Market Insights 

A deep dive into CSRD and how you can prepare

In the ever-evolving landscape of corporate responsibility, the introduction of the Corporate Sustainability Reporting Directive (CSRD) by the European Union Commission  marks a pivotal shift. This legislative leap aims to heighten transparency and drive a significant surge in the disclosure of environmental, social, and governance (ESG) practices by companies. With robust, transparent and consistent disclosures the markets will have the necessary information to deploy capital to companies based on improved comprehensive ESG data.

With over 50,000 organisations worldwide bracing for its impact, the CSRD is not just a regulatory hurdle but an opportunity to redefine sustainability reporting. This blog post unpacks the CSRD and illustrates how Radiant AI can be your partner in managing your CSRD compliance.

Understanding CSRD

The CSRD, set to replace the EU’s Non-Financial Reporting Directive (NFRD), expands the ESG reporting requirements to a broader spectrum of companies. From 2025, large and listed companies must disclose detailed information on how their operations impact the environment and society at large, as well as how environmental and social issues affect their business. This initiative aims to provide stakeholders, investors and regulators with a comprehensive view of a company's sustainability efforts, risks, and opportunities. The CSRD’s technical rules known as the ESRS lay out what companies need to disclose and how. Disclosures on these topics will need to exist in annual reports alongside financials, and will also be subject to audit assurance.

CSRD and Double Materiality: Financial and Environmental Focus

Double materiality is a key concept introduced by the CSRD, which requires companies to report on both the impact of sustainability issues on their financial performance (financial materiality) and the impact of their activities on the environment and society (environmental and social materiality).

1. Financial materiality: Companies must disclose how sustainability risks and opportunities affect their business model, strategy, and financial performance. This includes assessing the potential financial impacts of climate change, social issues, and governance factors on the company's operations, assets, and liabilities.

2. Environmental and social materiality: Companies must also report on their external impacts on the environment and society. This includes disclosing information on greenhouse gas emissions, resource consumption, waste management, human rights, labor practices, and community engagement.

Who Needs to Comply?

If your company is large, listed on the EU stock exchange, operates in the banking or insurance sectors, or is a non-European entity with significant EU operations, the CSRD likely applies to you. It's estimated that the directive will extend its reach to over 50,000 companies, including those that have never before had to report their full carbon emissions. The CSRD will apply to EU-based public companies (only excluding micro-enterprises), alongside all EU-based private organisations considered to be “large”. This includes companies that that have two or more of (1) 250+ employees, (2) €50m+ annual revenues, (3) €25m+ balance sheet.

CSRD Requirements and Timeline

Under the CSRD, impacted companies will start reporting in 2025 based on their 2024 data. The requirements are extensive, covering a range of ESG practices as laid out by the ESRS, which detail the technical standards for disclosures. Companies will need to focus on double materiality—evaluating both their impact on society and the environment, and the reverse—to determine their reporting scope.

How does the CSRD fit in with other regulations?

1. The CSRD provides the foundation for sustainability reporting by companies, which in turn informs the investment decisions and disclosures made by financial market participants under the SFDR. Companies reporting under the CSRD will need to disclose how their activities align with the EU Taxonomy, providing investors with crucial information about the environmental sustainability of their investments.

2. The EU Taxonomy serves as a common reference point for both companies reporting under the CSRD and financial market participants disclosing under the SFDR. It helps companies identify and report on their environmentally sustainable activities, while also enabling financial market participants to assess the environmental sustainability of their investments and products.

3. The SFDR requires financial market participants to disclose how they integrate sustainability risks and consider principal adverse impacts, which will be informed by the sustainability information reported by companies under the CSRD. The SFDR's classification system for sustainable investment products (Articles 6, 8, and 9) will also be influenced by the EU Taxonomy and the sustainability data reported under the CSRD.

In summary, the CSRD, EU Taxonomy, and SFDR work together to create a comprehensive and transparent sustainable finance ecosystem in the EU. The CSRD ensures that companies provide reliable and comparable sustainability information, the EU Taxonomy provides a common framework for identifying environmentally sustainable activities, and the SFDR ensures that financial market participants disclose how they integrate sustainability considerations into their investment decisions and products.

Radiant AI: Your Partner in CSRD Compliance and Beyond

At Radiant AI, we understand the complexities and challenges that come with aligning your company's reporting with the CSRD and ESRS requirements. Our innovative solutions are designed to simplify this transition, offering support in several key areas:

Document Analysis and Management

Our AI-driven platform enables efficient scanning, analysis, and management of documents related to ESG reporting. By automating the extraction of relevant data and insights, we streamline the preparation of your CSRD disclosures, saving valuable time and resources.

Double Materiality Assessments Streamlined with AI

Our solution simplifies the double materiality assessment process, enabling you to quickly identify crucial topics from both financial and impact perspectives. This ensures that your reporting focuses on the areas of greatest significance to your company and its stakeholders.

A faster net zero transition with AI

We believe that by lifting the reporting, compliance and screening burden that sustainability professionals have to face, more time can be spent on crafting tailored net zero targets and actioning these strategies to make the move towards net zero. By introducing productivity tools to all sustainability professionals we help them focus on high-impact tasks, expediting our path to net zero.

Looking Ahead

The CSRD and ESRS represent a significant shift towards more transparent and detailed sustainability reporting within the corporate world. As companies prepare to navigate this new landscape, the need for efficient, reliable tools and expert guidance has never been greater. Radiant AI stands at the forefront of this change, offering solutions that not only ensure compliance but also empower companies to highlight their commitment to sustainability in a credible, standardised manner. In embracing these changes, companies have the opportunity not only to meet regulatory requirements but also to drive forward their own sustainability agendas, contributing to a more sustainable and responsible global economy.

Get in touch

If your an ESG consultant, finance professional or a sustainability manager looking to save significant time in carrying out double materiality assessments please do not hesitate to get in touch.