Correntics Climate Risk Analytics Platform

If you operate in Europe, or even have exposure through customers, suppliers, or investments, the CSRD is no longer optional to ignore. For any American business owners who have doubts about the necessity of this information, this guide will help.

This guide is not intended to provide a comprehensive, technical discussion of all the details of complying with the CSRD, which may be laden with technical jargon. Instead, it will discuss the CSRD, its significance, its application period, and, more importantly, how to use it.

What is the Corporate Sustainability Reporting Directive (CSRD)?

The responsibility of communicating clear and accurate information on Environmental, Social, and Governance practices is now placed upon the new European Union framework that replaces the previous Non-Financial Reporting Directive (NFRD), which has been noted to have numerous flaws. Compared with the previous framework, the new framework significantly expands the number of reporters and reporting requirements.

The European Commission adopted the Corporate Sustainability Reporting Directive EU as a legal regulation on December 22, 2022. As per the Corporate Sustainability Reporting Directive (CSRD) ​overview by the European Commission​, companies must report two crucial aspects:

1. the influence of sustainability on the company and

2. the impact of the business on people and the planet. The combination of these two aspects reflects the notion of double materiality.

CSRD vs NFRD: what changed?

The CSRD replaced the Non-Financial Reporting Directive (NFRD), which covered around 11,700 firms and included no mandatory standards, assurance provisions, or XBRL formatting. This new directive alters all these provisions, among other changes.

NFRD vs. CSRD

• Companies covered: NFRD covered approximately 11,700 companies, while CSRD expands reporting to 50,000+ companies.

• Reporting standards: Under NFRD, companies could choose their own reporting approach. CSRD requires the use of mandatory European Sustainability Reporting Standards (ESRS).

• Double materiality: Not required under NFRD; CSRD requires companies to apply the double materiality principle.

• Audit/assurance: NFRD did not require mandatory assurance, while CSRD introduces mandatory assurance of sustainability reporting.

• Machine-readable reporting: NFRD did not require XBRL reporting. CSRD requires sustainability information to be digitally tagged and machine-readable.

• Non-EU companies: NFRD generally did not cover non-EU companies, while CSRD can apply to certain non-EU companies with more than €150 million in EU-generated revenue.

NFRD said: Report something. 

CSRD says: Report the right things, the right way, with an auditor signing off.

CSRD vs ESRS: what's the difference?

The reason for the confusion is similar to the presentation itself. Explanation: CSRD is a European Union directive (not a regulation), meaning it must be transposed into national law by EU member states, whereas ESRS – European Sustainability Reporting Standards – refers to the reporting process, i.e., the methodology in compliance with the CSRD. In brief, the CSRD explains what needs to be done, while the ESRS is a tool that helps do it.

ESRS addresses themes such as climate change and biodiversity, the treatment of workers within the company’s supply chains, and business activities. The ESRS includes 12 theme-specific standards and 2 cross-cutting standards. For identifying the standards relevant to an organization’s reporting, a specific methodology must be used. Some disclosures are required independent of materiality, while others rely on materiality.

All things considered, the ESRS plays a complementary role in relation to the CSRD. Indeed, ESRS operationalizes CSRD requirements and provides the technical framework for implementation. 

Here’s a comparison table for CSRD vs ESRS:

CSRD vs. ESRS

• What it is: CSRD is a legal directive that establishes sustainability reporting requirements, while ESRS is the set of reporting standards used to implement those requirements.

• Role: CSRD defines what companies must report; ESRS defines how that information should be reported.

• Issued by: CSRD was established by the European Commission, while ESRS were developed by EFRAG.

• Scope: CSRD determines which companies are subject to sustainability reporting requirements, while ESRS provides the technical framework for preparing the reports.

• Standards structure: CSRD is a single directive, while ESRS consists of 12 topic-specific standards plus 2 cross-cutting standards.

• Topics covered: CSRD establishes broad environmental, social, and governance reporting obligations. ESRS covers areas such as climate change, biodiversity, workers in the value chain, and business conduct.

• Materiality approach: CSRD requires a double materiality assessment. Under ESRS, some disclosures are mandatory regardless of materiality, while others depend on the outcome of the materiality assessment.

