Why UK Companies Must Prepare for the Corporate Sustainability Reporting Directive (CSRD)

Who is the author of this article? Dr. Guido Wolf has been working as a management consultant, moderator, speaker, trainer and coach in the context of strategy and organisational development for large companies and globally operating corporations in various industries since 1990. In 1998 he founded conex: Institute for Consulting, Training and Management Support, based in Bonn. Against the backdrop of digital transformation, his projects focus on sustainability, change management, the management of internal communication and issues relating to quality and business excellence. The habilitated communication scientist passes on his experience as a private lecturer to students of communication science at the University of Duisburg-Essen. 

In 2019, Ursula von der Leyen, President of the European Commission (EU), presented the ambitious “Green Deal”. The aim of this comprehensive initiative is to reduce the European Union's net emissions to zero by 2050. The much talked about “Corporate Sustainability Reporting Directive (CSRD)”, adopted in December 2022, plays an important role in a web of diverse regulatory measures consisting of EU-wide directives, regulations and sometimes very detailed (technical) annexes.

Unboxing CSRD: content in a nutshell

The CSRD regulates sustainability reporting by companies from EU member states. The aim is to substantially increase transparency in environmental, social and governance (ESG) matters and ensure that companies disclose their sustainability practices in a comprehensive and standardised manner.

Attempts of “greenwashing” that still exist should become a thing of the past, and the obligation to report on sustainability will be significantly reduced. In Germany alone, there will soon be around 15,000 companies that will need to report on CSRD. By way of comparison, just over 100 companies and organisations in Germany are currently B Corp certified.

The most significant requirements of CSRD:

• Widening of the reporting obligation to include all large companies and listed SMEs if they fulfil 2 of 3 conditions: Balance sheet total > €20m and/or sales revenue > €40m and/or 250 employees + 

• Reporting must be compliant with the “European Sustainability Reporting Standards (ESRS)”, which prescribe detailed disclosures on environmental, social and governance (ESG) factors; in total, the ESRS comprise up to 1,200 data points on which a company must report 

• Carrying out a stakeholder-oriented double materiality analysis according to outside-in (what do external stakeholders and in particular stakeholders in the financial industry expect from us in terms of our commitment to sustainability) and inside-out (how do our corporate activities affect ESG factors) 

• The obligation to have the sustainability report evaluated by an auditor 

• No separate sustainability report: the sustainability information must be integrated into the management report. 

In short: the CSRD aims to provide investors, consumers and other stakeholders with reliable, comparable and verifiable sustainability information to enable them to make informed decisions. The focus is on the approval of loans, the determination of credit lines or the assessment of stock market value by rating agencies and professional investors. With the CSRD, sustainability becomes a central aspect of corporate strategy. This is precisely the intention of the “Green Deal”. 

 

 

Impact on European companies  

The impact of the CSRD together with the ESRS is enormous, especially with SMEs (small and medium-sized enterprises) affected for the first time.

• Significantly increased effort: The requirements of the CSRD require extensive data collection, analysis and processing. Many companies have to adapt their internal systems in order to collect and document ESG data in the required quality. This will lead to increased administrative and financial burdens, particularly for SMEs that have not previously carried out any or only limited sustainability reporting. Even those companies that already report in accordance with other standards such as B Corp or GRI (Global Reporting Initiative) will have to expand their sustainability information, in some cases considerably, in order to report in accordance with the ESRS. 

• Demanding transparency and disclosure obligations including the company's supply chain: Companies must disclose detailed information about their environmental impact, social responsibility and governance structures. This requires a detailed analysis of topics such as greenhouse gas emissions, biodiversity and waste management, employee rights, diversity, human rights issues and social commitment, as well as the principles of corporate governance - including the sustainability-related competencies of corporate management. Supply chain responsibility is also included. 

• Sustainability as a strategic necessity: The CSRD is making companies no longer view sustainability as an optional extra but as an integral part of their corporate strategy. In future, companies that do not meet ESG criteria will experience disadvantages when it comes to raising capital, accessing markets and their reputation. 

• Impact on investments and sources of financing: As investors increasingly value sustainable companies, ESG reporting will make it easier to raise capital. Conversely, companies with an inadequate sustainability strategy are likely to lose investors and lenders, receive poorer ratings from rating agencies or have to accept higher financing costs. 

Look towards the UK: be aware! 

At first glance, it would appear that companies from the UK and all other non-EU countries are not affected by the CSRD and the associated ESRS. Really? 

