From carbon emissions to equality and working conditions – CSRD tightens the requirements for how companies report their impact on people and the environment. But what does the new sustainability directive mean in practice? Which companies are affected? And what role does HR play in all of this? Here are your answers!
Green, climate-smart, and circular. Ethical supply chains and fair working conditions. Sustainability has never been talked about as much as it is now. Do you, like many others, find it tricky to navigate through a jungle of abbreviations and concepts? Wondering what your company will need to report, and when? In this article, we'll do our best to straighten out your question marks around sustainability reporting, focusing on the new CSRD directive.
What is CSRD?
First things first: what does CSRD mean? CSRD stands for the Corporate Sustainability Reporting Directive and entails stricter requirements on how companies report their environmental and social impact. The directive replaces the previous framework for sustainability reporting in place since 2014 and is part of the so-called European Green Deal, aiming for the EU to be climate-neutral by 2050.
On May 29, 2024, the Swedish Parliament passed new rules on sustainability reporting (in Swedish) implementing CSRD into Swedish law, effective from July 1, 2024.
Wat is the purpose of the new rules?
Comparing apples to oranges. That's a way to describe the problem with the current state of sustainability reporting, something the EU now intends to address. Until now, there's been a lack of a standardized template for what a sustainability report should contain, allowing companies to essentially choose what to include (or not include).
With CSRD, however, the idea is that all companies will measure and present the same key figures in a more uniform way (even if requirements will differ slightly between sectors). By separating apples from oranges, it becomes easier for investors, customers, and the public to compare how different companies perform when it comes to sustainability.
Do all companies need to report according to CSRD?
No, the requirements don't apply to all companies, but significantly more than before. Unlike the previous NFRD framework, which mainly covered the largest companies, CSRD will also include more medium-sized companies based on size and turnover. The first Swedish companies will start reporting in 2025 for the year 2024, initially those already covered by NFRD. For medium-sized companies, it may take longer, depending on when they meet the CSRD thresholds.
These deadlines apply:
- For the largest companies (over 250 employees or turnover over 40 million euros): Reporting requirements from the fiscal year 2024, with the first reporting in 2025.
- For medium-sized companies (50–250 employees or turnover 10–40 million euros): Depending on specific thresholds, reporting may be required from the fiscal year 2026 or later.
What needs to be reported?
Climate and environment – that's probably what most associate with the word sustainability. At the same time, you might be somewhat familiar with the term ESG – an abbreviation indicating that sustainability is a much larger issue. ESG stands for Environmental, Social and Governance. These three areas are the focus of CSRD reporting, so let's take a closer look at each of them:
- Environment: This includes climate change, pollution, water and marine resources, and biodiversity.
- Social Responsibility: This encompasses equality, diversity, human rights, equity, and working conditions throughout the company's operations.
- Corporate Governance: Questions regarding, for instance, the role and composition of the board, efforts against corruption and bribery, compliance with regulations, and due diligence – the process of evaluating a company during a merger or acquisition.
What Are the Major Changes in CSRD?
That tougher rules for corporate sustainability efforts are coming is clear – but what exactly is new in CSRD? Here are the key points to be aware of:
- Broader coverage: Previously, reporting was often voluntary, but with CSRD, it becomes mandatory for a larger number of companies.
- New common standard: Reports are to follow something called the European Sustainability Reporting Standards, or ESRS. This new common reporting standard could be described as the backbone of a company's sustainability report.
- Double materiality assessment – looking at sustainability from two sides. Moving forward, companies must analyze their sustainability impact from two perspectives: how the company's operations affect people and the planet, and how changes to the planet (such as climate change) affect the company.
- Stricter scrutiny: The company's sustainability report will be reviewed by an auditor or another external reviewer to ensure good quality control.
- Annual report + sustainability reporting = true: To further increase transparency, the sustainability report will now be an integrated part of the annual report. Moreover, it must be provided in a digital format.
What does this mean for HR?
So, how does HR fit into the picture, you might wonder? Well, as we've previously mentioned, CSRD imposes new requirements on companies to report not only on environmental and climate issues but also on how they manage human resources. For HR, this means a greater responsibility to collect and report key metrics related to:
- Diversity and inclusion, such as gender distribution, age structure, and representation of various groups
- Gender pay differences
- Working conditions, including employment types, salary levels, and workplace risks.
- Employee satisfaction, based on engagement surveys and well-being assessments
- Absenteeism, covering both short-term and long-term sick leave
- Employee turnover, both voluntary and involuntary
- Parental leave and family-related leave
- Skill development, such as training initiatives and career advancement opportunities
With this in mind, it will be more important than ever for employers to establish effective routines and tools to collect data and compile key metrics related to personnel.
We support your company's digital HR journey!
At Flex Applications, we have long experience in providing user-friendly systems for HR administration that continuously evolve to meet both today's and tomorrow's requirements. With Flex HRM, we help managers and HR professionals achieve a more efficient and secure day-to-day operation – for example by gathering all employee data in one place and offering smart tools for HR metrics and statistics.
Would you like to learn more about how we can assist your company in advancing its digital HR journey? Get in touch with us!
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Lost in the sustainability lingo? Here's a small glossary to help you.
ESG (Environmental, Social and Governance)
A set of guidelines divided into the main areas of environment, social responsibility, and corporate governance. Not legislation, but rather an umbrella term for corporate sustainability efforts.
CSRD (Corporate Sustainability Reporting Directive)
A new EU directive that requires companies to report their sustainability work in a more standardized way. Its purpose is to increase the transparency and comparability of corporate sustainability reporting.
ESRS (Environmental, Social, and Governance Reporting Standards)
A new common standard related to CSRD with detailed rules for how sustainability reporting should be conducted.
Double Materiality Assessment
A method to determine which sustainability issues are most pertinent to a company. It considers both how the company impacts the external environment (such as the environment and society) and how sustainability factors affect the company's economy and business model. This is a key component of CSRD and dictates which sustainability aspects the company must report.
