CSRD Series-Part 14: Exploring the Impact of the Corporate Sustainability Reporting Directive (CSRD)

Introduced in January last year by the European Union (EU), the Corporate Sustainability Reporting Directive  -  CSRD - is aimed at standardizing EU sustainability reporting, setting new standards aimed at driving greater transparency and encouraging organizations to be more sustainability-focused on a global scale. In this podcast we explore the current CSRD landscape and the key actions and learnings to date.

Speakers:

• Catherine Beare - Intertek Regional Director for Intertek Business Assurance in the UK and Iberia
• Ross McCluskey - Intertek Executive Vice President EMEA Region and Government Trade Services Division

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Transcript

Catherine 0:11

Hello and welcome to this podcast exploring the impact of CSRD so far. I’m Catherine Beare the Regional Director for Business Assurance in the UK & Iberia and I am joined by Ross McCluskey, our Executive Vice President for the EMEA region as well as our Government Trade Services division. Ross is going to reflect today on how companies and countries are continuing to react to Corporate Sustainability Reporting Directive - the CSRD.  

Ross has been with the Intertek group for 8 years and started his tenure in the Finance team where he held the role of Group CFO from 2018 to 2021. Before that he held various financial leadership roles with Inchcape, Greenhill and JP Morgan to mention a few.  

So Ross, it’s now over 2 months since all 27 EU Member States and three EEA countries were required to transpose the Corporate Sustainability Reporting Directive international law.   I’m looking to explore with you progress to date, key benefits and real-life success soundbites.  

So what’s the current status in terms of companies adopting the CSRD? I assume all of them! 

Ross 1:54

This was introduced in January last year by the European Union (EU), and as many of you will know, the CSRD is aimed at standardising EU sustainability reporting, helping to set new standards aimed at driving greater transparency and also encouraging organisations to be more sustainability-focused on a global level. 

But many weeks on from Member States being required to incorporate the legislation, industry insight, including this dedicated CSRD Transposition Tracker, has revealed that  just ten Members and two out of the three EEA countries have adopted the directive into their national legislative policies. 

The EU Members that have now adopted include: 

1. Denmark. 

2. Finland. 

3. France. 

4. Hungary. 

5. Ireland. 

6. Lithuania. 

7. Romania. 

8. Slovakia. 

9. Sweden. 

10. Germany who only just did it after the official deadline  

And of the EE countries: 

1. Liechtenstein. 

2. Norway. 

However, this means six EU Members - Austria, Belgium, Greece, Malta and Portugal and one EEA country, Iceland, are yet to take notable action. And while the first CSRD-compliant reports are not required to start being submitted until next year, adopting the Directive into national law invariably takes considerable effort, time and resource.  

Overall, Catherine we’ve seen varying levels of change happening in terms of where countries are in relation to transposing the law, with some making significantly more progress than others. Some have gone ahead and led the way by adopting the Directive, many have been consulting on it and exploring how it fits alongside their existing legislation, and others have left it to the last minute, which I suppose is to be expected. 

Catherine 3:37

It’s interesting when you look at the countries and those that have moved at faster paces, but if you were to pick one country Ross, which country stands out to you as leading the way? 

Ross 3:50

I think Catherine, of all the current adopters that we have seen, one country in particular, France, has stood out for leaving the CSRD starting blocks if you can call it that, faster than other countries. It was the first EU Member State to adopt the directive into French law, which it officially published in December last year. 

I think France has undoubtedly been ahead of the race to get the CSRD transposed locally, which isn’t surprising clearly given their strong CSR regulatory framework and environmental reporting activity we have seen in the country to date. 

As a country, France has a strong tradition of CSR and stringent reporting requirements. But what’s worth noting here, is how the French regulatory authorities have not held back in relation to leveraging their power to compel companies to rectify their reporting practices. 

Catherine 4:44

That’s interesting, so let’s explore that a little bit further. So what penalties are we seeing so far for non-compliance? 

Ross 4:54

As you said Catherine, this will be a very interesting topic because as you said, ultimately the stake here will be important in terms of pushing companies to make the change.  And while specific penalties are determined at a national level, the EU encourages Member States to ensure there are effective, proportionate and dissuasive penalties for non-compliance. This means that while the exact nature of penalties may vary from country-to-country, they are intended to be substantial enough to enforce compliance and good behaviour. 

As an example, France has set the CSRD tone for the Member States that are yet to follow in its footsteps by introducing a raft of hefty penalties for non-compliance. This includes companies being fined €3,750 for not publishing sustainability reports or for disseminating partial or erroneous information. Companies can also be fined up to €75,000 and company directors imprisoned for up to five years for non-compliance. So making sure those at the top really feel the need to comply with the legislation. 

Catherine 6:08

Yes, the monetary part is one element I guess but that last comment on the imprisonment or certainly the threat of is certainly one that would make most take note.  

So let’s move on to something a bit more positive, then hopefully!  Can you give us examples of what you have seen Ross, either from companies that we work with or in general on how companies are embracing the CSRD? 

Ross 6:36

As you say Catherine, it’s far from doom and gloom all the way around and we are seeing a number of companies on the front foot and put action into place to ensure compliance with CSRD.  

