Demystifying the Corporate Sustainability Reporting Directive (CSRD): A Guide for Businesses

In this blog, Vishnu Aggarwal, Deputy VP of Origination and Renewables Trading and Bas Vreede, Head of Renewables Trading at SmartestEnergy, dive into the complexities of the Corporate Sustainability Reporting Directive (CSRD). As the regulation unfolds, they shed light on the key requirements, implementation phases, and overall impact for businesses. This crucial information empowers businesses to navigate the path towards CSRD compliance with confidence.

The European Union (EU) has embarked on a significant journey towards a more sustainable future with the introduction of the Corporate Sustainability Reporting Directive (CSRD). This new regulation aims to enhance transparency and accountability within the business landscape by mandating the reporting of environmental and social impacts for a wider range of companies.

Understanding the CSRD Landscape

The CSRD significantly expands upon the existing Non-Financial Reporting Directive (NFRD). It compels large companies and all companies listed on regulated markets (with the exception of micro-enterprises) to disclose information on a broader spectrum of sustainability factors, encompassing:

• Environmental Impact: This includes greenhouse gas emissions, energy consumption, pollution levels, and resource utilisation.
• Social Rights: Labor practices, working conditions, diversity, and inclusion initiatives fall under this category.
• Human Rights: Respect for human rights throughout the entire supply chain is mandated.
• Governance: The CSRD emphasises strong corporate governance practices, anti-corruption measures, and the promotion of board diversity.

Phased Implementation: A Gradual Approach

The CSRD will be implemented in a phased manner:

• Commencing in 2024: Companies already subject to the NFRD, typically large public-interest entities exceeding 500 employees, will be required to comply. This initial phase is estimated to encompass roughly 11,000 companies.
• From 2025 Onwards: The scope widens to include all large companies, regardless of public-interest status. This encompasses companies exceeding two out of three criteria: a workforce exceeding 250 employees, a net turnover surpassing €40 million, or a balance sheet exceeding €20 million. This expansion is expected to significantly increase the number of reporting companies to an estimated 49,000.
• 2026 and Beyond: Listed small and medium-sized enterprises (SMEs), along with small and non-complex credit institutions and captive insurance undertakings, will be brought into the fold. These entities will benefit from an additional three years to achieve compliance, with reporting obligations commencing in the 2026 fiscal year.
• 2027 and Beyond: Companies outside of the EU that meet the above criteria.

The Significance of the CSRD

The CSRD represents a pivotal moment for sustainability reporting. It fosters a more transparent environment, empowering investors and stakeholders to make informed decisions regarding the companies they support. Furthermore, it incentivises businesses to adopt sustainable practices, ultimately contributing to a future characterised by environmental responsibility and social well-being.

Green Claims Directive.

The EU aims to put an end to greenwashing. The achieve that, the EU will ban:

• generic environmental claims on products without proof
• claims that a product has a neutral, reduced or positive impact on the environment because the producer is offsetting emissions
• Sustainability labels that are not based on approved certification schemes or established by public authorities.

Scope 3 emissions reporting.

Starting in 2025, both European companies and non-European companies with operations in Europe will be required to report their Scope 3 emissions. Scope 3 emissions are defined as indirect greenhouse gas emissions that occur within a company's value chain but are not directly produced by the company itself.

These emissions typically constitute the largest portion of an organization's carbon footprint. The mandatory reporting of Scope 3 emissions will significantly impact the Environmental, Social, and Governance (ESG) profiles of these companies. Consequently, this may indirectly compel companies within their value chains to establish or enhance their sustainability objectives. This shift is likely to increase the demand for renewable energy, renewable fuels and associated Energy Attribute Certificates (EACs)

Proactive Action is Key

SmartestEnergy is committed to empowering businesses to navigate the CSRD landscape and embrace sustainable practices. We are a leading supplier of Renewable Energy Certificates (RECs), enabling you to meet your organisation's environmental and social responsibility goals.  Schedule a consultation with our Renewable Energy Trading experts to discuss your specific REC needs and explore how SmartestEnergy can be your trusted partner. Contact our team at [email protected].