• Relationship: CSRD establishes the legal reporting requirement, while ESRS provides the standards needed to fulfill those requirements.

CSRD vs CSDDD (Corporate Sustainability Due Diligence Directive): two directives, one vision

Another commonly confused pair is Corporate Sustainability Reporting Directive (CSRD and the Corporate Sustainability Due Diligence Directive (CSDDD).

Summary:

- CSRD: This directive concentrates on the necessity to be transparent and accountable for reporting on the sustainability performance of the business.

- CSDDD: The core of this initiative is the need to identify possible locations of potential harm that might occur within the operation of a corporation or its supply chain, and then prevent or mitigate the adverse consequences.

On the one hand, CSRD is concerned with informing external parties about the current sustainability situation; on the other hand, CSDDD entails taking certain actions and assuming responsibility for these activities. These two aspects are different but inseparable parts of the European Union's sustainable finance strategy, and, for major corporations, especially those with complex supply chains, they will influence their policies regardless. It should be noted that the data collected under the CSRD would feed into the CSDDD process.

Here’s a comparison table for CSRD vs CSDDD (Corporate Sustainability Due Diligence Directive):

CSRD vs. CSDDD

• Full name: CSRD stands for Corporate Sustainability Reporting Directive, while CSDDD stands for Corporate Sustainability Due Diligence Directive.

• Core focus: CSRD focuses on transparency and accountability through sustainability reporting. CSDDD focuses on identifying, preventing, mitigating, and addressing adverse impacts on people and the environment.

• Primary obligation: CSRD requires companies to disclose their sustainability performance to external stakeholders. CSDDD requires companies to take action to address identified sustainability risks and impacts.

• Orientation: CSRD is primarily about informing stakeholders about what is happening, while CSDDD is about taking action to address what is happening.

• Who it affects: CSRD applies to companies within its defined EU and non-EU scope, while CSDDD applies to large EU companies and certain non-EU companies meeting the applicable thresholds.

• Supply chain: CSRD requires companies to report relevant sustainability risks and impacts across their value chains. CSDDD requires companies to conduct due diligence and take action where significant adverse impacts are identified.

• Data relationship: CSRD generates structured sustainability information that can support due diligence processes under CSDDD.

• EU strategy: Both directives form part of the EU's broader framework for sustainable business, responsible investment, and corporate sustainability.

That is why, for any savvy company, completing both tasks at once should be without issue, as the same infrastructure would facilitate them.

Corporate Sustainability Reporting Directive (CSRD) Requirements: What Must You Actually Disclose?

The requirements for CSRD compliance are comprehensive yet well-organized and logical. Generally speaking, the company needs to disclose information about:

Environmental issues: They include, but are not limited to, climate change (in accordance with TCFD requirements), pollution, water and marine resources, biodiversity and ecosystems, and use of resources/circular economy. Both physical and transitional risks need to be considered here. If the company's supply chain passes through areas exposed to floods or drought, this should also be taken into account.

Social issues: They include the company’s own employees, other workers along its value chain, affected communities, and customers/users of its products/services. These groups represent stakeholders impacted by the company’s operations. 

Governance issues: They include the conduct of the business itself, anti-corruption measures, company culture, and management's involvement in sustainability-related activities. The board also needs to address all of them.

Double materiality check:  Before starting the disclosure process, one needs to assess what topics are material to the company, both from impact (the company’s impact on the world around us) and financial perspectives (the impact of the outside world on the company).

Everything needs to be covered in a sustainability-related section of the company’s management report in machine-readable (XBRL) form and independently audited. First, the audit will be performed only to a limited degree, then increased to a reasonable level of assurance.

Corporate Sustainability Reporting Directive timeline: when does this actually kick in?

When does the CSRD come into effect?
It is currently being rolled out according to the following plan:

Phase 1 – 2024 financial year (Reports published in 2025 covering FY 2024): Large public-interest entities are covered by the NFRD—around 11,700 firms. If you were previously reporting using the NFRD, you are currently covered.

Phase 2 – 2025 financial year (Reports published in 2026 covering FY 2025): Other large EU companies that meet at least two of three criteria: 250+ staff, net turnover of over €40 million, and/or total assets greater than €20 million. Phase 2 significantly increases coverage to around 50,000 companies.

