Breaking down CSRD requirements

The Corporate Sustainability Reporting Directive (CSRD) has emerged as a significant milestone in the EU’s efforts to increase corporate transparency and hold companies accountable for their environmental and social impact. As covered in our previous article, the CSRD builds on existing frameworks to mandate standardised sustainability reporting across large companies and listed SMEs within the EU. The directive aims to address the growing demand from investors, consumers, and regulators for consistent, verifiable information on corporate sustainability.

In this article, we delve into the European Sustainability Reporting Standards (ESRS), which provide the specific requirements and criteria that companies must follow to comply with the CSRD. These standards outline detailed expectations around environmental, social, and governance (ESG) aspects, enabling companies to accurately report their impact and progress in these areas. Additionally, we will explore how various EU member states, specifically Belgium, the Netherlands, Spain, and Germany, are progressing in translating the CSRD into national law.

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Understanding the ESRS Framework: Essential Components for Comprehensive Sustainability Reporting

The European Sustainability Reporting Standards (ESRS) are a set of guidelines developed by the European Financial Reporting Advisory Group (EFRAG) to standardise and enhance sustainability reporting across the European Union. 

The primary purpose of the ESRS is to create greater transparency and comparability in sustainability reporting, ensuring that disclosed information is consistent, reliable, and accessible to all stakeholders, including investors, consumers, and regulatory bodies. 

The ESRS requirements are built around core Environmental, Social, and Governance (ESG) topics. Within this framework, some topics must be reported by all companies under the CSRD, while others are subject to double-materiality-analysis. This analysis involves evaluating which sustainability topics are most significant from two perspectives: financial materiality, or how these topics affect the company’s financial performance, and impact materiality, or how the company’s actions influence people and the environment. Additionally, stakeholders are integral to this analysis, as their concerns and insights help identify key sustainability issues, ensuring that companies report on aspects that are not only financially significant but also impactful on a broader societal scale. This approach supports a comprehensive understanding of both the company’s risks and its external impacts.

Mandatory Topics

These topics must be disclosed by all companies, regardless of the double materiality analysis, as they are foundational to the ESRS requirements:

General Requirements (ESRS 1): Companies must report on their overall approach to sustainability, including governance, strategy, and materiality assessments. This includes information on their business model, strategy, and policies on sustainability matters. It defines the principles and approach companies must use when preparing their sustainability reports, providing a common framework to ensure consistency. ESRS 1 provides a methodological foundation, guiding companies on how to approach sustainability reporting in general.

General Disclosures (ESRS 2): This includes disclosures on how sustainability is integrated into the company’s strategy, the governance structure overseeing sustainability, and the resilience of the company to sustainability risks. It focuses on the internal mechanisms companies use to address sustainability and have a detailed look at internal policies and practices.

Topics Subject to Double-Materiality-Analysis

These topics are disclosed if deemed material based on the double materiality analysis, allowing companies to determine which sub-topics are relevant to their operations:

1. Climate change (ESRS E1): Disclosure of greenhouse gas emissions (Scopes 1, 2, and 3), climate targets, energy uses and transition plans, as well as a description of climate-related risks and opportunities.
2. Pollution (ESRS E2): Companies need to assess whether pollution (such as air, water, and soil pollution) is materially relevant to their activities. If so, they should report emissions data, pollution sources, and mitigation efforts. The topic relates to the management of pollutants and efforts to reduce pollution across a company’s operations and products.
3. Water and Marine Resources (ESRS E3): Water use, consumption, discharge, and marine impact must be reported if material in direct operations and throughout its supply chain. This may include water withdrawals in water-stressed areas, impacts on local water sources, and marine ecosystem interactions.
4. Biodiversity and Ecosystems (ESRS E4): Companies assess whether their operations significantly impact biodiversity. If material, they must report on biodiversity policies, impacts on protected areas, and actions to mitigate deforestation and land use. Sub-topics could involve details on endangered species and habitat conservation.
5. Circular Economy (ESRS E5): Materiality determines the need to report on resource efficiency, waste management, and circular economy practices. Sub-topics include raw material usage, recycling, waste types, and the design of products for reuse and durability.
6. Own Workforce (ESRS S1): Companies must disclose information on their workforce if relevant, including employment conditions, diversity, health and safety, and training. This can be further broken down into sub-topics like fair wages, employee turnover, and development programs.
7. Workers in the Value Chain (ESRS S2): If value chain impacts are material, companies should disclose labour conditions, human rights practices, and due diligence processes in their supply chain. Sub-topics include fair working hours, forced labour, and worker health and safety.
8. Affected Communities (ESRS S3): Materiality analysis determines the need to report on the company’s impact on local communities, land rights issues, and community engagement. Sub-topics can include consultations with communities, cultural heritage preservation, and displacement policies.
9. Consumers and End-Users (ESRS S4): Companies should assess the materiality of their impact on consumers, including product safety, data privacy, and fair marketing practices. If material, they need to disclose consumer protection measures, transparency initiatives, and efforts to ensure product quality and safety.
10. Business Conduct (ESRS G1): While certain governance elements are mandatory, companies conduct a materiality assessment to determine if additional governance-related topics such as anti-corruption, transparency in ESG data management, and ethical guidelines are relevant to disclose. The topic focuses on the organisational structures and policies supporting sustainability goals.

