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On Wednesday, August 1, we officially exhausted all of Earth's resources allocated for the year, with five months still remaining. Humanity's consumption rate is 1.7 times faster than the Earth's ability to regenerate its resources, which means that we are using the resources of 1.7 planets. Therefore, sustainability is no longer a choice but a necessity, making the Corporate Sustainability Reporting Directive (CSRD) crucial for businesses aiming to thrive.
The CSRD is a groundbreaking initiative by the European Union (EU) and part of the European Green Deal, designed to enhance transparency and accountability in corporate sustainability reporting.
The new rule will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment. For instance, investors should assess the financial risks and opportunities arising from climate change and other sustainability issues.
Also, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.
Scope
The CSRD impacts various types of businesses based on their size and listing status. Initially, it affects large firms that were already subjected to the Non-Financial Reporting Directive (NFRD). It will then extend to other large firms, and eventually to listed SMEs.
CSRD report
Companies subject to the CSRD must report based on the European Sustainability Reporting Standards (ESRS), which are developed in a draft form by the EFRAG.
Key Requirements:
What is the double materiality?
Double materiality is a crucial concept in the CSRD that guides companies on what sustainability information to include in their reports. This approach ensures comprehensive and effective reporting by considering both sides of sustainability impacts. It involves two main perspectives:
Understanding what data is important involves evaluating both how sustainability matters impact the business and how the business impacts people and the planet. This approach ensures that all relevant factors are considered, from supplier locations to the risks associated with specific commodities.
CSRD timeline
The CSRD is a well-planned and strategically executed initiative. To facilitate a smooth transition and give businesses sufficient time to adapt, the EU has established a clear timeline for its implementation. Here's a brief overview:
CSRD and CSDDD (or CS3D):
The Corporate Sustainability Due Diligence Directive (CSDDD/CS3D), aims to promote sustainable and responsible corporate behavior in companies' operations and throughout their global value chains. Both the CSDDD and the CSRD are part of the EU's initiatives to enhance sustainability and corporate responsibility. These directives complement each other, working together to improve reporting and due diligence standards for companies operating in the EU, thereby increasing transparency and accountability in corporate sustainability practices.
Differences:
The CSDDD focuses on ensuring that companies take concrete actions to reduce or prevent harmful effects on the environment and human rights. It mandates that companies conduct due diligence to identify, assess, and address risks related to human rights and environmental issues throughout their supply chains. By requiring companies to implement due diligence processes, the CSDDD aims to ensure that they actively work to mitigate negative impacts.
In contrast, the CSRD aims to ensure consistent reporting of ESG performance, giving stakeholders a complete and easily understandable view of a company's sustainability performance. It enhances the quality and scope of sustainability reporting by requiring companies to disclose detailed information about their sustainability practices, risks, and impacts. By establishing guidelines and standards for sustainability reporting, the CSRD increases transparency and accountability.
Embracing Finboot technology for compliance
Achieving CSRD compliance requires collecting data from suppliers, operators, and partners, which can be challenging. To streamline this process, a secure, efficient system for data sharing and management is essential. The EFRAG has expressed their encouragement for businesses to initiate their compliance efforts promptly and to consider integrating technological innovations into their approaches.
Blockchain technology supports compliance by ensuring transparency and traceability across complex supply chains. It captures detailed data on assets, including environmental impacts and responsible sourcing.
Finboot’s MARCO Track & Trace platform enhances green supply chain management by integrating blockchain technology. Key applications in MARCO’s system include: Digital Product Passport (DPP), which offers end-to-end supply chain visibility, asset digitalisation, and tracking; Mass Balance, which ensures traceability of circularity and renewables and manages sustainability credits to support ESG claims; and Smart Contracts, which facilitate invoice reconciliation for supplier communications and automated business rule validation. These applications help companies address climate impacts and meet regulatory requirements effectively.
Moreover, if you are interested in learning more about CSRD, download our free ebook,Navigating CSRD and ESRS: Early Compliance and Digitalization are Key.
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