Phase 3 – 2026 financial year (Reports published in 2026 covering FY 2027): Listed SMEs on EU-regulated markets, plus small and simple credit institutions and captive insurance companies. An opting-out provision allows SMEs to defer to 2028 during a transitional period.

Phase 4 – 2028 financial year (Reports published in 2029 covering FY 2028): Non-EU companies undertaking significant activities in the EU—these would be companies doing business worth over €150 million in the EU and with one large EU subsidiary or EU branch.

Many US-based companies frequently overlook this final phase, but if your company generates over €150 million in the EU, you should pay attention.

Is CSRD mandatory for all companies?

Not necessarily. Yet, the reach exceeds many people’s expectations.

CSRD will apply to:

- All large corporations registered in the EU (who qualify by meeting the above-defined criteria)

- All companies listed in EU-regulated securities markets, both small and medium-sized firms (with some relief period applied)

- Non-EU parents if they have substantial EU-related operations or revenues exceeding €150 million

If your firm is a privately held mid-sized business that does not exceed the criteria, it is not required to comply directly—for now. In practice, the following should be considered: your major clients and partners belong to the in-scope category, so they require your CSRD reporting. Information disclosures across the entire supply chain require your sustainability data for the sake of your customers, investors, and partners, regardless of your willingness to provide it.

In conclusion, who needs to comply with CSRD reporting criteria goes well beyond the firms required by law.

What are the implications of the Corporate Sustainability Reporting Directive?

It is necessary to balance the pros and cons of the Corporate Sustainability Reporting Directive. 

The disadvantages are clear. The amount of required data to be collected is significant. The quantification of climate risk, value chain mapping, and the analysis of biodiversity effects exceed the capacities of many companies to gather such information by utilizing their existing IT infrastructure. The CSRD reporting requirements demand a certain level of accuracy and specificity, which are often lacking in finance or ESG teams. In addition, the audit obligation means that companies can no longer rely on unverified or loosely supported disclosures.

However, there are quite a lot of potential benefits of adopting more sustainable practices that go beyond fulfilling the requirements.

Among the advantages of becoming more sustainable, according to the CSRD standards, we can mention:

• Capital availability: European financial institutions are increasingly interested in sustainability indicators, so the CSRD disclosures make your business more appealing for financing.

• Supply chain management: Mapping out your value chain during CSRD reporting will make you see potential risks that otherwise would not be known to you and prepare for addressing them in advance.

• Market and customer reach: European public procurement policy, customer preferences, and criteria for selecting B2B suppliers are becoming increasingly focused on sustainability.

• Talent recruitment: Sustainability performance is increasingly influencing employer attractiveness, especially among younger talent. 

• Strategic management: The double materiality concept will push the management team towards considering the long-term risks and opportunities in their decision-making process.

Penalties for non-compliance

This section will examine the actual repercussions that follow from not adhering to CSRD reporting requirements. These regulations are enforced by member states, making the penalty system quite varied throughout the European Union; however, one pattern remains clear – that enforcement of CSRD compliance is increasingly serious. These consequences include:

• Fines: Regulators require member states to impose penalties that are adequate, proportionate, and deterrent. In some countries, fines depend on the organization's turnover, making them highly costly for large companies.

• Reputational risks: Non-compliance may mean that the organization will face public naming, which can prove to be an even higher penalty than the fine.

• Market access restrictions: Increasingly, CSRD-compliant data will become a requirement for financial institutions, institutional investors, and large procurers.

• Personal liability: Some countries may introduce liability for directors in case of repeated non-compliance.

• Consequences from the audit process: Failure to get an independent assurance over sustainability information may discredit the whole annual report.

The deadline for achieving CSRD compliance is running out. It is significantly cheaper now to comply with the CSRD reporting requirements than to fix the situation later.

CSRD reporting software: why you can't do this in spreadsheets

This analysis will focus on tools, which are key here since many initiatives often fail at this particular crossroads. Due to the size, complexity, and validation requirements associated with the CSRD reporting process, manual processes become highly inefficient and error-prone at scale for organizations outside the scope of the regulation. CSRD reporting software tools offering Corporate Sustainability Reporting Directive solutions have thus become vital.

