FAQs: Preparing for the EU CSRD Directive and ESRS Standards

March 4, 2024

insightsoftware is a global provider of reporting, analytics, and performance management solutions, empowering organizations to unlock business data and transform the way finance and data teams operate.

The European Union has introduced new regulations to enhance the transparency and comparability of corporate sustainability reporting. The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are part of the EU’s sustainable finance agenda and aim to support the transition to a green and inclusive economy. In this post, we will explain what these standards are, who they apply to, and how you can prepare for them using some of the best tools available in the market.

What is the CSRD and the ESRS?

The CSRD is a phased directive that requires all large companies and listed companies in the EU to disclose information on their environmental, social, and governance (ESG) performance, risks, and impacts. The CSRD will replace the existing Non-Financial Reporting Directive (NFRD) and will expand the scope and quality of sustainability reporting in the EU¹.

The ESRS are a set of standards that specify the content and format of the sustainability information that companies need to report under the CSRD. The ESRS cover the full range of ESG issues, including climate change, biodiversity, and human rights, and are aligned with international frameworks², such as GRI or TCFD. The ESRS are designed to provide a clear and consistent framework for ESG reporting and to enable investors and stakeholders to compare and assess the sustainability performance of companies³.

Who does the CSRD and the ESRS apply to and when?

The CSRD and the ESRS will be implemented in 4 stages, the first of which will enter into force in 2025 and will apply to the financial year 2024. Companies will have to publish their first sustainability reports under the new standards by as soon as 2025¹. The CSRD and the ESRS will also apply to non-EU companies that are listed on EU regulated markets or that have securities traded on EU multilateral trading facilities⁴.

Phase	Effective Date	Scope	Reporting Requirement	Deadline
1	January 1, 2024	Companies subject to the NFRD, including large non-EU companies (>500 employees) listed in the EU.	Use the first set of ESRS for financial year starting on or after January 1, 2024.	Reports due in 2025.
1	January 1, 2025	Companies, banks, and insurance under NFRD have to report the first set of Sustainability Reporting standards for the financial year 2024.	–	–
2	January 1, 2026	All EU-listed companies with more than 250 employees. CSRD applied to other large companies not under the NFRD report on financial year 2025.	Report for financial year starting on or after January 1, 2025.	Reports due in 2026.
3	January 1, 2027	SME subsidiaries of companies listed on EU regulated markets. CSRD applied to listed SMEs on public markets. Possible “opt-out” available during transitional period, exempted from directive until 2029.	Start reporting to a reporting standard for the financial year 2026.	–
4	January 1, 2029	Non-EU companies listed in EU markets with subsidiarity in the EU and working in the EU that have a turnover above the thresholds (>250 employees, turnover of at least €40M or a balance sheet total of at least €20M) will need to disclose their financial year 2028.	–	–

How do you know which elements of the CSRD and the ESRS you need to comply with?

The CSRD and the ESRS require companies to report on a set of mandatory and sector-specific indicators, as well as on any additional information that is material to their business. The materiality principle means that companies have to identify and disclose the ESG issues that are most relevant and significant for their activities, stakeholders, and impacts³.

To determine which elements of the CSRD and the ESRS you need to comply with, you will have to conduct a materiality assessment, which involves the following steps:

Identify the ESG topics that are relevant for your sector and your business model, using the ESRS as a reference.
Assess the importance of these topics for your stakeholders, such as investors, customers, employees, regulators, and civil society, using various sources of information, such as surveys, feedback, ratings, and benchmarks.
Assess the impact of these topics on your business performance, risks, and opportunities, using quantitative and qualitative data, such as financial statements, risk assessments, scenario analysis, and strategic plans.
Prioritise the topics that are both important for your stakeholders and impactful for your business, and define the boundaries and scope of your reporting, such as the entities, geographies, and value chain segments that are covered.
Disclose the results of your materiality assessment, the process, and criteria that you used, and the rationale for your choices, using the ESRS as a guide.

What types of existing IT systems are commonly used to store data required for ESRS disclosures?

