00;00;12;03 - 00;00;47;19
Speaker 1
Welcome to today's podcast dedicated to the new EU Corporate Sustainability Reporting Directive, also known as CSRD. On the 5th of January 2023, CSRD entered into force and strengthens the rules concerning the social and environmental information that companies have to report. I'm Rowena Curtis, UK Marketing Manager for Intertek Business Assurance, and I am delighted to be here with Catherine Beare , Regional Director, Business Assurance, UK and Iberia, who will explain more about CSRD and how companies in the UK will be impacted.
00;00;48;23 - 00;01;26;26
Speaker 1
Catherine has been in the sustainability world for 20 years, previously working with businesses in the community, the leading CSR, not for profit helping companies implement and improve their internal CSR programs. During her 14 years at Intertek, she has worked with all sectors helping organizations deliver effective and risk managed responsible supply chains. Having worked globally but with more of a focus on UK and EU, Catherine has grown Intertek’s responsible supply chain programs supporting regional expansion, bringing to new market, new innovative sustainability solutions and speaking at many subject matter focused events.
00;01;27;13 - 00;01;31;28
Speaker 1
Catherine Let's kick off with understanding why CSRD is so important.
00;01;33;08 - 00;02;07;23
Speaker 2
In the past few years, there is no doubt about it, we have witnessed acceleration from stakeholders and investors across the globe demanding that organizations provide greater transparency in ultimately disclosing their environmental, social and governance risks and opportunities. In the past, annual reports primarily focused on disclosures of financial information, but a lot has changed in recent years, with more attention being placed on reporting.
00;02;07;23 - 00;02;42;00
Speaker 2
Non-financial information. Non-financial reporting directive NFRD - that came into effect back in 2018, was created as a first step towards extending reporting directive. It was specifically targeted at two main goals at that time. One was to provide stakeholders and investors with non-financial information need to assess value creation and risks of the establishment. And two, to encourage responsibility to social and environmental issues.
00;02;42;24 - 00;03;27;09
Speaker 2
Key limitations are eligibility criteria as organizations to which NFRD apply are larger in size with basic requirement of 500 employees. This means that a significant proportion of companies could be excluded from reporting their non-financial information. Another challenge is that companies can choose between different reporting standards, which means that there is no unified framework. This makes it very difficult to draw comparisons and in return challenging to produce reliable and detailed disclosures and of companies, social and environmental impacts and overall sustainability of their business operations.
00;03;27;17 - 00;03;46;18
Speaker 2
So as a result, the proposal of the CSRD was made in April 2021, extending the scope of the requirements to all listed companies and large companies, with indications that about 50,000 companies will be reporting their data with the CSRD.
00;03;48;05 - 00;04;01;20
Speaker 1
And 2022 was a key year in terms of the approval from the European Parliament and actual publishing of the Official Journal of the EU. So as a result, which companies are impacted by CSRD and what are the requirements?
00;04;02;27 - 00;04;49;05
Speaker 2
Now on November the 10th last year, the European Parliament finally approved the Commission's CSRD and on December the 16th of the same year the CSRD was published in the Official Journal of the European Union. CSRD impacts all large and listed EU companies meeting at least two out of the following three criteria. That is more than 250 employees, turnover exiting exceeding €40 million and a balance sheet, exceeding €20 million. For non-European companies who are also affected.
00;04;49;05 - 00;05;23;27
Speaker 2
It would be if their net turnover generated in the EU exceeds €150 million and they have at least one branch or subsidiary in the EU. So companies in scope will need to report in accordance with the mandatory European Sustainability Reporting Standards, ESRS, that they have been developed by EFRAG. A lot of acronyms, so bear with us while we educate you on them all.
00;05;24;25 - 00;05;33;17
Speaker 1
So in terms of the application of CSRD, will this be staged? If so, what are the timelines and do these vary depending on the size of the organization?
00;05;34;12 - 00;06;39;01
Speaker 2
The application of the CSRD will take place in four stages ultimately. Reporting in 2020 2025 on the financial year 2024 for companies already subject to the non-financial reporting directive. Next, reporting in 2026 on the financial year 2025 for other large companies, then reporting in 2027 on the financial year 2026 for listed SMEs except micro companies and finally reporting in 2029 on the financial year 2028 for non EU companies with net turnover above €150 million in the EU, if they have at least one subsidiary, as I just mentioned, or branch in the EU exceeding certain thresholds.
00;06;39;01 - 00;07;09;17
Speaker 2
So special transition period is also given to SMEs to provide them the flexibility for the provision of information on their value chains, which can be ultimately a costly process for organizations with limited resources. So that has been taken into account for. Hence it is proposed to give the SMEs a special second transition period of three years. SMEs may choose not to participate until 2028.
00;07;10;01 - 00;07;35;28
Speaker 2
Important to note, however, is that reporting could begin as early as fiscal year 2024 for that cohort. So obviously few different timelines depending on where you fall within those categories. The point being they are all very soon and as we about to find out, a lot has to be done to get ready.
00;07;37;00 - 00;07;48;16
Speaker 1
Thank you, Catherine. We understand that the CSRD may also impact organizations outside the EU, including the UK. Can you please explain what the implications for those organizations will be?
00;07;49;22 - 00;08;27;20
Speaker 2
The implications of CSRD for UK companies with operations in Europe, they are ultimately potentially significant. Firstly, UK companies operating in the EU will have to comply with the new Directive’s reporting requirements, specifically those firms with securities listed on a regulated EU market. Just add that in a slightly different context. It means that UK companies are likely to face increased scrutiny and pressure to improve their ESG performance as their performance is going to be compared to that of their European counterparts.
