What are the most important CSRD key action points
The CSRD largely follows the substantive rules of the SFDR and, in addition, uses the EU Taxonomy. All reports and strategic plans arising from the CSRD must be made available in an electronic manner. The five key action points for companies under the new directive are:
1. Reporting based on the double materiality approach
The most significant change with respect to current legislation is the introduction of the double materiality approach, meaning that companies on the one hand have to report on their impact on traditional materiality, for example on the impact of their business on sustainability issues. On the other hand, companies have to report on the risks they run as a result of, for example, climate change or scarcity of raw materials.
2. Formulating long-term ESG targets and policy
Under the CSRD, companies must set clear ESG targets and annually publish their progress on these targets. As a result, the focus on sustainability is no longer optional or voluntary, but mandatory, and must be embedded in the company’s long-term vision and strategy, and must also be applied to its policies.
3. Due diligence for own operations and supply chain
Companies must report and audit the impact of their own operations and production processes. This also applies to the impact of the activities of their supply chain partners. In this way, companies can no longer hide unethical practices or environmental damage
4. Transparency on division of roles and responsibilities
The new EU directive makes it mandatory for companies to clearly identify who and which departments within the organization are responsible for ESG targets and for progress made on achieving the targets. Companies must identify the external parties that are also responsible for realising the ESG efforts.
5. Integrated reporting and mandatory external assurance
Not only does ESG reporting have to meet the standards approved by the European Commission, but the sustainable targets and performance linked to those targets must also be incorporated into the annual report. An independent auditor must then audit the data, as is currently already the procedure for financial performance.