A short decryption in order to better understand the reasons that prompted the European Union to implement the regulation of CSRD (Corporate Sustainability Reporting Directive)).

When we talk about CSRD, we often mention the 1200 datapoints, 12 ESRS, 80 DR, or even the 4,000 XBRL tags. However, at Kiosk, it seemed important to us to provide context on the origins of this regulation in order to fully understand the reasons that prompted the European Union to implement it.

Spoiler: It's not (only) for slapping the fingers of nasty polluters. Enjoy reading and thank you in advance for your feedback - this article may evolve as a result of your constructive feedback!

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Why is CSRD necessary?

The collection of CSR indicators or the production of a CSR report is often carried out at the request of the clients, whether financial (bankers, shareholders, investors) or commercial (prospects, partners, customers, suppliers) or commercial (prospects, partners, customers, suppliers). Everyone wants to know the same information but asks for it in different ways, requiring businesses to fill out multiple questionnaires and produce numerous reports during the year. This process is time consuming for businesses, and This time could be better used to implement concrete CSR actions.

The current problems with CSR reports

1. Multiplicity of questionnaires : Businesses have to answer a lot of different questionnaires, which is very time consuming.
2. Lack of data verification : The data provided by companies is often not verified, which can lead to a hypocritical game where the reports requested are not actually exploited.

Existing but imperfect solutions

To overcome these problems, various CSR labels and certifications such as B-Corp, Ecovadis and Lucie have been created. These labels are interesting because they verify the data. However, they pose two major problems:

1. Multiplicity of labels : There are so many labels that companies still have to answer several questionnaires.
2. Conflict of interest : The labels are often judges and parties, because they check the data and offer paid training to improve the ratings. Moreover, they are private companies, which raises questions about their impartiality.

The state solution: the DPEF

To solve these problems, the European Commission has set up the DPEF (Extra-Financial Performance Declaration), where the data is checked by an Independent Third-Party Organization (YOU). However, the framework surrounding the DPEF is quite flexible and allows each company to decide what information to disclose, which ultimately makes it a communication exercise more than a tool for comparison between companies.

In fact, businesses often take the opportunity to only talk about their positive impacts, and discreetly hide under the carpet all their negative impacts and underlying risks for their business. In 10 years, the DPEFs of large European companies have become the perfect example of how to lose credibility on the subject of sustainability:

• Talk only about your positive actions: hello Greenwashing
• Silencing CSR and finance, and relegate the DPEF to a few pages in the bottom of the annual report
• do not include his stakeholders in the exercise: when 3 people within the management make all the choices of the subjects covered, it shows!

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The ultimate solution: CSRD

The CSRD solves these problems by establishing a common frame of reference with indicators verified by ITOs or auditors and accountants. This framework allows for comparison between companies, which is crucial for investors.

The CSRD therefore represents a significant progress in terms of transparency and comparability of CSR data, thus meeting the needs of contractors and allowing companies to focus on the real improvement of their CSR performance rather than simply complying with disparate requests.

The 3 best practices integrated within the CSRD

1. Transparency on all topics : with thedouble materiality analysis, it is no longer possible to turn a blind eye to its negative impacts
2. Integrated management of sustainability topics : the CSRD questions the place of sustainability topics within the company's strategy, the way they are treated by management bodies, their relationship with the financial performance of the company... Sustainability must be integrated at all levels!
3. Stakeholder engagement : the CSRD ensures the integration of the company's internal and external stakeholders in the exercise - their opinion is now taken into account in defining the company's CSR strategy.

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Conclusion

CSRD is a structured and coherent response to the challenges posed by the diversity of CSR data requests and the lack of verification. By standardizing the indicators and ensuring their verification by independent third parties, the CSRD allows for better transparency and comparability of the extra-financial performances of European companies.. This benefits not only investors and other stakeholders, but also the companies themselves, which can thus focus on effective and impacting CSR actions.

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