European Union Corporate Sustainability Reporting Directive (CSRD)

What is Corporate Sustainability Planning?

Corporate Sustainability Planning is a strategic approach businesses use to operate responsibly in environmental and social aspects while maintaining economic viability. It involves embedding sustainability into core strategies, operations, and culture to create long-term value for the company, stakeholders, and society. This approach aims to ensure long-term profitability and growth by minimising environmental impact, enhancing operational efficiency, and improving brand reputation. It fosters innovation in sustainable products, opens new market opportunities, ensures regulatory compliance and mitigates risks. Additionally, it creates a workplace culture that values sustainability, leading to higher employee satisfaction, engagement, and retention.

Such sustainability planning can be drawn down into five key components:

Environmental Management:?Implementing practices that reduce the environmental impact of the company’s operations. This includes reducing greenhouse gas emissions, managing waste, conserving water, and improving energy efficiency.

Social Responsibility:?Ensuring the company operates ethically and contributes positively to society. This encompasses fair labour practices, community engagement, and ensuring diversity, equity and inclusion within the workplace.

Economic Viability:?Ensuring the company remains profitable and competitive while pursuing sustainability goals. This involves innovative business models, sustainable product development, and long-term financial planning.

Stakeholder Engagement:?Actively involving stakeholders, including employees, customers, suppliers, investors, and the community, in the sustainability journey. This involves transparency, regular communication, and incorporating stakeholder feedback into sustainability strategies.

Compliance and Risk Management:?Ensuring adherence to relevant regulations and standards, and proactively managing risks associated with environmental and social issues. This includes staying ahead of regulatory changes and anticipating future sustainability challenges.

What is the EU Doing to Promote Sustainability Planning

The European Union is promoting Corporate Sustainability Planning through various policies and initiatives aimed at fostering responsible business practices and sustainable growth. The EU encourages companies to integrate environmental, social, and governance (ESG) considerations into their business strategies. This includes setting clear sustainability goals, improving resource efficiency, and reducing carbon footprints. The EU supports innovation in sustainable technologies and green finance, offering funding and incentives for businesses to adopt eco-friendly practices. Additionally, the EU emphasises the importance of transparency and accountability, encouraging companies to disclose their sustainability efforts and impacts. By creating a regulatory framework and providing guidance, the EU aims to drive a transition towards a more sustainable and resilient economy.

The Corporate Sustainability Reporting Directive (CSRD)

The CSRD, which came into force on January 5, 2023, represents a significant update to the EU’s corporate sustainability reporting framework and a strong move to hasten the agenda of resilience and sustainability. This directive modernises and strengthens the rules regarding the social and environmental information that companies must disclose. It applies to a wider range of companies compared to its predecessor, the Non-Financial Reporting Directive (NFRD), including large companies, listed SMEs, and certain non-EU companies that generate significant revenue within the EU.

The CSRD aims to provide investors and other stakeholders with the information necessary to assess the impact of companies on people and the environment, as well as to evaluate financial risks and opportunities related to climate change and other sustainability issues. This is achieved through mandatory reporting according to the European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG) and tailored to align with EU policies while contributing to international standardisation efforts. (More on these below.)

Under the new directive, companies must report on a comprehensive set of sustainability topics, including environmental matters, social and employee issues, human rights, anti-corruption and bribery. Reports must be both qualitative and quantitative, covering past performance and future outlooks, and must be included in the company’s management report, typically part of the annual report. The information provided needs to be verified by an independent assurance service to ensure accuracy and reliability.

The directive also introduces the concept of ‘double materiality’, requiring companies to report both on how sustainability issues impact their business and how their operations affect society and the environment. This dual perspective ensures a more holistic view of a company’s sustainability performance.

The CSRD is expected to affect approximately 50,000 companies, representing around three-quarters of all businesses in the European Economic Area. This includes large companies, listed SMEs (with some transitional provisions allowing opt-out until 2028), and non-EU companies with significant operations in the EU. By harmonising sustainability reporting standards and reducing reporting costs over time, the CSRD aims to facilitate sustainable investment and promote a greener, more resilient economy.

The first companies will need to comply with these new rules starting in the 2024 financial year, with reports published in 2025. This phased implementation allows companies to prepare and adapt to the new requirements, ensuring a smooth transition towards enhanced sustainability reporting.

How do you see the CSRD impacting businesses in your industry? Are there particular challenges or opportunities you think companies should prioritize in their sustainability strategies?