And one shining example is Arla foods and they have done a lot of work on both material and immaterial elements.  

This was showcased in We Mean Business Coalition’s Early Adopters CSRD Report, Arla Foods has used illustrations within its 2023 Annual Report to not just clearly show readers where material elements can be found, but also highlight immaterial elements. In addition, the report delves that bit deeper by sharing details of the compliance status and quality of each material element. (View the full report: https://tinyurl.com/3zxe7un8) 

Another really good example would be AkzoNobel who have illustrated their entire full business lifecycle in their 2023 2023 Annual Report. They have also produced a very interesting alternative Double Materiality Assessment (DMA) outcome assessment in the same 2023 Annual Report that methodically maps out the cycle of their business by upstream, own operations performance and also downstream: 

And the third example I would like to highlight is BW Offshore and here in their 2023 Annual Report they have featured an overview of all omitted ESRS disclosure requirements with explanations for why they have omitted each requirement, demonstrating a clear and considered thought process. (View the full report, visit: https://tinyurl.com/mryvauth) 

Catherine 8:17

Which is interesting because of course you don’t need to get into that detail in the report but that’s a really great benchmark for them to set a precedent in and certainly one in that sector for others to watch out with. 

Ok so let’s round off now – what do you want listeners to take away today in terms of benefits that you think the companies will now start to experience as they embrace CSRD? 

Ross 8:34

There is some clearly very positive angles from the CSRD, it’s not just all extra legislation and regulation and reporting. But what i would say is countries and companies that have been waiting to do something to embrace the CSRD, need to stop waiting and get on with it. Take action because they are only delaying the inevitable ad indeed, they will make it so much more difficult for themselves given the timetable that the Eu has outlined.  There are already countless examples of organisations that have taken the initiative and embarked on their own CSRD journeys; some more rapidly than others. 

Of course, in addition to triggering a seismic shift towards greater transparency, consistency and accountability within sustainability reporting practices, the CSRD is generating a wealth of widespread benefits and just to highlight a couple, firstly I think there is clearly enhanced investor confidence & more informed decision-making. Investors now have access to more reliable and comparable ESG data, enabling them to make more informed investment decisions. At the same time, investors are increasingly considering sustainability performance as a key critical factor in their investment choices, fuelling a shift towards sustainable investments. And also holding management teams to account.  

Secondly, in terms of the quality of reporting, it will step change. This will give us a standardised series of reporting which will allow us to have much more improved benchmarking of sustainability metrics from company to company.  

The CSRD itself is underpinned by a set of standardised frameworks. This standardised approach will give us a huge opportunity to identify and adopt best practice solutions across sectors and countries. 

The third benefit I would highlight is more consistent reporting practices with greater recognition. What I mean by this is by implementing the CSRD, the EU has levelled the reporting standards playing field, reducing competitive disadvantages for companies that are proactively striving to turn their sustainability vision into reality. The CSRD is recognised as the global benchmark for all future sustainability reporting, and with those who successfully adopt it helping encourage other companies outside the EU to follow suit as well. 

And finally, the fourth benefit I would highlight is the more accurate and reliable sustainability data reporting we will see. The directive’s requirement for the audit and assurance of sustainability reports has increased the demand for services in this area, ensuring the accuracy and reliability of data that is shared and reported. 

Catherine 11:43

Thanks Ross that was fantastic to get your views and some interesting insights into not just how it’s rolling out with the countries but interestingly, to see which companies are already moving at speed even before they had to start reporting in this manner and its always important for us to recalibrate on the true benefits which is the intent of this legislation. So thank you Ross for your time today.  

So just as a reminder of how Intertek can help on CSRD:  

1: To understand your current CSRD readiness, we can help you to undertake a gap analysis to ensure you have a clear view of your organisations current readiness and will work with you to define clear action plans to address any gaps and prepare for your first submission 

 2: Through training to ensure everyone understands what's required to prepare for your submission. This can be delivered to a range of different teams and functions across your organization and will be bespoke to best fit your requirements. 

3: We can also provide auditing solutions within your supply chain and in some markets, we will also hopefully be able to act as the auditor of your CSR Directive reports. 

4. Finally, we have also partnered with ESG Playbook, a leading SaaS reporting and solution provider bringing in one tool all required data collection, aggregation and tracking and reporting for ESG needs. 

For more information, please visit our website  www.intertek.com/assurance/EU-CSRD. 

And that concludes today's podcast. Thank you for listening and do watch out for further CSRD episodes to help with your journey to compliance. 

____________________________________________________________________

Catherine Beare, 
Regional Director, Business Assurance, UK and Iberia 

Catherine has been in the sustainability world for 20 years, previously working with businesses in the community, the leading CSR, not for profit helping companies implement and improve their internal CSR programs. During her 14 years at Intertek, she has worked with all sectors helping organizations deliver effective and risk managed responsible supply chains. Having worked globally but with more of a focus on UK and EU, Catherine has grown Intertek's responsible supply chain programs supporting regional expansion, bringing to new market, new innovative sustainability solutions and speaking at many subject matter focused events.