CSRD: are you prepared for future policy?

What is the CSRD?

‘The CSRD is part of “Fit for 55”, a package of European Union measures, and will have to be translated into national legislation by member states. It involves reporting on your impact on people and the environment,’ says Jin van den Born, business consultant at ORGX.  

The purpose of the CSRD sounds logical and promising. The CSRD makes your performance more transparent and counteracts greenwashing. This to you ensure a better quality of sustainability information. By doing so, companies create a level playing field where everyone has to report in the same way. It is also a driver of sustainability. The European Union requires its member countries to implement this from 2024 or 2025, depending on the type of company. Jin says: “So this means that the Netherlands has to make sure it has legislation equal or stricter than this before 2025.” 

People and the environment

Jin told us before that CSRD is about reporting on your impact on people and the environment. What exactly is meant by that? Emma Kallen, sustainability consultant and founder of Factor Delta, explains to us: ‘It varies, of course, depending on what sector you are operating in. If we look at logistics, first of all you have to report on your performance in terms of ecological and social impact. So for example, to what extent do you contribute to air and environmental pollution? How vital and safe are your employees?’ 

Why CSRD?

Now that we know what it entails, it is necessary to understand why it is demanded from the European Union. Jin says: ‘It is a driver for sustainability. The European Union has been working on this for years. It’s not something that just fell out of the sky.’ Understanding the rationale behind it is very important. ‘We simply have an urgent climate problem and time plays an incredibly important role there. Every year that we wait, means a year with more emissions, more impact and more irreversible consequences for people and the environment. And from that perspective, it is very important the European Union takes its responsibility, also in controlling it over time. By this I mean, for instance, the possible fines to be imposed but also the strictness of the controls. But we don’t know anything for sure about that right now,’ says Emma. 

Measuring and reporting

Start in 2025: meaning just another year and a half on preparation time. A number of companies are already far along in measuring and reporting their performance. However, it is a time-consuming process that requires enough overview, structure, accuracy and discipline. ‘A lot of the larger companies have made a head start with their measures and reporting. But it takes a lot of work to do this. This shows the challenge companies face who have to get started. In practice, we see that many companies are a long way from putting that structure in place. With them, everything still needs to be rigged. Many companies are now left with a lot of questions.’ 

We also asked Guido de Wit, programme manager Topsector Logistics, about this. He said: ‘It is about 95% clear what companies have to publish in terms of emission data. But how to make that evident and how to share the information in the chain without enormous administrative burdens, everyone is still racking their brains. According to Emma, this is because it is all new and complex. Emma says: ‘Calculating your footprint, environmental pollution, staff vitality and safety… the questions are completely different. Some companies have never measured this data before for certain businesses, for example on the environmental pollution or circularity of packaging materials. That can be a real challenge for many.’ 

Will everyone have to deal with the CSRD?

For which (logistics) companies will be CSRD mandatory? All over the internet you read companies with a turnover higher than €40 million per year, a balance sheet total of more than €20 million, and more than 250 employees, are CSRD obligated. But is this really correct? Or are there exceptions for this? 

We asked Leon Simons (Topsector Logistics): ‘During the 2022 Lean & Green Summit, I gave a session on CSRD. There were about 100 people in the room. When I asked them who knew what CSRD was, I think five hands went up in the air. When I asked them for who CSRD was mandatory, one hand went up. So, I asked the follow-up question of who among them was going to face CSRD. And again only one hand went up. This is where it goes wrong. Because a lot of people are going to have to deal with it. Pretty much everyone deals with a company that is CSRD mandatory, which makes you a ‘scope 3′ supplier, because you do a service, transport or other activity. So that means you are going to be questioned about your impact, your carbon emissions and so on.’ 

‘We’ll cross that bridge when we get to it’ 

So pretty much all businesses will have to deal with CSRD. The Lean & Green summit was in November 2022. How come hardly anyone raised their hand then? In other words, how come so many companies don’t know that they will have to deal with CSRD? Leon indicates that he has an idealistic view and hopes that everyone is working on it. However, he also has a realistic view: ‘People only start acting when it starts costing money. And also, it takes several years before it is mandatory. There has been so much talk about CSRD, but looking critically, it is not fully known what you have to start reporting. As long as you keep things vague and distant, nobody acts. Things are shouted about where we want to go. If we look at the practice, how to go about realising it, you often hear that that elaboration is still to come. And that gives little confidence. Trust is a great thing.’ 

The fact that CSRD is driving sustainability is positive. This way, everyone starts reporting and take action to make their business sustainable. As Leon points out: ‘The implemetation of CSRD is irreversible. It may well be that soon you will be allowed to report in outlines, and to start with only the ‘big ones’ participate. But this policy will really have it’s effect in the long run. The big companies will start asking for data input from the smaller companies. And if it works with the ‘big ones’, it will automatically become mandatory with the ‘little ones’. 

Start measuring

Does this mean we should all start measuring and reporting now? Do we all have to be ready to report by 2025? Is it a necessity? Leon: ‘My prediction is that between now and 2026 the demand for detailed reporting is going to become so great that you simply have to be able to comply. Look at what’s starting to happen now. A lot is going to change in the next few years. For example: in 2026, measures like the phase-out of free emission allowances for logistics and commuting are expected. That means we will only be allowed a certain amount of kilograms of CO2 per kilometre for commuting. And there is much more to come, with the result that the demand to start reporting according to a guideline is skyrocketing. We have to: the price of CO2 is going up, emission rights are becoming fewer and scarcer, and the economy is growing. We are facing a big task to reduce CO2 and, fortunately, there are benefits. You simply need to know your footprint before you can reduce it. Fewer CO2 emissions give an immediate benefit, now and in the future.’ 

Footprint

For Leon, reporting is not the end goal. ‘The end goal is that you know what your footprint is. You have to start measuring. Once you know what your footprint is, you have to assign it to a customer or activity. Only after this you are able to report. Every kilo of CO2 you don’t emit is a benefit. You shouldn’t do the measuring just for your customers, or because it is ‘required’ by a new guideline like the CSRD. But you should also do it to gain insight and reduce your footprint.   

Conclusion

So, (almost) every company will have to deal with CSRD. If not in 2025, it will be at a later date. And if not as company, also suppliers and service providers will notice the demand in carbon footprinting data. A challenge that not every company is aware of while the clock is ticking. Properly measuring and reporting your data is not yet integrated into the daily operations of many companies. But also not all details are yet finalized by the European Commission. This creates a ‘gap’ of trust: and trust is important. All the more reason to start preparing your business and partners and learn what steps your company can take to get ready. Nonetheless, it’s time to act, to start measuring and reporting. We simply have an urgent climate problem and time plays an incredibly important role. Every year we wait, means a year with more emissions, more impact and more irreversible consequences for people and the environment. CSRD: a gamechanger for sustainability. And every company really needs to start now. 

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