October 5, 2023

What Companies Outside the EU Can Learn From the CSRD

ESG Advisory

3

Minutes to read

Whether or not you’re ready to admit it, ESG is entering the annual reporting process.

The EU's introduction of the Corporate Sustainability Reporting Directive (CSRD) marks a significant milestone in this journey. It not only sets a benchmark for EU-based companies but also offers valuable insights to companies worldwide, emphasizing the undeniable importance of ESG in today's business environment.

No matter if you're a business leader in the EU or beyond, understanding the nuances of the CSRD is essential.

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) introduces stringent reporting criteria for EU businesses on environmental, social, and governance (ESG) aspects. Positioned as an advanced version of its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD primarily focuses on bringing forth the significance of ESG factors, suggesting their deep-rooted financial implications.

It is crucial to grasp that this directive isn't just another regulatory document. Instead, it’s an EU legislation cornerstone, charting precise ESG reporting norms for entities.

Who Does the CSRD Affect?

The CSRD's reach is more expansive than just a narrow band of EU-based companies. Contrasting the NFRD, the CSRD exhibits a notably expanded reach.Mainly, the reporting regulations affect EU-based companies that have:

  • At least 250 employees
  • A net turnover of €40 million (about $42 million) or more
  • At least €20 million (about $21 million) in assets

Don’t click off just yet… even if your organization falls outside these constraints, you could still be affected by the CSRD.

A company located outside the EU but possesses EU-based subsidiaries or a company with securities in EU-regulated markets must comply with the CSRD requirements.

For example, a multi-entity corporation located in the UK or the US, even with just one subsidiary based in the EU, will be mandated to align its reporting with the CSRD. This remains even if most of its subsidiaries are located outside the EU.

What Are the Takeaways From the CSRD?

The CSRD stands as a transformative piece of legislation that emphasizes the intertwined relationship between ESG factors – environmental (E), social (S), and governance (G) – and financial outcomes.

Companies will need to disclose information about:

  • The environment
  • Treatment of staff and approach to social matters
  • Human rights
  • Anti-bribery and corruption
  • Board diversity

What Should Non-EU Companies Do?

With the impending SEC ESG disclosures, non-EU companies can learn a lot from the CSRD. Here's a strategic approach to ensure your company is prepared and aligned.

Become Familiar with the CSRD

Familiarizing oneself with the CSRD is the first step for non-EU companies. The good thing is you’ve already started this step by reading this blog!

By thoroughly understanding the CSRD, companies can get a jump on future ESG regulations. Adopting such forward-thinking standards can also bolster a company's image in the eyes of stakeholders and investors.

This directive sets a global gold standard, and understanding its intricacies will offer foresight into evolving ESG regulation to come from the SEC.

Gauge What Your Peers Are Doing

Keep a finger on the pulse of industry trends. By observing how peers — particularly those following the CSRD requirements — engage with their ESG reporting, firms can gauge their relative positioning.

For instance, US-based companies, though currently unaffected directly by CSRD, can gain a strategic advantage by monitoring EU-based companies in the same or similar industries. This intel will be invaluable, especially as anticipations rise around imminent updates on ESG reporting from the SEC.

Harnessing these insights and strategies ensures that companies are not just reactive but proactive, leading the era of transparent and accountable ESG reporting.

Get Your Stakeholder On-Board

The shift towards ESG reporting must be a collective endeavor. Engaging and educating stakeholders, especially C-level executives and board members, is essential.

Their buy-in will drive ESG strategy formulation and ensure company-wide adherence.

Partner with an ESG Advisor

The world of ESG reporting is intricate and constantly evolving – especially as we wait for firm regulations from the SEC.

Partnering with a specialized ESG advisor can provide valuable guidance, refine strategies, and ensure your company achieves its vision for the future.

By proactively taking these steps, non-EU companies can seamlessly align with global ESG trends and foster stronger ties with their stakeholders.

Is your company ready to get ahead of ESG reporting in the US? Get started on your ESG journey today!

Mike York
Senior Manager
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