What the CSRD Means for Food Companies’ Scope 3 Projects
The clock is ticking for food companies to ensure that their sustainability strategies meet the EU Corporate Sustainability Reporting Directive’s (CSRD) reporting standards. In this article, we’ll provide an updated overview of the CSRD, its implications for the food industry, and what your company needs to know to integrate insetting projects with regenerative agriculture effectively into compliance strategies.
Key messages:
- The CSRD extends sustainability reporting to around 50,000 EU companies and requires detailed information on environmental, social and governance aspects (environmental, social, governance, "ESG").
- A double materiality analysis is a must. Companies must assess the ESG impacts (inside-out) and the risks and opportunities that ESG factors represent for their company (outside-in) across the entire value chain.
- Scope 3 projects play an important role in aligning with CSRD standards. For food companies, investments in regenerative agriculture help with CSRD compliance. They support climate targets, address climate risks and stabilize supply chains.
- When reporting on insetting and offsetting projects, your company must make a clear distinction between emission reductions, carbon removals and carbon credits in order to meet the requirements of the CSRD.
What is the CSRD and which companies are affected by it?
The EU Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023. It is part of the European Green Deal, a series of initiatives designed to help EU member states achieve their climate targets and master the sustainable transformation. Previously, large public interest entities were required to prepare sustainability reports in the form of the Non-Financial Reporting Directive (NFRD; also known as CSR reports). With the CSRD, more companies are or will be obliged to disclose how they deal with social and environmental challenges and what impact sustainability risks have on companies.
The aim of the directive is to ensure that the companies concerned provide comprehensive information on sustainability impacts, risks and opportunities in relation to EU regulations and standards. They must draw up guidelines, set targets and report on their performance. The directive also emphasizes the integration of financial and sustainability reporting and underlines the financial relevance of sustainability reporting. It encourages companies to replace the term "non-financial information" with "sustainability information" to reflect the change:
"Many stakeholders find the term "non-financial" imprecise, especially because it implies that the information in question has no financial relevance. However, the information is always more financially relevant." Recital 8 of the CSRD
The CSRD is leading to a significant increase in the number of companies subject to sustainability reporting requirements. While the NFRD covered about 11,700 companies and groups across the EU, the CSRD is expected to increase the number to about 50,000, which corresponds to around 75% of all companies in the EU.
The introduction is taking place gradually:
- Large companies covered by the NFRD: Reports covering the 2024 financial year must be published in 2025.
- Large companies not previously covered by the NFRD:Reports for the 2025 financial year must be published in 2026.
- Listed SMEs, small and non-complex credit institutions, and captive insurance companies: Reports for the 2026 financial year must be published by 2027.
- Non-EU companies with significant operations in the EU (net turnover > €150 million) Reporting starts with the 2028 financial year, to be published in 2029.
What do the new reporting requirements entail?
Historically, companies have lacked concrete sustainability reporting requirements, which is why most of them have resorted to standards such as those of the Global Reporting Initiative (GRI). Under the CSRD, companies have to reoprt according to European Sustainability Reporting Standards (ESRS), which augments the reporting requirements regarding format, auditing, and scope.
The CSRD builds on previous frameworks to improve the accuracy and comparability of sustainability reporting. The aim of the CSRD is to integrate sustainability reporting more closely into financial reporting. It must therefore be included in a separate section of the annual report. The standardized, electronic format and labeling are intended to improve comparability with other companies for investors. In contrast to the NFRD, there will be a mandatory external audit.
As part of the CSRD, companies must disclose comprehensive sustainability information on their social, governance and environmental impacts. In addition to reporting on sustainability policies and initiatives, the directive requires companies to set clear sustainability targets and disclose their progress in achieving them. Sustainability risks are also playing an increasingly important role. And this is where the double materiality analysis comes into play.
Double materiality analysis along the entire value chain
The so-called double materiality analysis is a key focus for companies that are just starting their CSRD compliance journey. This increases complexity, as a company must not only recognize the ESG impacts (inside-out), but also the ESG risks and opportunities for the company (outside-in). Topics must be classified as relevant if they are important for business success or from an environmental or social perspective. Previously, topics were only classified as relevant if both were true. In addition, the CSRD extends the scope of application to the entire value chain, including suppliers, logistics service providers and consumers.
