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The Convergence of Global ESG Reporting Frameworks Part 2

The landscape of corporate reporting and accountability is undergoing a fundamental shift, largely driven by a growing global recognition of the integral role businesses play in society and the environment. Central to this transformation is the recently introduced Corporate Sustainability Reporting Directive (CSRD) by the European Union. It demands a hyper-transparent, more comprehensive approach to sustainability reporting, heralding a new era of corporate responsibility and disclosures.

In this second installment of our Convergence of Global ESG Reporting Frameworks series, we’ll delve into what the CRSD is, explore its requirements, and understand how it applies to Canadian entities in today’s business world, allowing corporations and stakeholders alike to navigate this change with informed confidence.

What Does CSRD Mean?

The Corporate Sustainability Reporting Directive (CSRD) is a recent EU initiative to institutionalize the sustainability reporting process for companies within its jurisdiction. The advent of CSRD turns a new leaf in the sustainability narrative, helping to standardize data and ensure that we all speak the same language regarding a company’s ecological, social, and governance track record.

This increased transparency plays a crucial role in evaluating financial risks and opportunities, notably those exacerbated by climate change and other sustainability concerns.

These new regulations will affect companies from the 2024 financial year which means that businesses must prepare and adapt for successful compliance in reports published in 2025.

Who Falls Under the CSRD?

The CSRD specifically applies to the following:

UN Flags

What are the CSRD Requirements?

The CSRD has expanded the scope beyond what was formerly mandated by the Non-Financial Reporting Directive (NFRD), aiming to provide more detailed, reliable, and comparable information on companies’ sustainability activities. Here are the main requirements outlined by the CSRD:

Reporting Framework: Companies are required to report in accordance with the European Sustainability Reporting Standards (ESRS). These standards are designed to enhance the consistency and comparability of sustainability reporting across the EU.

Materiality and Content: The CSRD mandates the disclosure of information on how sustainability issues affect the company’s business model and strategy, as well as the impact of the company’s operations on people and the environment. This dual materiality perspective ensures that both the financial impacts of sustainability matters on the company and the company’s impact on sustainability matters are considered.

Digital Reporting: The directive requires that all reports be digitally tagged and filed in a machine-readable format. This makes it easier for investors and other stakeholders to access and analyze sustainability information.

Assurance: Under the CSRD, there is a requirement for limited assurance of sustainability information, which means that the reported information will need to be verified by external auditors or assurance service providers. This increases the reliability of the sustainability disclosures.

Is CSRD Mandatory?

Yes, reporting by the CSRD is compulsory for companies within the European Union and those who fall under its jurisdiction.

It’s important to note that the CSRD does not directly enforce reporting requirements on individual companies. Rather, it directs EU Member States to interpret and apply its requirements through local laws, regulations, and administrative action. Sanctions for non-compliance or other infractions are similarly left up to individual Member States.

While there are exceptions in reporting obligations for smaller, non-listed companies, the overarching mandate remains binding.

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How does CSRD Apply to Canadian Entities?

According to research published in the Wall Street Journal, over 1,000 Canadian companies that operate in the EU will have a duty to report on an annual basis.

Canadian entities need to stay abreast of these new changes and begin preparations to ensure compliance. Companies not preparing to meet these new regulations risk not only financial penalties but also reputational damage.

A Shift Forward

The CSRD represents a significant leap forward in ensuring that sustainability reporting becomes as integral to corporate disclosures as financial reporting. By enhancing transparency, ensuring the provision of high-quality data, and requiring that reports cover the full spectrum of ESG aspects, the CSRD is set to shift the corporate landscape towards a more sustainable and accountable future. This directive not only aligns with global sustainability goals but also provides a structured framework that propels companies to be at the forefront of addressing environmental and social challenges.

For Canadian entities with operations in Europe, navigating the complexities of the CSRD may seem daunting — but it doesn’t have to be. Shift Critical, with its expertise in sustainability consulting and deep understanding of ESG frameworks, stands ready to assist. We provide tailored support to ensure that your reporting not only complies with the CSRD requirements but also enhances your sustainability profile and market value. From gap analysis and strategy development to the preparation of reports and assurance support, our team of experts can guide you through every step of the CSRD compliance journey.

Leveraging our services will not only streamline your transition to CSRD compliance but also position your business as a sustainability leader in your industry. With Shift Critical, taking on the CSRD’s challenges becomes an opportunity to demonstrate your commitment to sustainable development and to shape a future where business success and social responsibility go hand in hand.

Let us help you turn the requirements of today into the achievements of tomorrow. Contact us today.

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