December 19, 2024
Explore the key requirements of the Corporate Sustainability Reporting Directive and how MuchSkills can support your journey.
The Corporate Sustainability Reporting Directive or CSRD is a European legislation that requires EU businesses and non-EU businesses with significant operations in the EU to report on both the impact of their business on people and the environment, as well as how sustainability-related factors affect their business operations and performance.
The CSRD replaces and expands upon the Non-Financial Reporting Directive (NFRD) by significantly broadening the scope of companies required to report, mandating more detailed and standardized disclosures.
It introduces the concept of double materiality, which is central to the directive, requiring companies to report on both how sustainability issues affect their financial performance (financial materiality) and how their operations impact the environment and society (impact materiality).
Additionally, the CSRD introduces stricter assurance requirements, obligates companies to align with the European Sustainability Reporting Standards (ESRS), and integrates sustainability reporting into the broader framework of annual management reports.
Under the CSRD, all disclosures are required to be audited by a third party, initially satisfying ‘limited assurance’ requirements and then progressing to ‘reasonable assurance.’
The CSRD was introduced to improve the transparency, comparability, and reliability of sustainability data across the EU. This is essential for enabling stakeholders – such as investors, analysts, policymakers, and consumers – to make well-informed decisions and hold companies accountable for their environmental, social, and governance (ESG) practices. By providing consistent, high-quality sustainability reporting, the CSRD aims to align corporate actions with the EU’s ambitious climate, environmental, and social goals, supporting the transition to a more sustainable economy.
The CSRD was conceived after a 2021 assessment by the European Parliamentary Research Service identified several shortcomings in the NFRD, which the CSRD has replaced. These included a lack of consistent and comparable data, which made it challenging for stakeholders to accurately evaluate sustainability performance.
The CSRD addresses these issues by enhancing the disclosure process, ensuring that ESG data is more reliable and easier to understand. It also broadens access to essential sustainability information by extending reporting requirements to a wider range of companies, including listed small- and medium-sized enterprises.
The legislation applies to around 50,000 companies both inside and outside the EU with each starting reporting in phases from 2025 to 2029.
Briefly, these include:
For more details, read more here and here.
Under the CSRD, companies must report on a wide range of sustainability topics using the European Sustainability Reporting Standards (ESRS). The ESRS outline the metrics and methods for companies to disclose their environmental, social, and governance (ESG) impacts and risks, ensuring consistent and comparable sustainability disclosures across sectors. Rooted in the principle of double materiality, companies must report on how sustainability issues affect them and how their operations have an impact on society and the environment.
While all companies subject to the CSRD must adhere to the general standards, the applicability of some specific disclosures may depend on the company's materiality assessment. This ensures that reporting remains relevant and focused on the ESG topics most significant to a company’s operations and stakeholders. The mandatory nature of these standards aims to create consistency and comparability across sustainability reports, improving transparency and accountability for businesses subject to the CSRD.
There are 12 sector-agnostic ESRS standards – 2 are cross-cutting standards and 10 are topical Environmental, Social and Governance or ESG standards. Together, these standards provide the foundation for robust sustainability reporting, enabling stakeholders to assess a company’s ESG performance and its alignment with the EU’s sustainability goals.
ESRS S1, which focuses on "Own Workforce," is a critical component of the social standards, addressing issues such as employee diversity, fair wages, and working conditions.
Importantly, the CSRD mandates companies to prepare their reports in XHTML format, ensuring they are accessible and human-readable. Within these XHTML reports, key data points must be tagged using XBRL (eXtensible Business Reporting Language). This approach embeds machine-readable XBRL tags into the XHTML structure, allowing for automated data extraction and analysis while maintaining a readable report format for stakeholders.
The disclosures must also be auditable, meaning both the reported data and the processes used to generate and manage the data must meet verifiable standards. The methodologies, data collection systems, and internal controls must be transparent and robust enough to withstand scrutiny from third-party auditors, similar to the audit processes for financial statements.
As organisations navigate the CSRD, collecting the data to meet its specific disclosure requirements can be complex.
A recent PwC survey highlights that the biggest obstacle to CSRD implementation is data availability and quality, with 59% of companies identifying it as a major challenge. Other barriers to successful CSRD compliance include staffing constraints and the need for technology investments. These findings underscore the importance of reliable tools to meet reporting requirements efficiently particularly given the directive's demands for detailed and accurate sustainability data.
In this context, MuchSkills can assist organisations in navigating CSRD in general as well as with a specific focus on ESRS S1 – disclosures related to the "Own Workforce."
MuchSkills is a skills management platform and strategic workforce planning solution that drives success by aligning employee skills with work to be done. It can help you visualise, track and report key workforce metrics including composition, training and development, employee engagement, among other things.
Overall, in the context of CSRD-mandated ESRS reporting, MuchSkills can help with:
MuchSkills and ESRS S1 (Own workforce) disclosures.
MuchSkills can help organisations streamline and simplify the compliance process by providing relevant workforce data and insights, particularly for the ESRS-S1 disclosures mentioned below:
S1-6: Description of key characteristics of employees in the undertaking’s own workforce
S1-7: Description of key characteristics of non-employees in the undertaking’s own workforce
S1-13: Information on the extent to which training and skills development are provided to the undertaking’s employees
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Visionary leaders will recognise that the CSRD is more than a compliance obligation – it’s a key opportunity to integrate sustainability into the heart of their business strategy.
By embracing the CSRD as a transformative initiative, organisations can unlock significant value-creation opportunities. When sustainability becomes a core component of strategic planning, the process of collecting and reporting data evolves from a regulatory necessity to a powerful decision-making tool. This shift enables leaders to move beyond mere compliance, leveraging sustainability insights to drive growth, foster innovation, and build a resilient, future-ready business.
However, navigating its requirements comes with challenges, particularly around data. The need for detailed, organisation-wide data – much of which may not have been collected before – presents a significant hurdle. Often, existing data is scattered across different systems, making it crucial to establish a robust data foundation early. This ensures compliance readiness and avoids last-minute scrambling when reporting deadlines arrive.
Equally important is ensuring your organisation doesn’t lose sight of the bigger picture. The reporting process should aid, not overshadow, your broader sustainability efforts. Investing in the right resources, from securing data systems to bringing in experts, will help your organisation meet these challenges efficiently. Addressing the growing talent shortage by equipping your workforce with the necessary skills and knowledge will also be critical for long-term success.
By focusing on actionable steps such as securing buy-in across the business, setting measurable goals, and starting preparations immediately, organisations can turn CSRD compliance into a strategic advantage. With a solid data foundation and the right resources, the CSRD can be an opportunity to drive meaningful change, ensuring not only compliance but also long-term resilience and success for your business.
Here are some top tips to ensure successful CSRD compliance:
By taking these proactive steps, you’ll not only meet compliance requirements but also position your business to thrive in a sustainable future.
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