By Marya Skotte, Sustainability Consultant, and Marko Damjanovic, Senior Sustainability Consultant

For the second installation in our blog series Navigating CSRD: A Comprehensive Series to Guide Sustainability Professionals, we want to provide an overview of CSRD, the timeline for implementation and the practical steps companies can take to prepare. Understanding what CSRD is, what it requires and which companies will be impacted and when are common topics of interest from clients. 

CSRD groups companies into four main categories with different implementation timelines depending on the number of employees, revenue, total assets and listing on an EU-regulated market exchange. While CSRD will be more immediately applicable to EU-based companies, it will still apply to large companies in other countries that have significant operations in the EU (including those based in the U.S.). Alignment with CSRD is a complex exercise and requires time. Below are some of the key deliverables required: 

• Governance of key sustainability-related topics 

• Double materiality assessment 

• Disclosures on material impacts, risks and opportunities across ESG topics and connected with a company’s value chain 

• Disclosures on policies, action plans and targets across all material topics 

• Audit trail and documentation of processes and controls to support the disclosures provided 

Most of the CSRD requirements reflect not only the maturity of sustainability programs but also the quality of the business practices and management approach within the company. Aligning with CSRD will require the engagement and involvement of many departments and stakeholders across the company and many hours of work to truly elevate the company’s business practices.  

Implementation Timeline 

Governance structure: It might take several weeks to several months to determine the high-level governance structure that needs to be developed. However, it can take longer to implement and formalize these changes. Importantly, before trying to implement new CSRD-aligned governance changes, it is critical to educate the board and key decision makers to properly equip them for their oversight responsibilities. Educational topics covered could include climate risk, double materiality, ESRS and the EU Taxonomy, and more. Based on our experience, developing a sustainability governance structure that sets a company up for success generally and helps the company to be compliant with CSRD requirements takes about three to six months.  Some of the key elements of this exercise include: 

• Working with the Board of Directors to define its role in ESG decision-making 

• Forming a Sustainability Steering Committee within the board and defining its roles and responsibilities, meeting cadence, and goals 

• Identifying working groups (made up of internal subject matter experts) for projects such as those focused on climate-related topics 

• Creating critical policies and processes such as a sustainability policy, Sustainability Steering Committee Charter and work plans and charters for other sustainability-related working groups 

Double materiality assessment: Conducting a double materiality assessment is a key requirement of the CSRD and is often considered one of the first steps toward compliance. Depending on the maturity of existing company practices, double materiality assessments can take typically anywhere from six to nine months for the initial assessment. However, materiality is not a one-time exercise, but a dynamic process that should be integrated into strategy and revisited as the company evolves over time. Double materiality exercises require deep understanding of the risks and opportunities that have a material influence on the company’s cash flows, development, performance, market position and cost of capital or access to financing along with the company’s impacts on people, the economy and the environment. Double materiality assessments should be informed by broad stakeholder engagement and robust data.  

The time needed to conduct a double materiality assessment can depend on a company’s capacity, size, resources and comfort with conducting this work. In our experience, a double materiality assessment that aligns with European Sustainability Reporting Standards (ESRS) requirements can take quite a bit longer than the time needed to conduct a non ESRS-aligned materiality assessment. This is due to the specific ESRS requirements that will often take most companies more time like quantifying financial effects, reporting more detailed disclosures on the methodology used and thresholds for materiality, etc. Once a company has undergone the assessment, disclosure and reporting will be much easier and more streamlined. 

Internal collaboration: Disclosures about and accurate reporting on material topics (following a double materiality assessment) require close partnership with internal subject matter experts across various departments to make continuous improvements in day-to-day activities related to material topics. Hence the need for a sustainability governance structure. Sustainability professionals responsible for reporting must better understand their colleagues' constraints, challenges, inputs, outputs and business practices so that they can better partner with their colleagues from other departments to capture the appropriate information and effectively report on material topics. These conversations with key internal stakeholders should happen early and often.  

After conducting the double materiality assessment to determine which data needs to be collected and reported, collaborative exercises with colleagues to determine and gather the right data and information from disclosures can last anywhere from six months to two years (again, depending on the size of the company, capacity, resources and how mature existing systems and sustainability reporting processes are). 

In our work with clients, we encourage them to build their governance mechanisms, processes for internal stakeholder engagement and alignment on the data and information to capture from day one. This is usually an iterative process that should be revisited year over year. We have recommendations and tools to help make this process easier.  

Capturing and reporting on the right data: To better understand the impacts, risks and opportunities connected with their value chains and what must be reported, companies initially should focus on setting up systems to capture and track data. It can take anywhere from less than a year to several years to implement a data collection platform. While it might take more time to implement initially, the data collection platform should be refined and continuously improved over time. Additional investments of time, financial resources and internal capacity will likely be needed to fully capture, track, manage and analyze key sustainability data. However, this data will not only help the company align with CSRD, but also can be used to manage risks, set targets, improve performance and identify opportunities and can help with sustainability reporting, investor-related disclosures and more.  

As the company understands the data it has on hand and builds more robust processes for data collection and reporting and as internal stakeholders understand the importance of their role in reporting, capturing and reporting data will become more efficient and streamlined. This is also an element that should be regularly monitored and revisited year over year. 

Here are some of the key steps for implementing sustainability reporting controls and processes: 

• Identification of key sustainability KPIs for management oversight and reporting 

• Improvements in data collection practices 

• Definition of and calculation methodology for each KPI 

• Creation of sustainability reporting frameworks and documentation 

• Preparation for internal and external audits  

In this piece, we highlighted some of the key requirements of CSRD, along with the general implementation timeframe and steps needed to complete each one. Our experts can partner with you to: 

• Create a comprehensive plan, strategy and timeline to meet the requirements of CSRD 

• Explain the urgency and importance of alignment with CSRD to your executives and key stakeholders to garner buy-in 

• Speed up the alignment with CSRD by addressing the above-mentioned requirements and more 

• Advise you on best industry and global sustainability practices 

We’re here support you

Our goal is to help our clients better understand the deadlines that apply to them, along with the work that needs to be done for each specific client to meet the CSRD requirements. Reach out to us at info@isosgroup.com to learn more about what CSRD could mean for your company specifically and how you can best prepare.