 

Well, as outlined above, the CSRD stipulates that a company's own supply chain must also be included in the analysis. This applies first and foremost to emissions data, which not only takes into account on-site emissions of greenhouse gases but also indirectly generated emissions, for example in the power plants where the energy is produced - and also the emissions generated in the upstream supply chain. In addition, the emissions caused by the use or consumption of the company's own products (e.g. by consumers) and in the course of the disposal or recycling of products that are no longer fit for use must also be taken into account. 

 

Supply chain responsibility will mean that non-EU companies will also be confronted with the requirements of the CSRD and ESRS sooner or later. This can already be observed in large companies that are already required to report in accordance with the CSRD. Even though the effort and scope of the data requirements are likely to be less than it is for a company subject to reporting requirements, British companies will be affected by the reporting obligations. 

 

Direct effect on corporate communication  

The CSRD is aimed at a report and a report is a communication output. The fact that the report must be integrated into the overarching management process does not change this. However, because every communication not only causes effort - in this case: quite a lot of effort - but also offers opportunities, we would like to highlight a few aspects that arise for corporate communication as a result of the CSRD. 

 

• Transparent and credible sustainability reporting: The CSRD obliges companies to present clear, complete and credible sustainability reporting. This requires close cooperation between sustainability and communications departments in order to present the collected data in an understandable and appealing way. 

• Adaptation of the communication strategy: Companies must adapt their communication strategies in order to integrate ESG issues prominently into their public presentation. This applies not only to traditional sustainability reports, but also to PR strategies, social media campaigns and investor relations. 

• Avoiding greenwashing: The mandatory external review of sustainability reports increases the risk of companies being exposed for misleading or inadequate information on sustainability (greenwashing). Companies must therefore ensure that their communication is based on actual, measurable and verifiable data. 

• Use of digital platforms for sustainability communication: It is envisaged that sustainability information will be uploaded to an EU-wide register so that it is accessible at a neutral location. In addition, digital channels and platforms such as company websites, social media and sustainability forums are playing an increasingly important role in ESG communication. Companies should increasingly use interactive and visual formats to make complex sustainability issues understandable for different target groups.

• Closer stakeholder communication: Increased demands require more intensive communication with stakeholders, including investors, customers, NGOs as well as employees and suppliers. Companies must ensure that their sustainability strategy is communicated consistently and that they can respond credibly to criticism.

Workshop-oriented live formats still have a largely unnoticed potential in sustainability communication. This is because they not only make it possible to inform stakeholders and bind them to the company. Workshop-based events in particular have the potential to involve relevant stakeholders in the company's own sustainability approach, resulting in new forms of cooperation. This could lead to the establishment of coherent sustainability networks that are oriented towards coordinated goals, joint strategies and coordinated data provision across supply chains with the involvement of financial service providers (who are essentially nothing more than service providers). AI-based solutions are expressly welcome. There are likely to be considerable opportunities for efficiency and effectiveness – in order to create a simplified and consistent data collection as well as relevant effects on improving sustainability. 

 

 

A look into the crystal ball: what will happen next? 

The Corporate Sustainability Reporting Directive marks a paradigm shift in the sustainability reporting of European companies. Ultimately, this results in a change of strategy. This is because the strict reporting obligations can only be fulfilled through a substantial further development of the corporate strategy. The internal structures and processes must follow and corporate comms should be in the lead. 

 

At present (I am writing this in February 2025), contrary to EU requirements, the CSRD has not yet been implemented through national legislation in many member states. Germany, unlike France, for example, is one of the countries in default and will probably still need some time. There are also increasing calls for the CSRD and the ESRS to be simplified. The postponement of effective implementation by one year is also being discussed. 

 

However, it can be ruled out that the Green Deal and therefore, the CSRD will be withdrawn. In any case many large companies have long since reacted and put a lot of effort into aligning their sustainability strategy and reporting with the new requirements. Their motives: better assessment by rating agencies, substantial improvement in employer attractiveness and employee loyalty and, of course, competitive advantages. We should therefore assume that there is no way back for corporate sustainability strategies and their external and internal communication: Too many resources have already been invested and the realization has long since matured that a consistent commitment to sustainability offers considerable opportunities - for the company as well as for the world we live in.

Companies that proactively implement the new requirements can not only minimize regulatory risks, but also secure long-term competitive advantages. Clear, transparent and credible ESG communication is becoming a key success factor.