Unlocking the EU CSRD: What key clarifications do businesses need?

In 2022, the European Union’s (EU) approval of the Corporate Sustainability Reporting Directive (CSRD) marked a pivotal step towards enhancing transparency, standardisation, and impact in corporate sustainability reporting. Replacing the Non-Financial Reporting Directive, the CSRD expands its scope by over fourfold to encompass more than 50,000 companies, demanding significantly more thorough ESG reporting from each of them through the granularity and breadth of its requirements.

The EU’s ambition when launching CSRD was to boost accountability and transparency among these firms and foster a positive impact by enabling improved decision-making through comprehensive data-driven insights. Nevertheless, as the first enforcement year approaches in 2025, there are still gaps and ambiguities in the legislation that require further clarification to enable companies to understand best practice and allow the CSRD to reach its full potential.

This was evidenced in a recent early adopter analysis by the University of Cologne, which spoke to the gap between common- and best-practice. Amongst the early adopters, the research discovered vast inconsistencies in:

• The scope of standards that companies are reporting on,
• Companies are defining materiality thresholds,
• How they are presenting the data, and
• What topic level the standards are being reported on (i.e. topic vs sub-topic vs. sub-sub topic).

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The research also found that many new CSRD reporting requirements not seen in previous frameworks, including certain quantitative data points and areas like community impact, water usage, and pollution, have been addressed by few adopters, again underscoring the gap between the intended and reality of CSRD reporting. With more and more firms due to be mandated in the next two years, it is evident that the European Financial Reporting Advisory Group (EFRAG) needs to set clear parameters and guidance around CSRD to enable optimal transparency, consistency and comparability in how companies approach disclosure.

Given this ambiguity, we have drawn upon our extensive CSRD experience and analysed industry trends to pinpoint five critical questions that EFRAG and companies need to answer to help them navigate the legislation more effectively.

01 How to set materiality thresholds with no clear guidance?

A frequently encountered issue among companies is the lack of guidance on materiality thresholds. This ambiguity allows companies to independently determine which topics are material or not, consequently leading to varied interpretations of which European Sustainability Reporting Standards (ESRS) topics and sub-topics to report on. The absence of clear guidance on threshold setting and materiality scoring will likely yield disparate and eye-opening results from companies reporting under CSRD for the first time. Similar companies may interpret materiality differently, even within the same sector or region, resulting in inconsistent disclosures. This inconsistency will generate confusion and disparity rather than clarity for stakeholders relying on CSRD reports for accurate and reliable decisions.

Many stakeholders have advocated for the establishment of sector-specific materiality ‘baseline topics,’ analogous to the approach used by SASB. These baseline topics would provide a standardised framework, guiding firms on how to interpret what a material topic is or not.

02 What will the sector-specific standards look like?

The delay of sector-specific standards until 2026 stemmed from the substantial reporting burdens of sector-agnostic standards. While this postponement alleviates immediate pressures, the lack of clarity about the forthcoming standards poses significant challenges. Companies will struggle to plan and allocate resources without knowing what the new standards will entail.

A major concern is the ambiguity surrounding the sectors to be included. While the EU Taxonomy offers initial insights into which sectors may be included, businesses require definitive clarity well in advance of 2026 to properly prepare. Moreover, EFRAG has yet to provide guidance on how companies with diverse operations should map to the standards—specifically, whether they must report against multiple sector standards or only their primary industry. EFRAG must address these critical questions to deliver transparent and reliable guidance for businesses gearing up for sector-specific standards.

03 What happens if some countries don’t transpose the legislation in time?

Another significant complication has arisen from the failure of several EU member states to transpose the CSRD into national legislation by the prescribed deadline. While countries like France, Sweden, and Denmark have proactively transposed the directive ahead of schedule, seven jurisdictions have missed the deadline or made no progress in Parliament towards meeting the CSRD requirements. As of July 2024, these countries include Spain, Portugal, Greece, Austria, Belgium, Croatia, and Malta.

This situation raises questions for numerous businesses headquartered in these regions about whether they will be mandated to comply with CSRD requirements within the originally planned timelines. It is widely acknowledged that best practice would be for these companies to report according to the EU’s established timelines regardless of local legislative delays. However, given that CSRD to date has largely been perceived as a compliance and risk mitigation exercise, there is a concern that companies could exploit these delays to avoid accountability. Such actions could undermine the effectiveness of the legislation and its intended impact.

04 Who should take ownership and accountability for CSRD reporting?

While EFRAG needs to address a number of questions, businesses must also ensure that their teams are set up to deliver on CSRD. Internally, companies need to address the question of which internal team(s) should own and take accountability for delivering on CSRD compliance. The lack of clear guidance and direction has left companies grappling with significant uncertainty. In some organisations, accountability falls to the Finance team, which may not have a thorough understanding of sustainability risks, impacts, and opportunities. In others, the responsibility is placed on the Sustainability team, which often operates with limited resources and support.

This ambiguity in guidance and accountability leads to inconsistent and fragmented approaches to CSRD preparedness. While there may be no one-size-fits-all solution for structuring internal accountability, it is evident that achieving CSRD compliance is a cross-functional (and sometimes cross-regional) endeavour. The current ambiguity surrounding CSRD can be more effectively navigated if managed as part of a cross-functional taskforce. Essential contributions from Risk, Compliance, Operations, Audit, Legal, and Marketing teams are crucial to ensuring a comprehensive and accurate reporting process that better integrates sustainability throughout the business.

05 How to move CSRD out of the reporting corner?

Finally, it is crucial for companies to view the CSRD not merely as a compliance exercise but as a strategic tool. While the vast array of requirements may initially seem burdensome, they provide unparalleled data insights into a company’s ESG performance. This wealth of information will enable more informed sustainability decision-making and help guide a company’s strategic direction with concrete, evidence-based insights rather than assumptions.

At Robertsbridge, we advocate for CSRD preparedness exercises that emphasise this strategic dimension. While achieving compliance remains the primary goal, we go further by analysing the data generated from these reporting exercises to unlock sustainability insights that drive business growth and strategy development. Whether it involves leveraging detailed ESG data to identify new markets, customer segments, or key topics for revenue growth or developing strategies to mitigate potential negative impacts and ensure business stability, CSRD provides a valuable framework for making informed, strategic decisions. It is essential for EFRAG and other key stakeholders to enhance their communications on the purpose of CSRD, making these strategic benefits clear to foster a significant shift in how companies approach the exercise.

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If you would like information on the services we provide regarding the EU CSRD and any other reporting regulations, please contact a member of the Robertsbridge team.