Navigate or Drown? The CSRD Demands Action.

The sustainability transition is one of the greatest challenges of our time, and the European Union is taking a leading role with the Corporate Sustainability Reporting Directive (CSRD).

This new directive marks a fundamental change in how companies report on their impact on people and the environment. Where the focus was previously on financial reporting, the CSRD brings sustainability reporting to an equivalent level of importance and quality. This article delves into the core of the CSRD, explores which companies must comply, the reporting requirements, and how Microsoft’s and Intwo’s IT solutions can play a crucial role in this complex process.

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a new European rule. This rule modernizes and expands the rules for sustainability reporting. It succeeds the Non-Financial Reporting Directive (NFRD). The CSRD aims to improve the quality and reliability of sustainability information.

The goal is to provide investors and other stakeholders with insight into your company’s impact on people and the environment. This allows them to make better decisions. The CSRD should also encourage companies to adopt more sustainable practices.

A core concept within the CSRD is the principle of double materiality. This means that companies must report on:

• Material sustainability developments that can lead to financial risks for the company (financial materiality), such as resource scarcity and climate change.
• The company’s material impact on people and the environment (impact materiality), such as biodiversity loss and human rights violations in the value chain.

The CSRD requires companies to report according to the European Sustainability Reporting Standards (ESRS). These standards provide detailed guidelines on the specific information that companies must report regarding environmental, social, and governance aspects. This includes CO2 emissions, gender equality, working conditions, and relationships with suppliers.

Who must comply with the CSRD?

The CSRD applies to many more companies than the old rules. According to the Social and Economic Council (SER), there are recent developments in the application of the Corporate Sustainability Reporting Directive (CSRD) that affect which companies must comply with this directive in 2025.

1. Large companies already covered by the NFRD

These companies, such as listed companies, banks, and insurers with more than 500 employees, were already required to report under the Non-Financial Reporting Directive (NFRD). They are obligated to report according to the CSRD from the 2024 financial year, which means they must publish their first sustainability report under the CSRD in 2025.

2. Large companies not covered by the NFRD

Originally, large companies that meet two of the following three criteria: more than 250 employees, a turnover of more than €50 million, or a balance sheet total of more than €25 million, would have to report under the CSRD from the 2025 financial year. However, according to the European Commission’s recent ‘omnibus proposal,’ as discussed by the SER, it is proposed to raise the threshold to companies with more than 1,000 employees, in addition to a turnover of more than €50 million and/or a balance sheet total of more than €25 million. This proposal would mean that listed SME companies would no longer fall under the directive and that a total of 80% of companies would no longer be required to report.

3. Listed SME companies

Listed small and medium-sized enterprises (SMEs) would originally have been required to report under the CSRD from the 2026 financial year. However, with the new proposal, these companies would no longer be subject to the obligation, unless they choose to report voluntarily.

4. Non-EU companies

Companies from outside the EU are required to prepare a sustainability report if they meet certain criteria, such as a net turnover of more than €150 million within the EU, or if they have an EU subsidiary that qualifies as large.

It is important to emphasize that these changes are still proposals and subject to approval and implementation. It is advisable to closely monitor developments and prepare for any obligations in a timely manner. Even if your company is not directly subject to the CSRD, you may be affected by it. Large companies that do have to report may request information about your sustainability efforts.

What do you need to do for CSRD reporting?

The CSRD requires thorough preparation. These are important steps:

• Double materiality analysis: Determine which sustainability topics are important to your company and your stakeholders (involved parties). Consider your company’s impact and the financial risks and opportunities.
• Engage your stakeholders: Talk to key stakeholders to understand their views on sustainability. This helps with the analysis and reporting.
• Collect and manage data: You need to gather a lot of information (both figures and descriptions). Ensure you have good systems to do this accurately.
• Report according to the ESRS: Your report must comply with the rules of the European Sustainability Reporting Standards.
• Integrate sustainability into your report: The sustainability report becomes an integral part of your annual report.
• Report digitally (XBRL): You must submit the information digitally in XBRL format. The information must be structured in a way that computers can easily process it.
• Ensure external verification: An external accountant must verify your sustainability report.
• Consider the short and long term: Show what your impact and the risks and opportunities look like now and in the future. Also, report on your long-term goals and plans.
• Implement due diligence processes: Exercise due diligence in the areas of human rights and environmental protection within your own company and among your suppliers.

Good preparation is essential to comply with the CSRD on time.

How Microsoft’s IT solutions can help

CSRD reporting can be complex. Microsoft has several tools that can help you:

• Microsoft Cloud for Sustainability: This platform helps you collect, manage, analyze, and report your sustainability data according to the CSRD rules. It can process data from various sources. It has special templates and reporting tools. You can also integrate data from your suppliers. Azure’s cloud infrastructure is large enough to process a lot of data and is well-secured.
• Microsoft Purview Compliance Manager: This tool has a special template for the CSRD. It helps you understand the rules and check your compliance. It helps you assess risks, manage controls, and report to auditors. You can see how well-prepared you are for the CSRD.
• Sustainability data solutions in Microsoft Fabric: This allows you to create a clear overview of all your sustainability data. This improves accuracy and simplifies reporting. You can set up connections to import data and compare it with the CSRD requirements in Compliance Manager.
• Microsoft Power Platform and Dynamics 365 ERP: These tools can also be useful. Power Platform can help create custom apps for data collection and automating sustainability processes. Dynamics 365 ERP can contain important data on, for example, energy consumption and the supply chain, which are necessary for CSRD reporting and can be linked to Microsoft Cloud for Sustainability.

By using these Microsoft tools, you can make CSRD reporting more efficient and accurate. They help with managing data, reporting according to the ESRS, digital submission, and preparing information for the accountant.

Conclusion

The CSRD fundamentally changes sustainability reporting. Your company must be seriously committed to transparency and accountability in the areas of environment, society, and good governance. Implementation can be challenging, but it also offers opportunities to improve your sustainability strategy and create value.

Intwo is ready to guide you through this crucial transition. Our expertise in Microsoft’s IT solutions, including Microsoft Cloud for Sustainability, Power Platform, Dynamics 365 ERP, Microsoft Purview, and Microsoft Fabric, provides your organization with the tools to efficiently collect data, report accurately, and meet the stringent requirements of the ESRS. Discover how these powerful technologies not only ensure your compliance but also generate valuable insights that contribute to a more sustainable and successful future for your business.

Contact us now to take action.