Required functionality of the tool would include, in addition to the data gathering capability:

• Analytics related to climate risks, enabling assessment of both transitional and physical climate risks within the value chain

• Mapping of the supply chain for identifying exposure points

• Data gathering of ESG data, both internal and external

• The capacity to be able to provide evidence appropriate for an independent third-party limited assurance review

• Automation of the reporting process, including the generation of XBRL reports through automation

This is precisely what Correntics offers as its unique value proposition. This tool has been created specifically for climate risk, sustainability, and automated disclosures, unlike other data tools.

How Correntics helps you navigate CSRD

However, Correntics is more than just a software company specializing in compliance; it was built specifically to address climate risk and sustainability challenges across companies' production processes and supply chains. 

In the context of CSRD, the implications include:

Climate Risk Analytics – According to the CSRD, climate-related risks and opportunities should be assessed in accordance with the ESRS E1 elements aligned with TCFD recommendations. Correntics helps analyze the problem using forward-looking, data-driven models of climate hazards in relation to the specific suppliers and operating areas of companies' value chains, such as floods, droughts, heat stress, and sea-level rise. It means the analysis cannot be generic or backward-looking; it must be real.

Sustainability & ESG Assessment – The tools will help analyze, quantify, map, and optimize sustainability metrics across the environmental, social, and governance aspects of business. In this way, it will support a double-materiality assessment, rather than being constrained by the checkbox nature.

Real-Time Hazard Data – To provide insights into both current and upcoming conditions, the software offers real-time hazard data feeds at an extremely high resolution for extreme weather phenomena.

Climate & Sustainability Disclosures – With the platform, reporting under the CSRD becomes fully automated, efficient, audit-ready, and transparent.

The key point about CSRD is that it does not focus on the past but includes projections for the next 5, 10, and even 30 years. It involves considering how business strategy relates to such projections. To do so, forward-looking climate intelligence is needed.

The bottom line

The EU CSRD will continue to exist and will not be quietly discarded. It is the key component of the EU's sustainable finance strategy, receives support from all political sides, and the requirements for non-European organizations make it a global standard. The question is not about taking the CSRD seriously, but about proactively addressing it rather than trying to comply with it retroactively.

Companies that treat the CSRD purely as a compliance task spend too many resources developing reports that have no practical value within the company. Those who see the CSRD as a tool for assessing their risks and opportunities related to climate and sustainability issues benefit from improved risk management, stronger relationships with stakeholders, and greater resilience.

The infrastructure created for CSRD compliance not only serves regulatory purposes but also meets other business needs by identifying previously unseen issues. This is a win-win situation.

Are you ready to prepare for the CSRD rather than responding to it? Schedule a demo session with Correntics to see how our climate risk and sustainability solutions can turn a burdensome regulatory requirement into business intelligence.

FAQs

What does CSRD stand for?

CSRD stands for Corporate Sustainability Reporting Directive. It is a legally binding European Union regulation that mandates the disclosure of detailed environmental, social, and governance (ESG) information by large enterprises.

What is double materiality, and why is it significant to CSRD?

Double materiality refers to the need for companies to make reports regarding not only (a) the way in which sustainability factors impact the business, but also (b) the impact that company activities have on the people and the environment. Double materiality is key to the CSRD because, unlike previous frameworks, it requires disclosure beyond convenient figures.

What implications does CSRD have for US-based corporations?

Any company that is not an EU resident, generates turnover of more than €150 million annually in the EU, and has a considerable EU subsidiary must comply with the CSRD starting in the 2028 fiscal year. Additionally, smaller companies below the threshold can still be required to provide their sustainability information to EU customers and partners.

Which companies must comply with the CSRD?

EU-resident large businesses with more than 250 employees (or meeting other size requirements), EU-listed SMEs, and non-EU-resident entities with an annual EU turnover of €150 million or more must comply with the CSRD.

What is the difference between CSRD and ESRS?

While CSRD is the law, ESRS is a set of standards on the actual technical details of making the disclosures required by law. Both must be understood to ensure compliance.