Comprehensive vs. Complex Reporting.

Complexity of ESRS in the context of CSRD

The Corporate Sustainability Reporting Directive (CSRD) marks a transformative era for corporate transparency and accountability in Europe. With its integration into the EU regulatory framework, the CSRD requires companies to disclose non-financial and sustainability-related information under the European Sustainability Reporting Standards (ESRS). Yet, as businesses rush to prepare, many are misinterpreting the directive's essence, mistaking it for an exhaustive data-collection exercise.

This article demystifies CSRD compliance, emphasizing a quality-over-quantity approach that prioritizes what truly matters for stakeholders and financial decision-making.

CSRD is About Focus, Not Overwhelm

A common misconception is that CSRD requires companies to report on every single data point outlined in the ESRS. This approach not only strains resources but risks diluting the report’s value. The directive’s intent is far from exhaustive data disclosure. Instead, it is a tool to help companies identify what is material—the issues most critical to the business and its stakeholders—and develop strategies to mitigate risks, seize opportunities, and drive sustainability outcomes.

The cornerstone of CSRD compliance lies in double materiality:

1. Financial materiality: How environmental, social, and governance (ESG) issues impact the company’s financial performance.
2. Impact materiality: How the company’s operations affect the environment and society.

Rather than reporting on dozens of ESRS topics, companies should focus on 5-7 material topics, those that are critical for business and which lead to impacts and dependencies, which, if not controlled, will seriously affect company's ability to perform . This deliberate focus allows businesses to allocate resources effectively and provide actionable insights for stakeholders.

Remember, stakeholders include final users, employees, and communities! However, their relevance will vary depending on your organization’s context. For example, a manufacturing company operating in an area with high water stress and frequent community protests against local industries faces different stakeholder priorities than a service consultancy based in an urban office environment. Understanding these nuances is critical to tailoring your materiality analysis.

The First Year: Communication Over Perfection

The initial year of CSRD reporting is not about perfection; it’s about demonstrating a solid understanding of the company’s sustainability context. Your report should:

• Reflect the current state of your company’s policies, risks, and impacts.
• Outline plans for improvement in areas that matter most.
• Show awareness of how your operations influence environmental and social outcomes, and viceversa.
• Demonstrate understanding of the interdependencies of internal and external factors with company's tipple bottom line.

This impplies to recognize that many risks and opportunities are shaped by factors beyond the company’s control, but could lead to drastic affectations to company's performance. Thus, transparency about internal mitigation strategies and external dependencies is key.

The goal is not to claim sustainability mastery but to communicate a credible journey toward improvement. Stakeholders, including buying customers, value honesty and actionable plans over polished narratives.

Why Double Materiality Matters

Double materiality is the lens through which companies should define their reporting scope. It prevents overstretching resources on less impactful topics and ensures that efforts are aligned with business priorities. By focusing on critical issues, companies can:

• Prioritize action: Drive meaningful progress in areas with the most significant impact.
• Streamline reporting: Avoid the pressure of over-reporting and reduce the burden of compliance.
• Enhance stakeholder trust: Provide decision-makers with the information they need to assess risks, opportunities, and alignment with their own priorities.

For example, while some topics may seem “nice to have,” stakeholders like investors and lenders are far more interested in material risks and opportunities that affect financial outcomes or influence their relationship with your company.

This is why companies should dedicate more time and resources to the materiality analysis: to ensure the most critical topics are appropriately identified and selected. A thorough materiality assessment helps avoid both over-reporting irrelevant information and misreporting key issues, allowing the company to focus on what truly matters for stakeholders and the business.

Tips for Effective CSRD Reporting

• Simplicity is Key: A concise report with actionable insights trumps a verbose document that drowns key messages in unnecessary detail. Transparency and simplicity will build trust.
• Substance Over Style: Avoid “stuffing” your report with flowery language. Focus on clearly communicating material topics, why they matter, and your company’s plans to address them.
• Align with Stakeholder Priorities: Material topics should align with what stakeholders care about—whether it’s risk mitigation, investment opportunities, supply chain resilience or alignment to their justice values.
• Plan for Improvement with Clear Prioritization: Stakeholders recognize that progress takes time, but they expect your company to demonstrate a clear understanding of risks, opportunities, and their urgency. Proper alignment of actions to the timeframes and severity of each topic is critical to building trust and credibility.
• Align Actions with Urgency: Stakeholders want assurance that your company’s actions address the most pressing issues effectively. While it may be tempting to downplay urgency compared to public opinion or global agreements, it’s essential to make a balanced assessment. Consider the global understanding of the issue, regional dynamics, and your company’s unique context.
• Use Credible Sources to Assess Risks: Start your prioritization by referencing frameworks like the World Economic Forum's Global Risks Report. This can help ensure your assessments are grounded in widely recognized risks while incorporating your company’s perspective for a well-rounded approach.
• Use Taxonomy Wisely: Make your report searchable by tagging information with taxonomy under XBRL, ensuring stakeholders can find what matters to them quickly.

A Word for Suppliers

If your business operates in a supply chain for larger companies already aligned with CSRD, your compliance is likely under scrutiny. Even if you are not mandated to make CSRD reporting, your customers might have specific requirements for you.

Many leading companies now evaluate suppliers based on sustainability performance and enforce strict “no-go” requirements. While financial considerations often remain a priority, ESG topics are increasingly recognized as financial risks. If these issues are critical to your customer, being the most cost-effective option may no longer guarantee selection as a supplier—or continued inclusion in their supply chain.

To avoid losing business, understand what is material to your customers:

• Identify and prioritize "no-go" requirements to align with these key expectations effectively.
• Focus on addressing critical criteria, such as meeting climate goals and ensuring decent work practices.
• Develop an action plan to demonstrate continuous improvement over time.
• Communicate progress transparently, even if you’re not yet fully compliant.

The Bottom Line

CSRD isn’t about ticking every box in the ESRS; it’s about focusing on what matters most to your business and stakeholders. By prioritizing double materiality, defining clear goals, and transparently communicating your journey, you’ll meet compliance requirements and build trust with investors, lenders, and partners.

The directive isn’t here to showcase perfection—it’s here to guide companies toward resilience and accountability. Remember, less is more, and quality reporting leads to better financial decisions for all stakeholders.

Do you need support in conducting a thoughtful and well-informed double materiality assessment?

At Together Tech, we understand the delicate balance between quality and quantity. We will guide your company through double materiality assessments to help identify and prioritize the most critical ESG issues for your business, to ensure your sustainability strategy aligns with key risks and opportunities, helping you meet regulatory requirements, build stakeholder trust, and focus on what truly matters. Let us help you make informed, impactful decisions to drive long-term success.

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