At the beginning of 2024, the Corporate Sustainability Reporting Directive (CSRD) was implemented, requiring companies to report on various aspects of sustainability, including social and environmental factors. Currently, listed companies with more than 500 employees are required to report for the 2024 tax year.
This regulation will be introduced gradually and will be applicable to smaller companies from January 2025. On October 29, the Council of Ministers approved the Business Information on Sustainability Bill, adapting the CSRD to Spain.
“The software solution companies choose should automate the aspects of compliance that can be automated. This reduces the manual effort of the team and the report is automatically generated in the correct format. The technology must offer a safe and simplified process from validation to the presentation of the sustainability report in ESEF format, saving time and significantly reducing the administrative burden,” they explain from Osapiens.
Transparency in sustainability reports
The demand for transparent and reliable information on companies’ environmental, social and governance (ESG) results is increasing. Companies subject to the CSRD must provide detailed information on ESG and the measures implemented to ensure transparency. This allows investors and clients to know the company’s activities.
To comply with the CSRD, companies must follow the European Sustainability Reporting Standards (ESRS), which specify the required information and reporting methodologies. The European Financial Reporting Advisory Group (EFRAG) has published key guidance to help companies improve their sustainability reporting.
Three steps to sustainability reporting
To prepare a sustainability report, companies must collect a large amount of data, both internal and from stakeholders. This data is collected in three steps and then integrated into the sustainability report.
Deciphering CSDR: how technology is the essential ally
Internal data includes so-called “IRO” (Impacts, Risks, Opportunities), which are aspects that may have a positive or negative impact on the environment, or that present risks or opportunities to improve sustainability. Examples include water use, energy consumption or supported conservation projects. Identifying these IROs requires time and resources, but with the right technology solution, companies can access predefined templates that simplify this process. In addition, they also need data from suppliers and partners, such as emissions from transportation and production.
Relevant IROs must be evaluated. Upon evaluation, the software should automatically calculate a score to determine the materiality of each IRO. Material IROs are those that exceed a threshold and have a significant impact or represent a high financial risk or opportunity. Both the company’s own activities and those of the value chain must be considered.
The two dimensions of double materiality
Dual materiality is a key concept in sustainability reporting, with two dimensions: financial and environmental materiality, and social impact.
Impact materiality focuses on the repercussions of a company’s operations, products and services on the environment and society. For example, a fishing company that contributes to overfishing negatively affects biodiversity and CO2 absorption.
Financial materiality examines how sustainability issues affect the company’s financial performance, identifying risks and opportunities that impact financial position, liquidity and cost of capital. For example, a decline in fish stocks would negatively affect the profits of a fishing company.
