This is the second part of the series in CSRD Reporting : Building the Narrative. This post will discuss the overall timelines, implementation and integration of CSRD metrics as well as how Mount Consulting can help build the narrative.

Timelines

The CSRD reporting has a phased implementation plan to ensure a smooth transition for companies towards comprehensive sustainability reporting. The timelines for compliance are structured to gradually include different categories of companies, an increased scope of data points included and finally to require a reasonable accountant’s assurance on the report.

2024: Initial Phase for NFRD Companies

By the end of 2024, all companies currently covered under the Non-Financial Reporting Directive (NFRD) will be required to comply with the new CSRD reporting standards. These companies must prepare their sustainability reports using the twelve European Sustainability Reporting Standards (ESRS), which have recently been finalized by the European Financial Reporting Advisory Group (EFRAG). In the initial phase, a total of 176 data points are mandatorily required, irrespective of a double materiality check. Another 647 data points are required depending on a double materiality check and finally 247 data points can be reported voluntarily for the first year but will become mandatory in a later phase. Since ESRS 1 contains general guidelines, no data points as such have been published. 

2025: Inclusion of Large Companies

Starting from 2025, the scope of CSRD reporting will expand to include large companies that were not previously covered by the NFRD. These organizations will also need to align their sustainability reporting with the twelve ESRS data points. Large companies in this context means companies which meet 2 of the following 3 criteria;

1) Net turnover > €40M

2) Balance > €20M

3) Average FTE count of > 250

2026: Compliance for Listed SMEs

By 2026, listed small and medium-sized enterprises (SMEs) will be required to comply with the CSRD reporting requirements. This inclusion reflects the EU’s commitment to ensuring that even smaller, publicly traded companies contribute to the overarching goals of corporate sustainability and transparency. The extension to listed SMEs ensures a more comprehensive market-wide adherence to sustainability reporting standards. This is also the first year in which an accountant’s limited assurance will be required for the sustainability report.

Assurance requirements

The CSRD also sets forth a timeline for the assurance of sustainability reports, highlighting the importance of reliability and credibility in ESG disclosures.

• 2026: Starting in 2026, companies must obtain limited assurance on their sustainability reports. Limited assurance involves a review of the report by an independent accountant, providing a moderate level of confidence in the accuracy and completeness of the disclosed information.
• 2028: By 2028, the requirement escalates to reasonable assurance. Reasonable assurance involves a more thorough examination and validation by an independent accountant, offering a higher degree of confidence in the reported data. This progression underscores the increasing emphasis on the verifiability and integrity of sustainability information.

Implementation and Integration

Integration of CSRD metrics in business landscape

Financial institutions should not treat their sustainability reports as separate documents with distinct measures; instead, these efforts should be seamlessly integrated into their regular finance and accounting processes. Several requirements of the CSRD focus on the financial aspects of sustainability matters, such as the need for institutions to disclose their GHG intensity based on net revenue. By embedding sustainability metrics within their standard accounting and financial systems, institutions can ensure that sustainability initiatives are an intrinsic part of their overall business strategy. This integration allows organizations to demonstrate and manage their impacts on ESG matters more effectively.

The quality and reliability of CSRD disclosures will greatly benefit when sustainability becomes a routine part of the company’s financial reporting. Furthermore, an integrated dataset that is accessible across the institution not only ensures better financial, regulatory, and sustainability reporting but also plays a crucial role in risk management. By consolidating data across various departments and ensuring its alignment with both sustainability goals and financial metrics, institutions can more accurately assess and mitigate risks associated with their operations and investments. This includes identifying potential ESG-related risks that could impact the financial health of the institution, such as climate-related risks, regulatory changes, or reputational risks.

A robust and unified data architecture supports better decision-making, enabling institutions to proactively manage these risks and adjust their strategies accordingly. Aligning sustainability reporting with the requirements of the EU Taxonomy and Pillar III, which mandate reporting on total exposures to certain industries and the green asset ratio, ensures comprehensive and consistent reporting across all regulatory frameworks. This approach enhances transparency, accountability, and risk management, ultimately strengthening the institution’s ability to steer its business model toward sustainable outcomes while making sustainability an integral part of business as usual.

