The world is using resources faster than they can be replenished and the consequences of this behaviour are widespread, long-term and a threat to ‘business as usual’. Three years into the UN designated ‘Decade of Change’, we are witnessing an increase in the urgency and demand for action.
The EU is at the forefront of integrating sustainability considerations into policy decisions through the European Green Deal introduced in 2019, a flagship growth strategy aiming to make Europe the first climate-neutral continent by 2050. One of its most ambitious objectives was to improve stakeholder accessibility and quality of ESG information through the Corporate Sustainability Reporting Directive (CSRD).
In time, the CSRD will help to bring sustainability reporting on par with financial reporting.
The CSRD aims to ensure that companies publicly disclose adequate information about the risks, opportunities and impacts of their activities on people and the environment. It is viewed as a game changer, the first step in addressing challenges such as coherence and integration of reporting standards (the ‘alphabet soup’), ensuring comparability and making reporting mandatory as well as auditable. It will apply to an estimated 50,000 large companies, as well as listed SMEs, with a phased introduction from FY 2024.Companies across Ireland and the EU will need to determine who within their organisation will take ownership of sustainability, ensuring cross functional input. This will likely require upskilling and potentially hiring new talent.
Within the CSRD reporting on sustainability matters is mandated under the ESRS (European Sustainability Reporting Standards). The ESRS architecture will include cross-cutting, topical and sector level reporting. Undertakings producing sustainability statements under ESRS will be required to disclose using the principal of “double materiality” (both financial and impact) across ESG topics such as climate, human rights and anti-corruption. Companies will use the ESRS framework to disclose information as part of their management report, giving users an integrated view of their impact and performance on ESG factors. The level of disclosure envisaged will require a mind-set shift from traditional reporting and will be both quantitative and qualitative in nature. This includes elements around the undertaking’s governance process, strategy, impacts and risks, targets and future action planning around sustainability. An undertaking needs to include both its own operations and its value chain when reporting under ESRS.
Beyond meeting mandatory obligations, CSRD presents an opportunity to use the required disclosures as a catalyst to better understand the impacts of sustainability on businesses and to embed these considerations into future proofing and resilience of their strategy. CSRD is a new era and Dublin’s companies will have to maintain a sharp focus on it from now on.