What role does CSRD play for your company’s Scope 3 projects?
Projects dealing with companies' Scope 3 emissions are becoming increasingly important as the CSRD introduces new legal requirements. A key element of the CSRD is the quantification of climate impacts through greenhouse gas inventories, including indirect Scope 3 emissions, such as those from raw materials, transportation and waste. These calculations enable your company to set scientifically sound climate targets for the years 2030 and 2050.
Under the disclosure requirement E1 - Climate Change, the ESRS introduces a clear framework for the disclosure of emissions, emission reductions, carbon removals and carbon credits, thus ensuring transparency and comparability between organizations. According to the directive, companies must clearly separate the reporting of greenhouse gas emissions (E1-6), reduction targets for greenhouse gas emissions (E1-4) and the use of carbon removals and carbon credits (E1-7). This separation ensures that emission reductions within the value chain are not confused with credits from projects outside the value chain that are used to offset unavoidable emissions.
How to report on your insetting and offsetting initiatives
When reporting on your initiatives under CSRD, your company needs to differentiate between three types:
In addition, under ESRS Disclosure Requirement 1, your company is required to report on your policies to address the identified impacts, risks and opportunities related to climate change, the actions you plan to take and your progress in implementing the plan. If your company sets a net zero target in addition to the E1-4 disclosure requirement targets for gross greenhouse gas emissions reductions, you must explain the scope, methodology and standards applied and how the unavoidable emissions will be offset, for example through carbon removals in your own value chain.
SBTi targets for CSRD compliance
As part of the CSRD, companies must disclose which guidelines or standards they use to set reduction targets. The Science-Based Target initiative (SBTi) is considered the "gold standard" for setting climate targets and implementing reduction strategies. By aligning your climate strategy with the SBTi, you not only support the goals of the Paris Agreement, but also ensure compliance with the CSRD requirements.
For land-intensive sectors, the SBTi has an additional FLAG guideline: Forestry, Land and Agriculture. It is tailored to emissions from land use and agriculture. The agriculture, forestry and land use (FLAG) sector is one of the most significant sources of global anthropogenic greenhouse gas emissions , accounting for around 23%. As it is such an important lever for achieving the 1.5 degree target of the Paris Agreement, a separate FLAG guideline has been developed.
The FLAG guidelines focus on companies in the food production, food and beverage processing, food retail and tobacco sectors. As part of the SBTi validation, affected companies are required to set a FLAG-specific target for reducing emissions from this sector in addition to the general, non-FLAG targets. The implementation of regenerative practices, such as diverse crop rotations and reduced fertilization, is a strategy for reducing emissions in agriculture and thus also for achieving the FLAG targets.
Financial materiality of a resilient agricultural supply chain
Following the CSRD's double materiality logic, agricultural productivity and the sustainability of food businesses are not only important from an environmental perspective, but also from a financial perspective. In addition to the significant impact of the agricultural sector on climate change, the potential financial impact of climate-related risks on your business is also likely to be material.
The effects of the climate crisis and degraded soils are reducing the productivity of agricultural land. This leads to unstable yields, price fluctuations and declining profitability for companies in the food industry. These developments can be counteracted by using regenerative practices. This can restore and maintain healthy soil structure and function, improving water retention and reducing erosion from wind and water.
Investing in regenerative practices helps to minimize climate-related financial risks and ensure profitability in agricultural supply chains. By promoting these practices, food companies not only reduce their Scope 3 emissions, but also demonstrate their resilience to investors, banks and other stakeholders. This builds confidence in their ability to manage climate risks and ensure long-term profitability.
At Klim, we have developed a scalable, strategic and farmer-centric approach to support the decarbonization of agricultural supply chains. Through our digital platform for farmers and the support of our dedicated project teams, we help your business to achieve the following goals:
- Overcoming obstacles for farmers, such as limited agronomic support and restricted access to transition capital
- Improving soil health, strengthening the resilience of farms and promoting biodiversity
- Carbon sequestration and reduction of agricultural emissions
Ready to future-proof your supply chain?Let's explore how Klim can accelerate your transition to regenerative practices.
Get more information on how to use the potential of regenerative agriculture in your business.
