmonization helps reduce medium to long-term reporting costs for companies.
Double Materiality Perspective: Companies must report not only on how sustainability issues affect their financial performance but also on how their operations impact society and the environment, fostering a more holistic view of corporate responsibility.
Regulatory Compliance: Noncompliance can lead to significant fines and reputational damage, making adherence to the CSRD critical for maintaining stakeholder trust and avoiding legal repercussions.

Who Does the CSRD Impact?

The CSRD impacts a range of entities based on size and revenue, including:

Large Companies: All large firms operating within the EU must comply with the CSRD if they meet at least two of the following criteria:
- More than 250 employees
- Annual turnover exceeding €40 million
- Total assets greater than €20 million
Listed Companies: All publicly listed companies are required to disclose their sustainability information (effective financial year 2024).
Small and Medium-Sized Enterprises (SMEs): All listed SMEs must also comply with the CSRD (starting FY2026).
Non-EU Companies: Non-EU companies generating over €150 million in revenue from activities with the EU market (effective FY2028).

Even if an SME is not directly required to report under the CSRD , they are still likely to be indirectly affected in terms of supplying information to larger companies.

Critical First Steps to Become CSRD-Compliant

As companies prepare for compliance with the CSRD, they should consider the following initial steps:

Familiarize with ESRS Criteria: Understand the European Sustainability Reporting Standards (ESRS) developed by EFRAG.
Data Collection Processes: Establish robust processes for collecting data related to environmental and social impacts.
Integrate Sustainability Information: Ensure that sustainability information is integrated into annual financial reports while focusing on double materiality —assessing how business activities affect the environment and vice versa.
Conduct Third-Party Audits: Prepare for third-party audits of sustainability disclosures to ensure accuracy and reliability.

The Indirect Impact on Suppliers and Value Chains

The CSRD is set to transform sustainability reporting, requiring full transparency of a company’s value chain, with detailed reporting on upstream and downstream activities. With up to 80% of a company’s environmental impact originating from external sources — known as Scope 3 emissions — accurately measuring these emissions is crucial.

To understand the indirect impacts of your value chain, companies can no longer rely on data based on generic averages. Instead, they must now rely on specific, primary data collected from supply chains and impact hotspots. While this may require some initial preparation, here are the essential steps to get started:

1. Measure Your Baseline Environmental Footprint

Use the GHG Protocol or Life Cycle Assessment (LCA) to calculate your company’s environmental impact. This baseline measurement helps identify which suppliers contribute most to your total footprint.

2. Collect Primary Environmental Data from High-Impact Suppliers

Request product footprints from your highest-emitting suppliers. This data should include greenhouse gas emissions and other environmental impacts like land use and biodiversity.

Noncompliance Is Costly

Noncompliance with CSRD can result in significant financial penalties, reputational damage, and legal liabilities for companies. These consequences not only jeopardize a company’s financial standing but also undermine its credibility with investors and customers.

To navigate the complexities of CSRD compliance cost effectively, companies should leverage ESG technology solutions that facilitate accurate reporting and data management.

How Exiger Can Drive CSRD Compliance

The 1Exiger platform is an advanced AI solution designed to help streamline sustainability reporting processes and improve compliance with the full range of ESG regulations. Features include:

Enhanced Supply Chain Visibility: Advanced AI technology provides insights across all tiers of the supply chain to identify and mitigate ESG risks.
Comprehensive Risk Assessments: Exiger’s proprietary Risk Model can assess both macro and specific material risks to uncover hidden compliance issues for all ESG risk factors.

Sample ESG risk dashboard from 1Exiger, flagging specific risk hits.
Automated Data Collection: Streamlined data gathering ensures accurate information is available for CSRD reporting requirements.
Real-Time Monitoring: Continuous tracking of ESG risks associated with suppliers allows for timely interventions and updates. The platform’s Proactive Intelligence capability offers predictive insights, enabling a real-time operational control experience to see how different events will impact operations, allowing for quick, informed decisions.
Supplier Engagement: Standardized data collection processes and training resources facilitate reliable product footprints or other data requirements from high-impact suppliers.
Support for Third-Party Audits: Reliable reporting tools assist in preparing for third-party audits, ensuring compliance with CSRD regulations.

Contact us to learn more about how Exiger can help your organization drive CSRD compliance and address any supply chain challenges from the CSRD, including compliance with other EU ESG regulations.

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