The new EU legislation is here, but only 22% of companies are ready to report quantitatively on the circular economy.
In late 2022 the European Commission adopted the Corporate Sustainability Reporting Directive, becoming Law in November. The directive aims to provide a more comprehensive picture of companies’ sustainability performance.
Who needs to comply?
Almost 50,000 companies are expected to be impacted by CSRD, making up some three-quarters of the European Economic Area business. This is a significant increase from the 11,700 companies covered by the non-financial reporting directive (NFRD).
CSRD will apply to all:
Companies listed on regulated markets in the EU (apart from listed micro-enterprises) and large companies.
Listed SMEs, although there will be a transitional period when SMEs can opt out until 2028. However, there are big benefits for SMEs to comply with the reporting.
Non-EU companies with a net turnover of €150 million in the EU and with at least one subsidiary or branch in the union.
What does it do?
It requires businesses to cover many sustainability topics in their yearly reports, ranging from climate to biodiversity and labour rights.
It introduces the concept of double materiality: the need to report both on the risks companies introduce to society and the environment and on the risks that sustainability issues pose to the company.
Why is CSRD different?
The reports must cover:
Environmental matters – including science-based targets, EU Taxonomy and climate risk-related reporting.
Social matters and treatment of employees.
Respect for human rights.
Anti-corruption and bribery.
Diversity on company boards (in terms of age, gender, educational and professional background).
Companies will need to provide information that is:
Qualitative and quantitative.
Forward-looking and retrospective.
Based on the short, medium and long-term.
What does this mean for your business?
Crucially companies will need to disclose their resource use and circular economy performance.
However, the recent Nature benchmark from the World Benchmarking Alliance shows that few companies are ready for this new obligation. Whereas 77% of European companies touch upon the topic of circular economy in their sustainability reports, only 22% of them include one or more of the quantitative indicators that are included in the CSRD. Even worse, no company covers all the required topics and describes a company-wide circular strategy in its sustainability report.
It is time to prepare
Companies who are affected by CSRD will have to report on their circular economy performance in 2025, which means the first year for which companies will have to disclose their performance is 2024.
This requires them to start preparations in 2023 to identify their circular economy-related risks and opportunities, develop strategies and performance, and start data collection to track performances.