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What the CSRD Means for Food Companies’ Scope 3 Projects
The clock is ticking for food companies to ensure that their sustainability strategies meet the EU Corporate Sustainability Reporting Directive’s (CSRD) reporting standards. In this article, we’ll provide an updated overview of the CSRD, its implications for the food industry, and what your company needs to know to integrate insetting projects with regenerative agriculture effectively into compliance strategies.
Key messages:
- The CSRD extends sustainability reporting to around 50,000 EU companies and requires detailed information on environmental, social and governance aspects (environmental, social, governance, "ESG").
- A double materiality analysis is a must. Companies must assess the ESG impacts (inside-out) and the risks and opportunities that ESG factors represent for their company (outside-in) across the entire value chain.
- Scope 3 projects play an important role in aligning with CSRD standards. For food companies, investments in regenerative agriculture help with CSRD compliance. They support climate targets, address climate risks and stabilize supply chains.
- When reporting on insetting and offsetting projects, your company must make a clear distinction between emission reductions, carbon removals and carbon credits in order to meet the requirements of the CSRD.
What is the CSRD and which companies are affected by it?
The EU Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023. It is part of the European Green Deal, a series of initiatives designed to help EU member states achieve their climate targets and master the sustainable transformation. Previously, large public interest entities were required to prepare sustainability reports in the form of the Non-Financial Reporting Directive (NFRD; also known as CSR reports). With the CSRD, more companies are or will be obliged to disclose how they deal with social and environmental challenges and what impact sustainability risks have on companies.
The aim of the directive is to ensure that the companies concerned provide comprehensive information on sustainability impacts, risks and opportunities in relation to EU regulations and standards. They must draw up guidelines, set targets and report on their performance. The directive also emphasizes the integration of financial and sustainability reporting and underlines the financial relevance of sustainability reporting. It encourages companies to replace the term "non-financial information" with "sustainability information" to reflect the change:
"Many stakeholders find the term "non-financial" imprecise, especially because it implies that the information in question has no financial relevance. However, the information is always more financially relevant." Recital 8 of the CSRD
The CSRD is leading to a significant increase in the number of companies subject to sustainability reporting requirements. While the NFRD covered about 11,700 companies and groups across the EU, the CSRD is expected to increase the number to about 50,000, which corresponds to around 75% of all companies in the EU.
The introduction is taking place gradually:
- Large companies covered by the NFRD: Reports covering the 2024 financial year must be published in 2025.
- Large companies not previously covered by the NFRD:Reports for the 2025 financial year must be published in 2026.
- Listed SMEs, small and non-complex credit institutions, and captive insurance companies: Reports for the 2026 financial year must be published by 2027.
- Non-EU companies with significant operations in the EU (net turnover > €150 million) Reporting starts with the 2028 financial year, to be published in 2029.
What do the new reporting requirements entail?
Historically, companies have lacked concrete sustainability reporting requirements, which is why most of them have resorted to standards such as those of the Global Reporting Initiative (GRI). Under the CSRD, companies have to reoprt according to European Sustainability Reporting Standards (ESRS), which augments the reporting requirements regarding format, auditing, and scope.
The CSRD builds on previous frameworks to improve the accuracy and comparability of sustainability reporting. The aim of the CSRD is to integrate sustainability reporting more closely into financial reporting. It must therefore be included in a separate section of the annual report. The standardized, electronic format and labeling are intended to improve comparability with other companies for investors. In contrast to the NFRD, there will be a mandatory external audit.
As part of the CSRD, companies must disclose comprehensive sustainability information on their social, governance and environmental impacts. In addition to reporting on sustainability policies and initiatives, the directive requires companies to set clear sustainability targets and disclose their progress in achieving them. Sustainability risks are also playing an increasingly important role. And this is where the double materiality analysis comes into play.
Double materiality analysis along the entire value chain
The so-called double materiality analysis is a key focus for companies that are just starting their CSRD compliance journey. This increases complexity, as a company must not only recognize the ESG impacts (inside-out), but also the ESG risks and opportunities for the company (outside-in). Topics must be classified as relevant if they are important for business success or from an environmental or social perspective. Previously, topics were only classified as relevant if both were true. In addition, the CSRD extends the scope of application to the entire value chain, including suppliers, logistics service providers and consumers.
What role does CSRD play for your company’s Scope 3 projects?
