As of December 2022, the CSRD has been tentatively agreed upon. Also, the ESRS is expected to be adopted by June 2023.
Under this situation, we provided an overview of the CSRD/ESRS series in the first article of the CSRD/ESRS Overview. The second article is a mapping of the ESRS and the GRI. Third, as the last of this series, we will outline practical preparation with the scope application for future reporting work that you can prepare for now.
You can get a CSRD/ESRS Guidebook, which has been compiled from the series of articles. Sign up here!
Preparing for a broader boundary of reporting requirements
The ESRS expands the required items and scope. Requires companies to capture and disclose activities and information throughout the value chain. In other words, reporting boundaries are fundamentally different from the current. Based on this premise, we recommend that companies prepare for 4 key challenges:
1, Gap Analysis
CSRD/ESRS requirements are read and compared with the items currently disclosed to identify gaps. Prioritize the gaps and make a list of activities and disclosures that companies can start right now. Formulating a short-, medium-, and long-term plan for disclosure at this stage will be more effective in the future.
2, Impact Analysis
The positive/negative impacts of the company on the environment and society are analyzed and evaluated, both actual and potential. A more detailed analysis of the actual impact (e.g., scale and scope) is required.
3, Governance Structure
Elevate the composition of the board of directors and management team in governance to a design consistent with sustainability principles. For example, implement management team skills, diversity, and compensation policies. Consider and install a structure that allows for the same level of consideration of risks and opportunities in each finance and impact (sustainability).
4, Test (Assurance) data quality
Once the data has been collected through the above efforts, have it reviewed by external assurance. Be prepared to address assurance now, for example, in a transition plan including Scope 1.2.3. as the CSRD requires reasonable assurance in the future.
Preparation Points with Scope application
Here is a summary of possible responses depending on the scope application.
Please note that the period and actions of preparation are tentative, as the European Commission (EC) will continuously update the regulations.
500 + Employees (Covered by the NFRD)
| FY | Actions | Covered by NFRD or CSRD |
| 2023 | – According to NFRD – Start doing above 4 key challenges – Prepare for collect all relevant docs for CSRD – Start assessing your entire value chain | NFRD (24′ report) |
| 2024 | – Collect all relevant docs for CSRD – Continues to do above 4 key challenges accordingly – Follow legislative updates – Report according to CSRD | CSRD (25′ report) |
| 2025 | – Collect all relevant docs for CSRD – Continues to do above 4 key challenges accordingly – Follow legislative updates – Report according to CSRD | CSRD (26′ report) |
250 + Employees (All EU companies 2 of three criteria)
| FY | Actions | Covered by NFRD or CSRD |
| 2023 | – Start assessing measures and process for sustainability reporting – Start considering of above 4 key challenges accordingly – Follow legislative updates | N/A |
| 2024 | – Start implementing measures and process for sustainability reporting (Non-disclosure companies) – Start doing above 4 key challenges – Prepare for collect all relevant docs for CSRD – Start assessing your entire value chain – Follow legislative updates | N/A |
| 2025 | – Collect all relevant docs for CSRD – Continues to do above 4 key challenges accordingly – Follow legislative updates – Report according to CSRD | CSRD (26′ report) |
| 2026 | – Collect all relevant docs for CSRD – Follow legislative updates – Report according to CSRD | CSRD (27′ report) |
Listed SMEs, small and non-complex credit institutions and captive insurance undertakings
| FY | Actions | Covered by NFRD or CSRD |
| 2023-2025 | – Follow legislative updates (SME-specific sector-agnostic standards being developed) | N/A |
| 2026-2028 | – SMEs can opt out during the transition period and are exempt from the Directive until 2028 | N/A |
As large companies will ask SMEs about ESRS requirements (e.g., Scope 3, working conditions, etc.) through their supply chain, it is essential to remember that SMEs companies that can opt-out are obligated to collect information about the sustainability of their value chains.
Also, although unlisted SMEs are not subject to CSRD, their voluntary sustainability activities and reporting could be an incentive for them to develop into other unlisted SMEs, in the same industry or even to go public in the future.
Non-European companies
Companies with subsidiaries or branches in Europe meet at least one or more of two criteria. These standards are to be adopted by 30 June 2024 by the EC through delegated acts.
| FY | Actions | Covered by NFRD or CSRD |
| 2023 | – Follow legislative updates – Start considering of above 4 key challenges accordingly | N/A |
| 2024 | – Follow standard adoption updates – Continues to consider above 4 key challenges accordingly – Start researching for Local organizational structure, knowledge of personnel, cost to assurance, etc. | N/A |
| 2025 | – Continues to consider above 4 key challenges accordingly – Continues to research for Local organizational structure, knowledge of personnel, cost to assurance, etc. | N/A |
| 2026-2027 | – Start doing above 4 key challenges accordingly – Try to decide how local organizational structure based on previous research result – Prepare for collect all relevant docs for CSRD – Start assessing your entire value chain | N/A |
| 2028 | – Continues to do above 4 key challenges accordingly – Collect all relevant docs for CSRD – Follow legislative updates – Report according to CSRD | CSRD (29′ report) |
Towards the new era of reporting
Finally, increasing the requirements and broadening the boundaries of reporting required by laws and regulations can be an opportunity for companies.
It is crucial to develop the organization toward sustainability so that the organization itself can meet the requirements rather than being driven only by data collection based on the requirements. The 3 keys development points are:
| Redefining Corporate Sustainability | Transit from single materiality to double materiality and rethink what true sustainability is in your organization. |
| Thinking and acting as a set of financial and sustainability issues | Involve sustainability-related departments across company divisions in discussions; CFO and CSO always work together to discuss and work on strategies, plans, and previously separate issues. |
| Establishing a consistent of processes from activities to reporting | Building a systematic activity and disclosure process to help companies mitigate all risks and create organizational resilience in a volatile century. |
The outcomes envisioned through these developments are:
Cultivating every employee for sustainability
From discussing new initiatives to collecting data, building internal collaboration and mutual understanding will deepen the sustainability of every employee.
Creating comparability and transparency
Companies that disclose in good faith, especially about materiality, by clarifying their responsibilities can avoid fines, sanctions, and the reputational damage that can come with them.
Letting capital to sustainable investments
More capital is steered to companies with the correct data, proactively disclose it and respond with integrity.
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