Data required for ESRS disclosure can be stored across various existing IT systems, depending on the nature and source of the information. These include:

Enterprise resource planning (ERP) systems, which offer comprehensive data on financial performance, resource consumption, emissions, waste, and other environmental indicators.
Human resource management (HRM) systems, which capture data on employee diversity, turnover, training, health and safety, and other social indicators.
Customer relationship management (CRM) systems, which track customer satisfaction, loyalty, complaints, and other governance indicators.
Supply chain management (SCM) systems, which collect data on supplier diversity, compliance, environmental and social impacts, and other ESG indicators throughout the value chain.
Sustainability management systems, which consolidate and analyze data on ESG policies, targets, initiatives, and performance, as well as stakeholder engagement and feedback.

What is the best way to collect the data required for CSRD disclosure?

The best way to collect the data required for CSRD disclosure is to use a system that can automate and streamline the data collection process, ensure the data quality and consistency, and facilitate the data analysis and reporting. A solution with strong consolidation, modeling and reporting capabilities can offer these benefits and more, such as:

Integrating with various data sources and systems, such as ERP, HRM, CRM, SCM, and sustainability management systems, and extracting the relevant ESG data in a timely and accurate manner.
Collecting and aggregating data from different departments, business lines, entities, geographies, and value chain segments, and applying the appropriate accounting and reporting standards, such as IFRS, US GAAP, and ESRS.
Providing comprehensive audit trails, automated checks, controls, and work flows that allow you to track changes, validate, and verify the data, to ensure data completeness, accuracy, and reliability. It will be necessary to disclose where definitions have changed that might affect comparison with previous reporting figures.
Enabling the data analysis and reporting, using dashboards, visualizations, and templates, and providing insights and recommendations on the ESG performance, risks, and opportunities.

Using a solution with strong consolidation, modelling and reporting capabilities can help you collect the data required for ESRS disclosure in an efficient and effective way, and save you time, cost, and effort.

What does it mean to tag your data?

Tagging your data means assigning labels or codes to your ESG information, using a standardised language and format, such as XBRL (eXtensible Business Reporting Language). Automating the tagging of your data ensures uniformity in meeting the filing requirements, efficient data exchange, as well as enhanced transparency and accuracy in regulatory reporting.

A disclosure management tool can help you tag your data, using the following features and functions:

Supporting the ESRS taxonomy, a set of XBRL tags that correspond to the ESG indicators and concepts defined by the CSRD².
Providing a user-friendly interface and a drag-and-drop interface, allowing you to select and apply the XBRL tags to your ESG information, without requiring any technical or coding skills.
Offering a validation and quality assurance service to check the accuracy and consistency of your XBRL tags, and alert you of any errors or issues.
Generating and exporting your ESG information in XBRL format, used for filing and publishing your sustainability report, as well as for sharing and communicating your ESG information with your stakeholders.

A disclosure management tool can help you tag your data in a simple and reliable way, and to enhance the transparency and comparability of your ESG information.

ESG Reporting Buyer’s Guide

Download Now

Why is it beneficial to work with a disclosure management tool that supports tagging and XBRL filing?

Leveraging a disclosure management tool with tagging and XBRL filing capabilities offers significant benefits:

Streamline your compliance journey with CSRD and ESRS. These regulations mandate XBRL-tagged information, and a robust tool ensures accurate and efficient tagging to meet regulatory requirements effortlessly. No more manual processes or scrambling to meet deadlines.
Empower your stakeholders with easily digestible data. XBRL formatting enables seamless searchability, extraction, and analysis of your ESG disclosures through XBRL-compatible software and platforms. Imagine investors and analysts readily accessing the information they need for informed decision-making.
Build trust and confidence with stakeholders. Tagged and XBRL-formatted information is widely recognized as reliable and standardized, increasing the perceived credibility of your ESG disclosures. Impress investors with your commitment to transparency and responsible reporting.

By adopting a robust disclosure management tool with tagging and XBRL filing capabilities, you can achieve seamless compliance, enhance accessibility, and gain a competitive edge in the sustainability realm.

