What does the CSRD cover and who is affected?

The CSRD is part of the European Green Deal, a package of political initiatives that sets guidelines to achieve the necessary change and climate neutrality in the member states. Previously, large companies in particular were required to produce sustainability reports in the form of the Non Financial Reporting Directive (NFRD, also known as CSR reports). With the new regulation, a larger number of companies will be required to publish how they deal with social and environmental challenges and the impact of sustainability risks on the company. 

While the NRFD only requires companies with more than 500 employees to report, the CSRD includes all large companies: Companies with more than 250 employees and/or sales of more than €40 million and/or total assets of more than €20 million, as well as all listed companies (with the exception of micro-enterprises) must comply with the directive. 

Compared to about 11,000 EU companies that have been obliged to comply with the NRFD so far, about 50,000 companies will have to comply with sustainability reporting in the future - this corresponds to about 75% of all EU companies.[1] So far, only about 550 capital market-oriented companies in Germany fall within the scope of the NRFD.[2] This will change fundamentally as a result of the new regulation. Non-European companies with branches or subsidiaries with net sales of €150 million in the EU will also be included at a later date.

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What does the new reporting include compared to the NRFD?

The previously voluntary guidelines for NRFD reports will be replaced by detailed mandatory reporting requirements with the CSRD. Until now, companies have often lacked concrete reporting requirements, which is why most of them have resorted to standards such as those of the Global Reporting Initiative (GRI). 

Companies must disclose the following information in the future:

• Protection of the environment
• Social responsibility and treatment of employees
• Respect for human rights
• Anti-corruption and bribery
• Diversity on the corporate boards 

The new regulation also requires companies to report potential sustainability risks. They are to increasingly list the negative social and environmental impacts of their business activities - along the entire value chain, even if these do not pose any direct financial risks. According to the so-called "principle of materiality perspective," issues are to be classified as relevant if they are material either for business success or from an environmental or social perspective.[3] Until now, issues have only been classified as relevant if both are true, which, if strictly interpreted, can result in only a few issues being reportable.[4]

For high-risk areas, including agriculture, forestry and manufacturing, further sector-specific standards are to be introduced. Using these standards, companies are to describe their business model and strategy and demonstrate how resilient they are with regard to sustainability aspects.[5]

If companies deviate from this comprehensive reporting of their value chain, they will only be exempt for the first three years if they provide a valid reason why they could not obtain the information and can explain how they will obtain the information in the future.

According to the directive, reporting is to take place in a separate section of the management report in the future. Up to now, the regulation has been such that the companies concerned can choose whether to publish the sustainability information in the management report, in some places or in a separate report. A uniform, machine-readable XHTML format is intended to improve comparability with other companies for investors, among others. In contrast to the previous regulation, there will be a mandatory external audit in the future - initially with limited assurance, by 2028 with a possible tightening to reasonable assurance. The audit assurance is thus comparable to that for financial reporting. 

Table: Comparison of previous NRFD directive and future CSRD directive

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What does the directive mean for food businesses?

With the CSRD, the European Union is broadening corporate responsibility: they must account not only for the socio-ecological impact of their own company and their production processes, but also for that of the entire upstream and downstream supply chains.

For food companies, the directive will in future require a more stringent analysis and reporting of the entire corporate structure and, among other things, the value chain, in order to be able to disclose correct information, e.g. on environmental protection or compliance with human rights. They are required to report the resource consumption and greenhouse gas emissions of their entire business activities in a standardized document. To capture all these risks, companies need appropriate data from suppliers and producers. However, agri-food value chains are often fragmented and globally distributed, so transparency and documentation can be challenging. 

However, the upstream agricultural sector and the processing industry are exposed to massive risks due to climate change impacts and should therefore be given more attention by food companies. For example, yield risks and_{CO₂ emissions} in supply chains can be mentioned. Other risks that can jeopardize upstream supply chains include rising energy and oil prices, which can stall the transportation and distribution of goods. 

Klim supports food companies in identifying_{CO₂ savings potential in} the value chains and creating reduction paths: Together with companies, farmers and suppliers, we carry out projects that reduce_{CO₂ emissions} in upstream production and establish regenerative supply chains. Within the project, we collect_{CO₂ data} in accordance with the GHG Protocol, so that the savings can be taken into account for corporate climate targets. If you want to know more about it, please have a look here. You can also learn more about emissions and risks in the upstream and downstream value chains of food companies in one of our articles and find out how you can reduce emissions in your upstream supply chains in this post.

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Sources:

[1][2][3][4][5]

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