The European Sustainability Reporting Standards (ESRS)

These standards form a crucial part of the CSRD, setting detailed requirements for corporate sustainability disclosures and are designed to align with EU policies and contribute to global sustainability reporting efforts. They are divided into general standards and those that are topic specific.?

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The Digital Services Act: Purpose – Scope – Impact

The Need for Regulation The Digital Services Act (DSA) emerged in response to the rapid expansion of digital platforms and the complex challenges they pose for transparency, accountability and user safety. As online services increasingly shape public discourse and commerce, the need for robust regulation to manage illegal content, misinformation and platform accountability became clear. However, developing the DSA involved navigating diverse perspectives from tech companies, policymakers and civil society, each with competing interests around free speech, privacy and corporate responsibility. Balancing innovation with user protection required careful deliberation, as regulators sought to create a framework that would address the risks of the digital space without stifling growth or restricting fundamental rights. The DSA represents a significant step toward defining responsibilities in a digitalised society.

Aims and Categories The DSA aims to create a safer, more transparent online environment across the EU by setting clear responsibilities for digital service providers. Its primary goals are to combat illegal content, improve user protection and enhance platform accountability. It establishes a framework to regulate platforms based on their role, size and potential societal impact, with ‘online intermediary services,’ ‘hosting services,’ and ‘online platforms’ as key categories.

Online intermediary services include infrastructure providers like internet access and domain hosting, while hosting services refer to entities that store data for users, such as cloud providers. Online platforms, encompassing social media and marketplaces, interact directly with users and are therefore subject to more stringent regulations. Within these categories, the DSA introduces the concept of ‘very large online platforms’ (VLOPs) or ‘very large online search engines’ (VLOSEs)—platforms or search engines with over 45 million EU users—requiring them to take additional measures for risk management and transparency. By differentiating these categories, the DSA seeks to apply proportionate responsibilities, emphasising transparency, accountability and the safeguarding of users’ rights across digital services.

Scope, Coverage and Implementation The scope of the Digital Services Act (DSA) applies to a wide array of digital services operating within the EU, regardless of where the service provider is based. This means that the DSA affects both EU-based and international companies providing services to EU users, extending its influence well beyond EU borders. Any online intermediary, hosting service or online platform that offers services to EU residents must comply, ensuring that digital service standards are consistently upheld for all users within the EU.

In terms of coverage, the DSA imposes additional requirements on VLOPs and VLOSEs with over 45 million active users in the EU. These platforms are subject to stricter obligations related to risk management, transparency and accountability due to their significant impact on public discourse and safety.

The DSA took effect in November 2022, with full obligations for general compliance starting on February 17, 2024, for most platforms. For VLOPs and VLOSEs, compliance deadlines were sooner, as these entities were required to meet core requirements starting in August 2023. This tiered rollout was intended to ensure that platforms of varying sizes and societal impacts could integrate the DSA’s rules responsibly and sustainably.

The DSA establishes rules that reshape how users, businesses and platforms operate within the EU digital ecosystem, aiming for greater transparency, accountability and safety.

For Users

The DSA introduces stronger protections for users by granting them greater control over their online experience and improving transparency around platform operations. Users can now report illegal content, such as hate speech or counterfeit products, with clear mechanisms for timely responses from platforms. Additionally, the DSA requires platforms to disclose how algorithms prioritise or recommend content, empowering users to understand the factors shaping their online experiences. For example, a user on a social media platform may see options to adjust their feed preferences, minimising exposure to certain content or sources. The DSA also prohibits targeted advertising based on sensitive personal data (e.g., ethnicity, religion), enhancing user privacy.

How do you think these new rules under the DSA will impact your business or the platforms you use? Share your perspective on the challenges or opportunities you foresee.

For Businesses The DSA’s rules affect businesses that advertise or sell products on online platforms, aiming to reduce counterfeit and unsafe products. Businesses must provide proof of product authenticity, contact information and relevant certifications to platforms to list products or services. For example, Amazon sellers must comply with stricter verification processes, ensuring that products meet EU standards. This transparency helps build user trust but also increases operational responsibilities for businesses. Furthermore, advertising businesses are affected by transparency requirements that mandate platforms to label ads clearly, indicating who paid for them and why they were shown to specific users. This measure ensures that ads meet ethical standards and improves accountability in online marketing.

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