Navigating CSRD Regulation: What Procurement, Supply Chain, and Finance Leaders Need to Know

di Vishal Patel

In an effort to drive sustainability and combat climate change, the European Union has introduced the Corporate Sustainability Reporting Directive (CSRD). This new regulation builds upon its predecessor, the Non-Financial Reporting Directive (NFRD), and brings about significant changes that impact organizations, procurement groups, and finance leaders. Below, we explore the key aspects of the CSRD, its implications, and outline specific timelines for organizations.

The CSRD Regulation: An Overview

The CSRD aims to enhance sustainability reporting and disclosure requirements for organizations operating within the European Union. It introduces several amendments to the NFRD and expands the scope of reporting obligations to foster greater transparency and comparability.

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Implications for Organizations

1. Expanded Reporting Requirements: Under the CSRD, a broader range of companies will be obligated to report non-financial and sustainability information. Large and public-interest entities, as well as some medium-sized companies, will now fall within the regulatory framework.
2. Double Materiality Principle: The CSRD introduces the concept of “double materiality” requiring organizations to disclose information on both the impact of their activities on the environment, society, and governance, as well as the impact of environmental and social factors on their business.
3. Standardized Reporting Formats: To enhance comparability and consistency, the CSRD promotes the use of standardized reporting formats, such as the European Single Electronic Format (ESEF) for financial statements and the European Reporting Template (ERT) for non-financial information.

What Companies Are In-scope?

From 2024 onwards, 50,000+ companies in the EU have to comply with the CSRD reporting requirements. Subject to certain exemptions, CSRD will apply to entities that fulfill two of the three requirements below:

• Net turnover of more than €40 million.
• Balance sheet assets greater than €20 million
• More than 250 employees

Even though the UK is not part of the EU, CSRD will impact some UK-incorporated companies. 

Implications for Procurement & Supply Chain

1. Supply Chain Due Diligence: The CSRD places increased emphasis on supply chain transparency and due diligence. Organizations will be required to disclose information on their supply chains, including environmental and social risks and impacts.
2. Sustainable Procurement Practices: Procurement groups will play a vital role in supporting compliance with the CSRD. They will need to align their sourcing strategies with sustainability objectives and collaborate with suppliers to ensure adherence to environmental and social standards.
3. Scope 3 Emission Reporting: Double materiality means all environmental matters that are affected by (e.g supply chain)- or affect your business. This includes aspects such as; greenhouse gas emissions, energy efficiency, environmental footprint results. CSRD requires Scope 3 reporting, depending on company size, with a gradual rollout between 2024 and 2028.

Implications for Finance Leaders

1. Integrated Reporting: The CSRD encourages organizations to adopt integrated reporting, which combines financial and non-financial information. Finance leaders will need to work closely with sustainability or Procurement teams to ensure accurate and comprehensive reporting across both dimensions.
2. Internal Control Systems: Finance leaders will be responsible for establishing robust internal control systems to ensure the accuracy, reliability, and consistency of sustainability reporting data.
3. Investor Relations: With the CSRD’s aim to enhance the usefulness of sustainability information for investors, finance leaders will need to actively engage with shareholders, analysts, and stakeholders to communicate the organization’s sustainability performance.

Timelines and Penalties for Non-Compliance

The CSRD is expected to be implemented in stages, with a phased approach based on company size and type. While specific timelines may vary, organizations should start preparing for compliance as early as possible. Non-compliance with the CSRD can result in financial penalties, reputational damage, and potential legal repercussions. 

The CSRD represents a significant step towards fostering sustainable practices and increasing transparency within organizations. As the regulation comes into effect, organizations, procurement groups, and finance leaders must understand their roles and responsibilities to ensure compliance. By embracing the CSRD’s requirements, organizations can not only meet regulatory obligations but also build trust, enhance stakeholder relationships, and contribute to a more sustainable future.

CSRD and Ivalua’s Environmental Impact Center (EIC)

We know that the Corporate Sustainability Reporting Directive (CSRD) is a significant step towards driving sustainability and combating climate change in the European Union. The new regulations will require all large companies to report their sustainability performance, including carbon emissions and energy consumption, in a standardized format. Companies will need to start preparing for the changes immediately to ensure they can meet the reporting requirements by the deadlines. 

With Ivalua’s Environmental Impact Center (EIC), organizations can build meaningful and transparent emission reduction initiatives. By utilizing reliable data to generate emission baselines and collaborating with suppliers, the EIC is committed to creating a sustainable supply chain. This allows Procurement and Supply Chain departments an important opportunity to contribute to corporate sustainability goals.

Check out Ivalua’s Environmental Impact Center to learn more about how Ivalua can help you manage supply chain emissions and drive sustainability in your organization to meet regulatory compliance.