Data collection and tooling

While the integration of sustainability efforts into regular finance processes is essential, it also presents significant challenges, particularly in the collection of the required data for CSRD reporting. Many institutions may find that they do not yet have all the necessary data available within their existing systems, nor do they collect them in their operations. The scope of data required for comprehensive sustainability reporting—covering areas such as GHG emissions, pollution levels, and social impacts—is extensive and often spans multiple departments and external sources.

For financial institutions specifically, a significant portion of the data collection will likely pertain to their financed assets. To collect data on their financed assets can be particularly difficult when this financing is provided to organizations that are not themselves obligated to report under CSRD. In such cases, financial institutions must find innovative and effective ways to gather the necessary data to ensure compliance with CSRD requirements across their entire portfolio. This may involve developing new data collection methodologies, engaging more closely with borrowers and investees, or leveraging third-party data providers.

Despite these challenges, it is crucial for institutions to begin gathering this data as soon as possible. Early data collection not only ensures that the CSRD reporting can be completed adequately but also helps institutions prepare for the reasonable assurance requirements that will be enforced by 2028. Moreover, having a robust and integrated dataset will be critical for making informed business decisions that align with sustainability goals. Proactively addressing these data collection challenges now will pave the way for more accurate, reliable, and actionable sustainability reporting in the future.

As financial institutions tackle the challenges of data integration and collection for CSRD and other sustainability reporting requirements, the role of ESG data vendors becomes increasingly significant. However, before engaging with external vendors, it is vital for organizations to first gain a clear understanding of their data needs. This involves conducting a thorough assessment of what data is already available within their own systems, often spread across different departments such as finance, risk management, compliance, and operations. By mapping out existing data, institutions can identify any gaps that need to be filled. Once these gaps are understood, organizations can explore the various ESG data vendors that offer solutions tailored to specific needs, whether it be for environmental metrics, social indicators, or governance data. Selecting the right vendors to fill these gaps is crucial to ensure comprehensive and accurate sustainability reporting.

How Mount Consulting can help to build your narrative

This paper has detailed the extensive data demands placed on organizations by the CSRD reporting requirements. The CSRD is designed to be the annual report for environmental, social, and governance matters, compelling companies to rethink their business processes and integrate sustainability metrics into their current business landscape. The phased-in approach of assurance and the gradual introduction of mandatory data points may initially seem manageable, but the complexity and demands will quickly increase. Data-driven reporting is essential, even for the many qualitative requirements of the CSRD, as it ensures that companies can provide accurate and reliable narratives. Additionally, with significant overlap between CSRD and other ESG reports, such as Pillar III, SFDR, and benchmark reporting, establishing a solid data structure is crucial for meeting multiple reporting obligations simultaneously. Early preparation and a strategic approach to data management and integration will be key to successfully navigating the CSRD’s rigorous demands.

How Mount Consulting Can Help

1. Designing and Changing Operating Models: At Mount Consulting, we specialize in designing and updating operating models to fully integrate sustainability metrics into your organization’s existing processes. By embedding CSRD requirements into your business’s financial and operational processes and systems, we ensure that your company is well-prepared to meet the challenges of sustainability reporting and leverage compliance as a strategic advantage.
2. Requirement and Data Gap Analysis: We assist in conducting comprehensive requirement and data gap analyses. We help organizations identify what data is needed, what is already available within their systems and what is missing. This process ensures that all necessary data is gathered for accurate and complete CSRD reporting.
3. Data Vendor Selection: Mount Consulting also excels in assisting organizations in selecting the right data vendors to fill any potential gaps. With our extensive experience, we can identify the most suitable vendors to provide the required data, ensuring that your organization has access to high-quality, reliable information.

If you are interested in discussing how Mount Consulting can assist with your CSRD preparations or any other topics covered in this paper, please do not hesitate to reach out to us.