10 indicators: Is your organization CSRD-ready?

CSRD, or the Corporate Sustainability Reporting Directive, is a European legislative act aimed at preventing greenwashing and improving transparency regarding sustainability. In its purest form, the directive says that many EU-based organizations will be obliged to yearly report on their sustainability performance following certain reporting standards: the European Sustainability Reporting Standards (ESRS), which are currently being developed by EFRAG. Find out HERE when CSRD will apply to your organization.

On 29 April 2022, EFRAG published the first draft of the ESRS for public consultation. The final standards are expected to be published by the end of 2022. The standards are extensive and complex. So, for your convenience, we identified ten indicators to assist you in getting a general sense of your organization’s CSRD-readiness.

If any of the questions below are answered with ‘no’, there is still work to be done to get your organization ready for CSRD.

Indicator 1: Is your organization’s strategy and business model formulated taking sustainability related risks, opportunities, and impacts into account?

According to the ESRS, an organization should report ‘(…) how sustainability matters are related to, interact with, and inform its strategy and business model(s)’. This shows the profound nature of CSRD: no more ‘ticking boxes’. To get CSRD-proof, organizations must take on a strategic approach and let sustainability topics and stakeholder views guide their strategic decision making.

Indicator 2: Does your organization provide transparency on its sustainability-related governance?

Vital to CSRD implementation is a solid governance structure that spans from the highest governance body to the most operational ESG functions. Providing transparency on this structure should be part of the sustainability report. E.g.: roles and responsibilities, performance- and incentive schemes, and their relation to the organization’s sustainability strategy.

Indicator 3: Has your organization defined its material (sustainability) topics using stakeholder input?

Material topics are the organization’s most relevant sustainability topics and define the scope of sustainability performance reporting. Examples are greenhouse gas emissions, water use, and equal pay. These should be defined following several guidelines (which can be found in the ESRS), including standards for stakeholder involvement and prioritization.

Indicator 4: Are the material topics defined using the double materiality concept?

One of the fundamental CSRD-concepts is double materiality; this concept provides criteria for considering topics material. It is called double materiality because it consists of two dimensions: impact materiality and financial materiality. Impact materiality relates to the impact an undertaking has on its environment. Financial materiality considers sustainability related risks and opportunities for the organization’s financial health.

Indicator 5: Does your organization report on historic and current performance with regards to its material topics?

To measure performance on the material topics, organizations should find indicators that allow for historic comparison (year to year) and benchmarking with other undertakings. For instance, a suitable indicator for the material topic ‘greenhouse gas emissions’ would be (amongst others) the yearly emission of CO2 in metric tonnes.

Indicator 6: Does the report contain a forecast of short, middle, and long-term performance?

According to the ESRS, the report should contain the performance of at least one year prior to the reporting period, and a forecast including targets on short (one year ahead), middle (two to five years ahead), and long-term (more than five years ahead).

Indicator 7: Are - for all material topics - policies, targets, action plans, and resources put in place for the identification, prevention, ceasing, and remediation of (adverse) impacts, and are these being reported?

Organizations should provide insight in their actions to improve sustainability performance. They should describe policies, targets, action plans and allocated resources and how sustainability strategies are implemented. For this, due diligence processes are required, which will be further explained in indicator 10.

Indicator 8: Is the quality of reported information 1) relevant, 2) faithfully represented, 3) comparable, 4) verifiable, and 5) understandable?

When reporting according to the ESRS, the following concepts for data quality should be applied:

1. Relevance: ‘Sustainability information is relevant when it has substantive influence on the assessments and decisions of users of sustainability reports under a double materiality approach’
2. Faithful representation: ‘Sustainability information should faithfully represent the reality it depicts. Faithful representation requires information to be (i) complete, (ii) neutral and (iii) accurate.’
3. Comparability: ‘Sustainability information is comparable when it is consistent over time and, to the greatest extent possible, presented in a way that enables comparisons between undertakings (across sectors and within a specific sector).’
4. Verifiability: ‘Sustainability information is verifiable if it is possible to corroborate such information itself or the inputs used to derive it.’
5. Understandability: ‘Sustainability information is understandable when it is clear and concise.’

Indicator 9: Do the sustainability measurements and reports cover not only the organization’s own activities, but also activities throughout its value chain?

According to the ESRS, the scope of the reported information should cover ‘the scope of the undertaking’s financial statement expanded to its upstream and downstream value chain’. This means that the organization should at least map its value chain, identify activities and impacts throughout the value chain, and request information regarding the material topics from suppliers, clients, and business partners. This is usually an extensive assignment, as the required information should cover all material topics and is not limited to the operational influence of the undertaking.

Indicator 10: Are your organization’s reporting and remediation processes conform the standards of sustainability due diligence as defined by the UN and OECD?

The sustainability due diligence standards contain guidelines on how to (continuously) identify impacts throughout the value chain. They also contain guidelines on how these impacts should be ceased, prevented, and remediated. Conforming to these standards is mandatory under CSRD. The standards answer questions like: ‘What can an assessment of business relationships cover and who should conduct these assessments?’, and ‘how should an enterprise prevent and mitigate actual or potential impacts (…) ?’ The standards are set out in the following international instruments:

• The UN Guiding Principles on Business and Human Rights
• The OECD Guidelines for Multinational Enterprises
• The OECD Due Diligence Guidance for Responsible Business Conduct

These indicators could be the starting point on your journey towards CSRD-readiness. The next step is a more in-depth assessment of your organization’s current status regarding CSRD. At ORGX, we are happy to assist you in becoming CSRD-ready. Get in touch.