Projects dealing with companies' Scope 3 emissions are becoming increasingly important as the CSRD introduces new legal requirements. A key element of the CSRD is the quantification of climate impacts through greenhouse gas inventories, including indirect Scope 3 emissions, such as those from raw materials, transportation and waste. These calculations enable your company to set scientifically sound climate targets for the years 2030 and 2050.
Under the disclosure requirement E1 - Climate Change, the ESRS introduces a clear framework for the disclosure of emissions, emission reductions, carbon removals and carbon credits, thus ensuring transparency and comparability between organizations. According to the directive, companies must clearly separate the reporting of greenhouse gas emissions (E1-6), reduction targets for greenhouse gas emissions (E1-4) and the use of carbon removals and carbon credits (E1-7). This separation ensures that emission reductions within the value chain are not confused with credits from projects outside the value chain that are used to offset unavoidable emissions.
How to report on your insetting and offsetting initiatives
When reporting on your initiatives under CSRD, your company needs to differentiate between three types:
In addition, under ESRS Disclosure Requirement 1, your company is required to report on your policies to address the identified impacts, risks and opportunities related to climate change, the actions you plan to take and your progress in implementing the plan. If your company sets a net zero target in addition to the E1-4 disclosure requirement targets for gross greenhouse gas emissions reductions, you must explain the scope, methodology and standards applied and how the unavoidable emissions will be offset, for example through carbon removals in your own value chain.
SBTi targets for CSRD compliance
As part of the CSRD, companies must disclose which guidelines or standards they use to set reduction targets. The Science-Based Target initiative (SBTi) is considered the "gold standard" for setting climate targets and implementing reduction strategies. By aligning your climate strategy with the SBTi, you not only support the goals of the Paris Agreement, but also ensure compliance with the CSRD requirements.
For land-intensive sectors, the SBTi has an additional FLAG guideline: Forestry, Land and Agriculture. It is tailored to emissions from land use and agriculture. The agriculture, forestry and land use (FLAG) sector is one of the most significant sources of global anthropogenic greenhouse gas emissions , accounting for around 23%. As it is such an important lever for achieving the 1.5 degree target of the Paris Agreement, a separate FLAG guideline has been developed.
The FLAG guidelines focus on companies in the food production, food and beverage processing, food retail and tobacco sectors. As part of the SBTi validation, affected companies are required to set a FLAG-specific target for reducing emissions from this sector in addition to the general, non-FLAG targets. The implementation of regenerative practices, such as diverse crop rotations and reduced fertilization, is a strategy for reducing emissions in agriculture and thus also for achieving the FLAG targets.
Financial materiality of a resilient agricultural supply chain
Following the CSRD's double materiality logic, agricultural productivity and the sustainability of food businesses are not only important from an environmental perspective, but also from a financial perspective. In addition to the significant impact of the agricultural sector on climate change, the potential financial impact of climate-related risks on your business is also likely to be material.
The effects of the climate crisis and degraded soils are reducing the productivity of agricultural land. This leads to unstable yields, price fluctuations and declining profitability for companies in the food industry. These developments can be counteracted by using regenerative practices. This can restore and maintain healthy soil structure and function, improving water retention and reducing erosion from wind and water.
Investing in regenerative practices helps to minimize climate-related financial risks and ensure profitability in agricultural supply chains. By promoting these practices, food companies not only reduce their Scope 3 emissions, but also demonstrate their resilience to investors, banks and other stakeholders. This builds confidence in their ability to manage climate risks and ensure long-term profitability.
At Klim, we have developed a scalable, strategic and farmer-centric approach to support the decarbonization of agricultural supply chains. Through our digital platform for farmers and the support of our dedicated project teams, we help your business to achieve the following goals:
- Overcoming obstacles for farmers, such as limited agronomic support and restricted access to transition capital
- Improving soil health, strengthening the resilience of farms and promoting biodiversity
- Carbon sequestration and reduction of agricultural emissions
Ready to future-proof your supply chain?Let's explore how Klim can accelerate your transition to regenerative practices.
Chiara Zastrow
Chiara Zastrow is fascinated by nature-based climate solutions and their relevance for companies' sustainability strategies. With her background in marketing and environmental economics, she provides insights into the latest developments on the market and shows how companies can take action.
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Biodiversity and climate protection: co-benefits in climate protection projects
