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Sustainability

Sustainability is the practice of meeting current needs without compromising the ability of future generations to meet their own needs. It is often viewed through three interconnected pillars:

  1. Environmental sustainability: Protecting ecosystems, reducing pollution, managing natural resources responsibly, and mitigating climate change. This involves preserving biodiversity, reducing waste, and minimizing resource depletion.
  2. Economic sustainability: Supporting long-term economic growth without negatively impacting environmental or social aspects. It includes efficient use of resources, sustainable business practices, and creating jobs that contribute to environmental health and social well-being.
  3. Social sustainability: Focusing on the well-being of individuals and communities by promoting equity, human rights, and fair access to resources, education, and healthcare. It emphasizes the importance of strong social institutions and governance.

Together, these pillars create a balanced approach to ensuring a healthy, prosperous, and equitable world for future generations.

TribalConsulting is a leading partner of the European Green Lean Association EGLA being actively involved in developing and delivering new solutions and trainings. EGLA services are development projects carried out by the European Green Lean Association EGLA, which already operates in more than 20 countries, based on EGLA’s Green Lean, Sustainability, EGLA Circular Economy and CSRD process models.

Timeline for CSRD Implementation:

The CSRD is being rolled out in phases:

  • 2024: Reporting will begin for companies already under the NFRD (with reports published in 2025).
  • 2025: Large companies not currently covered by the NFRD must begin reporting.
  • 2026: Listed SMEs and other qualifying companies will need to comply, though SMEs have some additional flexibility, including the option to opt out until 2028.

Anyhow, as the reporting is required for the whole supply chain, it will have an impact for smaller companies too.

The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are tightly interconnected, forming the backbone of the European Union’s framework for sustainability reporting.

Corporate Sustainability Reporting Directive (CSRD)

The CSRD is a European Union directive that significantly expands sustainability reporting requirements for companies operating within the EU. It replaces the earlier Non-Financial Reporting Directive (NFRD) and aims to make sustainability reporting more comprehensive, reliable, and comparable across businesses.

Key Aspects of the CSRD:

Broader Applicability: CSRD applies to a wider range of companies than NFRD, including:

  • Large companies (EU companies and non-EU companies with significant EU operations) that meet at least two of the following criteria: 250+ employees, €40 million+ turnover, or €20 million+ in total assets.
  • Listed small and medium-sized enterprises (SMEs), though they have more flexibility and extended timelines for compliance.
Double Materiality: Companies must report on:
  • Impact Materiality: How their activities impact society and the environment.
  • Financial Materiality: How sustainability issues affect the company’s financial performance and risk profile.
  • Mandatory Assurance: The sustainability information reported under CSRD must be verified by external auditors, ensuring its reliability.

European Sustainability Reporting Standards (ESRS)

The ESRS are the specific reporting standards that companies must follow under the CSRD. These standards, developed by the European Financial Reporting Advisory Group (EFRAG), provide detailed guidance on what companies need to report in terms of sustainability.

Key Elements of ESRS:

  • Comprehensive Framework: ESRS covers a broad range of environmental, social, and governance (ESG) topics, aligning with the CSRD’s goal of robust, transparent reporting.
  • Double Materiality: Like the CSRD, the ESRS also embraces the double materiality principle. This ensures that companies disclose not only the impact of sustainability issues on their business but also their own impact on the environment and society.
  • Standardized Reporting: ESRS provides sector-agnostic standards (for all industries) as well as sector-specific standards to address unique sustainability issues faced by different industries.
  • Alignment with Global Standards: ESRS aligns with other international reporting frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD). This ensures that the EU standards are consistent with global reporting trends.

Areas Covered by ESRS:

  • Environmental (ESRS E1-E5): Covers topics like climate change, biodiversity, pollution, resource use, and the circular economy.
  • Social (ESRS S1-S4): Addresses issues like labor practices, human rights, diversity and inclusion, and community impacts.
  • Governance (ESRS G1-G2): Focuses on business ethics, corruption, bribery, corporate governance, and transparency.

The Relationship between CSRD and ESRS:

  • CSRD is the regulatory framework that mandates sustainability reporting for companies in the EU.
  • ESRS are the specific standards that define how companies should report on their sustainability impacts and performance under CSRD.

Essentially, CSRD sets the legal requirement for companies to report on sustainability, while ESRS provides the detailed guidance and methodology for what and how to report.

Benefits and Impact of CSRD/ESRS:

  • Increased Transparency: With detailed reporting requirements, stakeholders—including investors, consumers, and regulators—can better assess companies’ sustainability efforts and risks.
  • Risk Management: CSRD/ESRS helps companies identify and mitigate risks associated with environmental and social factors, such as climate change and labor rights.
  • Alignment with EU Goals: The framework supports the EU’s broader sustainability goals, including its European Green Deal and commitment to achieving net-zero carbon emissions by 2050.
  • Investor Confidence: By standardizing sustainability data, CSRD/ESRS increases investor confidence and facilitates responsible investment decisions, particularly in the context of the growing interest in Environmental, Social, and Governance (ESG) investing.

In Summary:

  • The CSRD is the directive that legally requires companies to disclose sustainability information.
  • The ESRS are the reporting standards that detail the information companies must provide.

Together, CSRD and ESRS represent a significant shift towards more comprehensive, reliable, and standardized sustainability reporting in the EU, aligning corporate transparency with environmental and social accountability.