Why is it beneficial to work with one disclosure management tool that supports multiple ESG taxonomies and financial disclosure (e.g. for ESMA ESEF, SEC, etc.)?

Leveraging a single disclosure management tool capable of handling both multiple ESG taxonomies and financial disclosure offers distinct advantages:

Adapt seamlessly to the emergence of various frameworks like ESRS, ISSB, GRI, IFRS and SASB, ensuring your reporting stays current and comprehensive.
Align your ESG disclosures with financial reporting requirements (ESMA ESEF, SEC EDGAR) for a holistic view of your performance.
Simplify multi-step processes like data collection, consolidation, validation, analysis, and reporting with centralized functionality.
Eliminate the need for multiple tools, systems, and formats, leading to streamlined data management and lower overall costs.
Ensure coherence and adherence to relevant regulations by managing both ESG and financial disclosures within a single platform.

By adopting a multi-faceted disclosure management tool, you can achieve streamlined processes, optimized resource allocation, and consistent, compliant reporting – solidifying your position as a responsible and transparent enterprise.

Why is it beneficial to work with a disclosure management tool that supports disclosure in multiple jurisdictions?

Leveraging a disclosure management tool with multi-jurisdictional capabilities offers significant advantages for organizations navigating the evolving landscape of ESG reporting. By centralizing compliance efforts within a single platform, you gain:

Attract diverse stakeholders & enhance brand reputation with consistent ESG reporting across jurisdictions.
Simplify adherence to varied reporting standards with minimized errors and inconsistencies.
Save time & resources by eliminating repetitive tasks and centralizing information management.
Demonstrate commitment to exceeding minimum requirements and leading the way in global ESG reporting.
Showcase global sustainability performance clearly to all stakeholders, fostering trust and solidifying leadership.

Working with a disclosure management tool that supports disclosure in multiple jurisdictions from within the one tool can help you achieve your ESG reporting objectives and demonstrate your sustainability leadership and performance.

What are the advantages of a disclosure management tool that allows you to easily build glossy ESG reports for your stakeholders and investors to engage with?

Don’t under-estimate the ability to deliver investor-grade data that seamlessly integrates your ESG and financial information into a single, visually engaging report. This transparency, achieved through accurate, auditable, and timely data presentation, allows you to clearly demonstrate the link between sustainability and value creation. Such clarity goes beyond mere compliance; it strengthens your brand reputation and resonates with stakeholders, fostering trust and engagement.

These are just some of the key advantages that such disclosure management tools offer:

Glossy reports capture attention and encourage stakeholders to delve deeper into your ESG efforts, fostering stronger relationships.
Clearly communicating your sustainability journey enhances your reputation as a responsible and forward-thinking organization.
Integration with tools like InDesign ensures efficient multi-author collaboration and eliminates tedious formatting struggles.
The tools support XBRL tagging and other regulatory requirements, making compliance effortless and accurate.

By unlocking the power of visual storytelling with data-driven insights, disclosure management tools empower you to go beyond reporting – you can cultivate meaningful engagement with your stakeholders.

Conclusion

The game-changing EU CSRD directive and ESRS standards usher in a new era of transparent and comprehensive corporate sustainability reporting across the EU. With growing global adoption, they are poised to reshape the landscape for businesses worldwide. They will require companies to disclose more and better ESG information, and to use XBRL tags and format for their reporting. To prepare for these regulations, companies will need to use the best tools and systems available, such as ESG solutions from insightsoftware and other consolidation and disclosure management tools, that can help them collect, consolidate, validate, analyse, report, tag, file, and publish their ESG information in a compliant and efficient way. By doing so, companies can not only meet their ESG reporting obligations, but also create value for their business and their stakeholders while contributing to a more sustainable and inclusive economy.

Don’t settle for a one-size-fits-all approach, embrace a tailor-made CSRD journey with insightsoftware. Ready to see how we can help? Download our ESG Reporting Buyer’s Guide or request a demo today.