A new European Directive imposes requirements on how companies will need to report on their sustainability activities in the near future. Steven Mulkens of KPMG clarifies the CSRD and its requirements, and Catherine Bals of Proximus explains how they took their first steps to comply with the legislation.

For decades, companies have been required to report on their performance over the past fiscal year. Currently, only large Public Interest Entities (PIEs) are obliged to report specifically on sustainability; other companies can do so voluntarily. Organizations that already report on their ESG efforts often base themselves on an existing reporting framework whereby these companies often use different definitions or place different emphases. The Corporate Sustainability Reporting Directive (CSRD) changes that.

'The CSRD is a new European Directive for sustainability strategy, policy, and reporting. It will be transposed into national legislation by early July 2024 and is part of the European Green Deal. The aim of the CSRD is to increase the quality, transparency, and comparability of sustainability reporting,' says Steven Mulkens. As Executive Director within KPMG Audit, he supports companies in the field of sustainability reporting and assurance.

Three steps to prepare for the CSRD

Initially, the CSRD will enter into force in 2024 for large European PIEs.1 In the following years, other large companies that meet two of the three established criteria,2 as well as listed SMEs, must also follow the Directive. By providing a framework and reporting standards (ESRS3) and requiring assurance over sustainability information, the European Commission aims to improve the quality and comparability of reporting.

'Companies preparing to implement the CSRD initially will have to take three steps,' says Mulkens. 'First, they need to analyze their group structure to determine the scope and level of reporting within the group. This is followed by the double materiality assessment to identify material sustainability topics which will define the content of the company’s reporting. This assessment takes into account both impact materiality4 and financial materiality.5

The result of the assessment is a set of material themes that in turn can be linked to reporting requirements within the ESRS. As a third step, companies must then evaluate the maturity of their sustainability strategy and reporting and identify gaps against these reporting requirements. That analysis forms the basis for the design of a realistic plan, which identifies the actions to be taken to improve the quality and completeness of sustainability processes and data.

Mulkens says, 'Based on the conclusions from these steps, a roadmap can be drawn up. This should ensure that the company meets the requirements of the CSRD and the ESRS in a timely manner. Companies that get started with this roadmap still today can create a competitive advantage and strengthen their reputation.'

CSRD in practice: Proximus

Several Belgian companies are preparing for this new way of reporting, including Proximus, which will have to comply with the Directive from 2024.

'The CSRD forms a toolbox with which companies can get to work to become more sustainable in a structural manner. It makes your efforts very measurable and the reporting of different companies comparable,' says Catherine Bals, Sustainability Department Lead at Proximus. Together with KPMG's experts, Proximus set to work to take the three steps toward CSRD compliance.

'From the double materiality analysis, nine of the twelve ESRS turned out to be relevant to us - not surprising, given the major impact Proximus has on society. That a company like ours needs to focus on digital inclusion and cybersecurity is obvious, but circularity also requires a specific approach. Specifically, where not already present, we are now going to develop a strategy for each material sustainability theme. That means setting goals, creating and implementing a roadmap, and reporting on these matters," Bals explains.

Many internal processes need to be adapted to ensure that sustainability becomes even more embedded within the company and to make it easier to report on sustainability ambitions. According to Bals, this does not go without saying for everyone. Many companies see the CSRD as a set of boxes to tick. But for those who believe in sustainability, this is the way to go anyway. The Directive can provide them with a foothold that reveals the opportunities in terms of sustainability.'

  1. Large Public Interest Entities: listed companies, credit institutions and insurance companies with more than 500 employees.
  2. The three criteria are EUR 40 million net turnover; EUR 20 million balance sheet total; and 250 employees or more.
  3. EU Sustainability Reporting Standards
  4. Impact that the company has on sustainability themes.
  5. Impact that sustainability themes have on the company.