Many of these data points will include information which companies have never had to report on before and, in many cases, will require starting data collection from scratch. This information will not only have to be collected internally but also from entities within your value chain, such as suppliers and customers. Obtaining and compiling this information to enable reporting under the CSRD will take time, and the clock is already ticking.
Transparency
The CSRD is a significant regulatory framework introduced by the European Union. Its primary aim is to enhance transparency and accountability in corporate sustainability reporting, thereby promoting sustainable business practices and contributing to the EU’s climate goals. This directive was transposed into Irish law in July of this year, with a limited number of companies required to report for periods ending on or after 31 December 2024, large companies on or after 31 December 2025, and a gradual expansion to all entities meeting certain revenue thresholds by 2028.
The Department of Enterprise, Trade and Employment has also recently released additional clarification through FAQs on the exact scope of entities which will fall under each reporting deadline, including confirmation of the ‘large’ entity criteria.
The framework introduces new concepts for reporting, such as double materiality. This means that companies will have to disclose not only the risks they face from ESG impacts (financial materiality), but also the impacts they themselves may have on climate and society (impact materiality). This underpins the realisation that sustainability impacts all areas of a business, both financial and non-financial.
The requirement for such disclosures has elevated ESG-related discussions from potentially self-contained reporting teams to regular agenda items for the most senior executives of an organisation. Indeed, a recent Deloitte survey showed that two-thirds of CFOs have seen their direct responsibility for ESG reporting increase over the past five years. This increased level of senior executive focus comes as concerns over greenwashing from EU regulators could see fines issued for companies which make false green claims.
Locally, the Central Bank has included it as one of its priorities in its 2024 Regulatory and Supervisory Outlook. The increasing regulatory focus highlights the importance of not only complying with the requirements, but that doing so in a transparent way is crucially important.
Investment
The implementation of CSRD presents both challenges and opportunities for companies in Ireland. As with any new regulation, initial compliance will require significant effort, and companies should not underestimate the investment needed to comply with the requirements.
This ranges from investment in new ESG-focused resources, upskilling of current teams, development of new processes and controls to capture the required data points, and new systems to allow easy access and presentation of the data. This additional effort will be required for companies of all sizes but is likely to be particularly felt by smaller organisations, which may have further to go to create the necessary reporting infrastructure. While the reporting dates for these smaller companies are further away, they need to start planning now for how they will comply.
CSRD compliance should be seen hand-in-hand with your future growth plans
While there is no doubt that CSRD reporting will require time and investment, it should not be regarded as a purely reporting exercise. CSRD provides companies with the opportunity to enhance their sustainability practices, challenge how they have done things in the past, make processes more efficient, and improve their reputation in the marketplace. Stakeholders are increasingly demanding transparency and accountability in corporate practices, and companies which can demonstrate a genuine commitment to sustainability will be better positioned to attract and retain their support.
As customers become more climate-conscious, how you compare against your competitors on ESG matters could be the reason you win more business in the future. Therefore, CSRD compliance should be seen hand-in-hand with your future growth plans.
While the standards will initially apply to large companies, the requirement for all organisations to conform to the directive will be in place by 2028. Given the effort needed to meet the reporting requirements, all Irish businesses should start planning now to make the first round of reporting as seamless as possible. While the implementation of the CSRD presents challenges, it also offers opportunities for companies to enhance their sustainability practices and build trust with stakeholders. By embracing the CSRD, companies in Ireland can play a crucial role in achieving a more sustainable and resilient future.
Damien Carr is a director in Audit and Assurance in Deloitte Ireland and current chair of the Chartered Accountants Ireland Leinster Society.