How CSRD Works – A Quick Guide to the New Sustainability Directive

It's time for companies to level up their sustainability game! With the EU's CSRD directive, tougher rules are coming into play regarding how companies must report their impact on the environment and people. As of July 1, CSRD is also Swedish law. But what does this mean in more detail? Which companies are affected? And what role does HR play? Flex has your guide!

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?

Let's start at the beginning: 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.

Why Are the Rules Tightening?

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.

Which Companies Are Affected by CSRD, and When?

For Sweden, the new CSRD rules apply from July 1, 2024. Exactly when the first reporting should be done depends on several parameters, including the size of the company. In the first phase (first report in 2025/2026), large publicly traded companies and groups with over 500 employees are included. Then, the requirements gradually expand to also include small and medium-sized enterprises (SMEs) both inside and outside of Sweden.

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, where does HR fit into this, you might wonder? As we've touched upon, CSRD sets new requirements for companies to report not only on environmental and climate issues but also on how they manage human resources. Areas such as diversity and equality, working conditions, employee satisfaction, pay structures, absenteeism, and staff turnover are some examples of what needs to be reported – areas typically under the HR department's responsibility. With this said, it will be more important than ever for employers to build up effective routines and tools for collecting data and compiling key figures related to staff.

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.

Contact us, and we'll tell you more about how we can help your company take the next step in your digital HR journey!

quick-facts_round

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.