In June of 2022, the EU took another step that demonstrates its leadership in global sustainability, with the adoption of the Corporate Sustainability Reporting Directive (CSRD). The CSRD, set to replace the current Non-Financial Reporting Directive, includes modifications on both the scope of businesses required to company with the Directive, and the depth of regulation. Adopted in November 2022 and becoming effective starting in 2024, the Directive standardizes sustainability reporting, responding to a major complaint of companies that are unsatisfied with the multiplicity of different reporting mechanisms. Standardization is just one of many groundbreaking changes brought about by the CSRD, with the most significant being the requirement of adherence for all large companies doing business in Europe.
The CSRD will require companies to publish information related to greenhouse gas emissions targets, corporate diversity, materiality, anti-corruption methods, and more. Additionally, the Directive requires companies to set annual targets and report on results.
The CSRD applies not just to companies organized in the EU. Non-EU businesses doing business in Europe will have to comply as well, which will require an “all-hands” approach. According to Chris Librie, senior director of ESG at Applied Materials, a US-based semiconductor company, “CSRD is pretty comprehensive [and] our ESG team is fairly small, so we will be reaching out to other divisions … [to take] a team approach to the CSRD process.”
An important feature of the CSRD is the introduction of “double materiality, which may bring into scope things… [not] considered,” according to Librie. Double materiality focuses two spotlights on companies: one on financial performance, and the other on stakeholder impact. Adding the second side of the coin, stakeholder impact, gives stakeholders who are making decisions about a company – like whether to work there, whether to buy from the company, and whether to participate in the company’s supply chain – critical visibility into ESG issues that were not previously brought to light.
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