In November 2022, the Corporate Sustainability Reporting Directive (CSRD) set a new standard for sustainability reporting. Recognizing that existing legislation was inadequate, the EU took decisive action to provide consumers and investors with transparency regarding business sustainability practices. As of January this year, around 50,000 companies are now required to comply with the new standards, a substantial rise from only 11,700 previously.

This means that all large companies in the EU must disclose data about their impacts on people and the planet. In this blog post, we will explore the CSRD framework, its implications for the built environment, and how companies can equip themselves to stay compliant.

What is the purpose of the CSRD? 

The CSRD is the new foundation for the EU’s sustainable finance action plan, aligning with the European Green Deal’s goal of achieving climate neutrality by 2050. This directive builds on the Non-Financial Reporting Directive (NFRD) by imposing stricter reporting requirements and expanding the scope of compliance.

Developed to improve the quality of sustainability reporting, the CSRD introduces a standardized framework that enhances transparency for investors evaluating a company’s sustainability commitment. This directive supports all stakeholders—including investors, consumers, and policymakers—in assessing the non-financial performance of large companies, encouraging responsible business practices.

Who does it apply to?

The CSRD requires annual sustainability reporting for companies that meet specific criteria:

• Large companies that meet at least two of the following three conditions: (1) 250+ employees, (2) €50+ million in net turnover, (3) €25+ million in assets. 
• Small and Medium Enterprises (SMEs) that are publicly listed on European markets must also meet at least two of the following three conditions: (1) have 50 or more employees, (2) generate over €8 million in net turnover, or (3) possess assets exceeding €4 million.
• Additionally, non-EU parent companies with a total group turnover in the EU exceeding €150 million are required to comply.

Compliance timeline

The deadline for your first CSRD disclosure will vary based on your business size, with reports expected to be submitted between 2025 and 2029.

• January 2024: Large EU companies with over 500 employees must begin data collection for their first reports in 2025. As of February 14, 2024, the CSRD was updated to incorporate new sector-specific European Sustainability Reporting Standards (ESRSs) and to adjust reporting timelines for certain large EU companies, extending their deadlines by two years.
• January 2025: Other large EU companies will begin gathering data for their sustainability reports, which are due in 2026.
• January 2026: Small and medium enterprises (SMEs) can begin data collection, but they may opt out of reporting for two years (certain exemptions apply).
• January 2028: Non-EU parent companies must commence data collection for reporting in 2029.

The CSRD outlines that various reporting standards, specifically the European Sustainability Reporting Standards (ESRSs), will apply to different company groups, each with tailored compliance deadlines and data collection requirements. These timelines and processes may vary depending on factors such as company size and industry sector. Additionally, as highlighted by the ESRS amendments in February, these deadlines and requirements are subject to change as the regulatory landscape evolves.

CSRD reporting requirements

Companies that meet the criteria must provide comprehensive reports on their environmental, social, and governance (ESG) impacts. While the CSRD covers all ESG topics and has specific EESRSs dedicated to them, this article will focus on environmental reporting, aligning with Madaster’s mission to promote sustainability in construction.

Environmental reporting standards

Companies must adopt robust frameworks to assess and disclose their environmental impacts across various categories. These include:

1. ESRS E1: Climate Change
   Companies must transparently disclose their use of carbon credits, carbon dioxide equivalent emissions, strategies for adapting to climate change, and plans for reducing greenhouse gas emissions to enhance climate resilience.
2. ESRS E2: Pollution
   This standard encourages companies to analyze their pollutants, including inorganic pollutants and ozone-depleting substances, and assess how human activities contribute to pollution.
3. ESRS E3: Water and Marine Resources
   Companies are required to disclose information about nearby water bodies that are becoming polluted or scarce (e.g., the Great Lakes, Colorado River, or Great Salt Lake), as well as economic activities related to water sourcing and general water scarcity.
4. ESRS E4: Biodiversity
   This standard focuses on the variability of living organisms across ecosystems, examining changes resulting from a company’s environmental impact and identifying areas most sensitive to biodiversity changes.
5. ESRS E5: Use of Resources and Circular Economy
   The final environmental standard requires companies to disclose their resource flows and contributions to developing sustainable practices.

In addition, under the proposed value chain sustainability reporting framework, companies will need to report on indirect CO2 emissions resulting from both upstream and downstream activities. Measuring these emissions can be challenging, making it essential for companies to begin this process as soon as possible to ensure compliance.

Of course, it is imperative to thoroughly research the reporting requirements relevant to your business.

Environmental reporting and Life Cycle Assessment (LCA)

To meet CSRD requirements, companies must move beyond basic carbon calculations and adopt comprehensive methodologies such as Life Cycle Assessment (LCA). LCA provides an in-depth evaluation of a product’s environmental footprint throughout its entire life cycle, ensuring compliance while highlighting opportunities for sustainability improvements. By leveraging LCA, companies not only meet regulatory standards but also gain a competitive edge, as strong environmental performance increasingly attracts environmentally conscious investors and clients.

Preparing for the CSRD

To align with the CSRD’s environmental reporting requirements, construction firms must prioritize the following key areas: 

1. Sustainability assessments: Evaluate current practices and identify areas for improvement. Implement strategies to reduce environmental impacts, such as optimizing material usage and adopting energy-efficient technologies.

2. Reporting frameworks: Establish systems for collecting and analyzing data on sustainability metrics. Align reporting practices with the ESRS to ensure compliance and transparency.

3. Stakeholder engagement: Collaboration with stakeholders, including clients and suppliers, to promote sustainability across the supply chain. Building partnerships can enhance resource efficiency and improve overall project outcomes.

A software solution 

Although Life Cycle Assessment (LCA) is an effective methodology for meeting CSRD environmental reporting requirements, the process can be complex and resource-intensive. Madaster offers a software solution to simplify the process of obtaining environmental footprint data, helping companies fulfill CSRD requirements more easily. The platform allows for annual updates to environmental portfolios, making compliance seamless. Additionally, Madaster allows for the creation of building Life Cycle Assessments (LCAs), which is particularly beneficial to SMEs with smaller portfolios who need precise measurement and transparent reporting.

Looking ahead

As the CSRD sets new standards for corporate sustainability reporting, companies – especially SMEs with less robust reporting capabilities – must adapt proactively. A software solution like Madaster empowers businesses to navigate the complexities of CSRD compliance and play their part in ensuring a sustainable future. Explore how Madaster can help streamline your CSRD compliance journey.