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From COSH! to Compliance: How the Brand Index Supports ESRS Requirements

The COSH! Brand Index is a tool developed by COSH! to assess and promote sustainable practices within fashion and lifestyle brands. It serves as a guide for consumers and stakeholders to understand the environmental, social, and ethical practices of the brands featured on the COSH! platform. By evaluating key sustainability criteria in areas like People, Planet, Circularity, Supply Chain, Animal Welfare, Slow Fashion and Transparency the Brand Index allows brands to demonstrate their commitment to responsible business practices.

The COSH! Brand Index captures many elements of the ESRS framework, especially in areas like climate impact, circularity, fair labour practices, and transparency in governance. It already aligns well with some ESRS topics and gives brands a strong foundation to meet CSRD reporting requirements but we´re working on it to expand the data collection and to give full support for the complete framework of the CSRD. 

So far following topics will be reflected:

• ESRS E1 – Climate Change: The COSH! Brand Index tracks brand initiatives related to reducing carbon emissions, such as energy efficiency measures, use of renewable energy, and carbon offsetting projects. Brands may also report on emissions reduction targets and progress.
• ESRS E2 – Pollution: COSH! includes pollution-related data, particularly in textile production, focusing on the use of hazardous chemicals, wastewater management, and reduction of toxic emissions. This aligns with ESRS requirements around pollutant control and responsible manufacturing.
• ESRS E5 – Resource Use and Circular Economy: COSH! assesses brands on circularity efforts, such as using recycled materials, waste reduction, and product design for durability and repairability. This directly supports ESRS E5, which focuses on resource efficiency and circular economy practices.
• ESRS S2 – Value Chain Workers: COSH! tracks labour standards within the supply chain, including measures to prevent forced labour, child labour, and other exploitative practices. The focus on transparency in sourcing and supplier relationships aligns with ESRS S2’s emphasis on human rights due diligence for value chain workers.
• ESRS S3 – Affected Communities: While the Brand Index may not always have in-depth data on community impacts, it does include aspects of local impact, such as sourcing practices that respect land rights and engage local communities. Brands with responsible supply chains and community engagement strategies are particularly relevant here.
• ESRS S4 – Consumers and End-Users: The COSH! Brand Index emphasises responsible marketing and product transparency, helping consumers make informed choices. Brands that avoid greenwashing, provide accurate labelling, and disclose product information align with ESRS S4 requirements for fair marketing and consumer protection.

For brands aiming to meet the CSRD requirements, the COSH! Brand Index is your ally in sustainability. By aligning your practices with the index’s rigorous standards for environmental impact, ethical labour, and transparency, you’re not only supporting conscious consumer choices but also positioning your brand to comply with the European Sustainability Reporting Standards (ESRS). COSH! makes it easy to demonstrate your commitment to responsible business practices while paving the way for comprehensive sustainability reporting.

Conclusion

The Corporate Sustainability Reporting Directive (CSRD), through the European Sustainability Reporting Standards (ESRS), is transforming corporate sustainability reporting by setting a new standard for transparency, consistency, and accountability across the EU. These rigorous requirements ensure that companies provide detailed, comparable information on their environmental and social impacts, empowering stakeholders to make informed decisions and holding businesses accountable for their contributions to sustainability goals. The CSRD represents a significant step forward in driving corporate responsibility and aligning business practices with the EU’s ambitious climate and environmental targets.

For brands looking to navigate this evolving regulatory landscape, COSH! offers a valuable resource. With the COSH! Brand Index, brands can align their sustainability efforts partly with the ESRS, addressing critical topics like environmental impact, labour practices, and governance. By leveraging COSH!’s data-driven insights and transparent reporting, brands not only enhance their appeal to conscious consumers but also streamline their path to CSRD compliance, from data collection to digitalised reporting.

As of the latest update from Ropes & Gray’s CSRD Transposition Tracker, Belgium has yet to introduce CSRD legislation or held consultations. The Netherlands and Spain have proposed CSRD legislation, while Germany has partially adopted legislation, progressing towards full implementation. On 26 September 2024, the European Commission had already initiated infringement proceedings against 17 EU Member States, including Germany, Spain, Belgium and the Netherlands, for failure to transpose the Corporate Sustainability Reporting Directive into national law. The current status of CSRD transposition shows that progress varies across EU countries. This variability means companies in these countries face different timelines and requirements for CSRD compliance.

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