00;08;27;20 - 00;08;55;04
Speaker 2
So ultimately, these regulations will set the precedent for sustainability across the world, and we know that that's likely to continue to expand upon at great pace. The sustainability reporting requirements for non-EU companies is expected to be adopted by the EU and there is also an option to report in accordance with ESRS or standards that are deemed to be equivalent.
00;08;55;17 - 00;09;30;18
Speaker 2
But the European Commission has yet to decide which sustainability reporting standards used outside of the EU are equivalent to it. So still more to come. The challenge with reporting in accordance with ESR S requirements is that it goes further than any other existing or proposed regulation, specifically in the area of double materiality. With the January 1st 2028 at non EU companies in scope will have to start reporting according to the ESRS standards.
00;09;30;26 - 00;10;24;05
Speaker 2
At the consolidated group level. There are still many unknowns about the exact CSRD requirements for non EU companies with significant operations in the EU market and the next 12 months will bring some answers to these many awaited questions. The only other framework I think to call out is that in 2022 the Transition Plan Task Force did launch a disclosure framework to help businesses develop transition plans for how they reach net zero The first draft of a gold standard disclosure framework for mandatory climate reporting for big UK companies was published by the TPT at the COP 27.
00;10;24;05 - 00;10;49;00
Speaker 2
However, I think it's fair to say that the new TPT frameworks, it’s not the first of its kind. And ultimately I think it’s fair to say for the large companies it doesn’t necessarily deliver anything new. But of course it’s good to set that gold standard out there. So not comparative, but again, just trying to reference specifically what’s going on here in the UK.
00;10;50;03 – 00;10;59;07
Speaker 1
So if we now look at the reporting requirements in terms of frequency of data and topics, what actions should companies be taking now to prepare?
00;11;00;12 – 00;11;42;25
Speaker 2
So the CSRD, asks for a higher frequency of data. It's yearly reporting on material sustainability topics of which the topics should at least cover at some extent environmental impact, social matters and treatment of employees. We've got respect for human rights, anti-corruption and bribery, diversity of board directors, which is looking at gender, age, professional and educational background. Also information on sustainability risks and important negative effects, including those in the value chain.
00;11;43;08 - 00;12;20;01
Speaker 2
And that's all on top of due diligence with suppliers in order to minimize these negative effects. Moreover, it should be transparent on how these materials topics are taken into account in the organization, its strategy, governance policies, processes, systems, KPIs, targets and results. Scenario planning and target setting in line with the Paris Agreement and tracking of the performance of these targets will also be part of the reporting standard.
00;12;21;01 - 00;12;56;05
Speaker 2
So even if the deadlines seem to be not so close, it's important for companies to start asking internally, what data do we already collect? What data will we need to start collecting, what KPIs will be used? And importantly, which tool will we use to automate the process? The reported information must be qualitative and quantitative. So forward looking and retrospective information.
00;12;56;15 - 00;13;13;11
Speaker 2
assessing Sustainability. Another key difference between the NFRD and CSRD is that companies will also be required to obtain third party assurance in relation to their CSR disclosures.
00;13;14;08 - 00;13;20;27
Speaker 1
So Catherine, does this mean companies will need to be independently audited to ensure they comply with the reporting rules?
00;13;21;27 - 00;13;56;01
Speaker 2
So reporting must be certified by an accredited independent auditor or certifier. To ensure the companies ultimately comply with the reporting rules, an independent auditor or certifier must ensure that the sustainability information complies with the certification standards that have been adopted by the EU. So the reporting of non-European companies must also be certified either by a European auditor or by one established by a third country.
00;13;56;19 - 00;14;46;11
Speaker 2
Okay. Assurance requirements will be applied progressively from limited assurance to more fulsome, reasonable assurance by 2028. So companies must report the relevant information in their annual management reports rather than in separate sustainability report. And that's important to call out. The management report should be prepared in a single electronic reporting format, and it is expected that the Commission in its delegated acts will require to digitally tag the reported information so it is machine readable and ultimately feeds into the European single access point envisaged in the capital markets Union Action Plan.
00;14;46;27 - 00;15;15;05
Speaker 1
Thank you very much, Catherine, for all your detailed insight about this new regulation. So how can Intertek help you prepare for this CSR directive? As mentioned, companies will be required to obtain third party assurance in relation to their CSR disclosures and our team of experts at Intertek can help you with this. To understand your current CSR readiness, we can help you undertake a gap analysis to ensure you have a clear view of your organization's current readiness.
00;15;15;18 - 00;15;37;22
Speaker 1
And we'll work with you to define clear action plans, to address any gaps, to prepare you for your first submission. Our experts can also train your teams to ensure everyone understands what's required to prepare for your submission. This can be delivered to a range of different teams and functions across your organization and will be bespoke to best fit your requirements.
00;15;38;19 - 00;16;07;12
Speaker 1
We can also provide auditing solutions in some markets will also be able to act as the Auditor of your CSR Directive reports, as one single provider supporting you from your early preparations all the way through to audit of submission. And finally, we've also partnered with ESG Playbook, a leading SAAS reporting solution provider, bringing in one tool all required data collection, aggregation and tracking reporting for ESG.
00;16;08;00 - 00;16;40;28
Speaker 1
For more information on any of these, please visit.intertek.com/assurance/EU-CSRD. So this concludes today's podcast. Thank you for listening and please watch out for further CSRD episodes to help you with your journey to compliance.