The Next Economy
Preparing for the CSRD’s Impact on US Companies

Big changes are coming to corporate sustainability reporting in the European Union and soon in the rest of the world. Starting in fiscal year 2024, the first wave of in-scope companies will be required to disclose ESG impacts under the EU’s Corporate Sustainability Reporting Directive (CSRD). The CSRD overhauls the 2014 Non-Financial Reporting Directive — the EU’s current sustainability framework — and aims to improve the quality of data for investors while helping the EU meet its policy goals under the European Green Deal.

In addition to requiring more robust reporting on environmental and human rights impacts and sustainability-related risks, the CSRD drastically increases the number of in-scope companies from around 12,000 to over 50,000.

And that’s not just EU companies. Like many recent rulings coming out of the EU, the CSRD is designed to drive the rest of the global economy towards meaningful action and ESG disclosure. Over 10,000 non-EU companies, including around 3,000 US companies, will be subject to the CSRD in the coming years.

Read on to learn how the CSRD will impact US companies, what they’ll need to disclose, and what steps they should take to prepare.

Decoding the jargon: CSRD & the ESRS

If you’re familiar with the CSRD, you may have heard of the European Sustainability Reporting Standards (ESRS). The 12 standards lay out the reporting requirements of the CSRD — covering topics including Climate Change, Biodiversity, Own Workforce and Value Chain Workers.

The European Commission recently proposed some changes to the ESRS, allowing companies with less than 700 employees to omit Scope 3 and Own Workforce disclosures during the first year. Another key change is that, except for ESRS 2 (General Disclosures), all standards are subject to double materiality assessments. In other words, you only need to report on topics you deem material to your business. Read about the other changes here.

Don’t forget about the EU taxonomy

Is your business in scope under the CSRD? That means you’ll also have to disclose your company’s percentage of turnover, revenue and capital expenditures aligned with the six EU taxonomy objectives.

Steps to prepare

Non-EU companies subject to the CSRD will submit their first disclosures in 2029 for the FY 2028 reporting year. That may seem far away; but many of the steps you’ll need to take to comply with the standards require years of planning and implementation.

Create a cross-functional working group

To gather the information needed for CSRD compliance, ESG needs to be integrated into your standard business functions – at a minimum risk, legal, procurement and finance. You simply won't be able to make it happen as a siloed ESG department. This is especially true when it comes to nuanced ESRS topics such as Biodiversity, Circularity and Value Chain Workers.

Conduct a double materiality assessment

Double materiality is a defining feature of compliant CSRD reporting. Using the 12 ESRSs as a guide, conduct a double materiality assessment to determine which ESG topics financially impact your business and how your business impacts those issues.

Note: Even though the ESRSs are subject to double materiality, don’t just write off the hard topics — Biodiversity, Value Chain Workers, Affected Communities and others — as these issues impact nearly all companies. Just because it might be more challenging to gather data on these topics (compared to, say, Climate Change — which has a quantifiable, agreed-upon set of KPIs), that doesn’t mean you can ignore them.

Create a climate-transition plan

As part of your Climate Change disclosure, you’ll need to create a 1.5C°-aligned climate-transition plan. How will you reduce your biggest Scope 1 and 2 emissions sources (including fuel and energy use)? Does your business model (or part of it) need to change to support a net-zero economy? Developing a plan means engaging business leaders from your cross-departmental working group and getting tactical about the possibilities — it'll be an all-hands-on-deck effort!

Build a strategy for Scope 3 emissions

Although it remains to be seen whether the SEC will mandate Scope 3 reporting, the CSRD is crystal clear. Scope 3 disclosure is required for all in-scope companies. Establishing effective reporting processes with your suppliers can take years, let alone implementing a Scope 3 reduction plan. Don’t put this step off — remember that by FY 2028, your 2030 GHG emissions goals will only be 1-2 years away.

If you don’t have a Scope 3 strategy, your first task will be opening lines of communication with your suppliers — all the way down to the source. Be sure to clearly communicate expectations and data reporting requirements. We strongly recommend using a supplier management platform such as CDP Supply Chain or EcoVadis to collect data, engage your suppliers and monitor progress.

Educate your Board on sustainability

Part of your General Disclosures include Board oversight of sustainability issues and their involvement in managing risks and opportunities. For many companies, education is the first step. Consider screening new Board members for competence on ESG topics and work towards adopting a governance structure that meaningfully incorporates Board and Executive oversight.

Engage an assurance provider

As a US company, your disclosures will be subject to reasonable assurance right off the bat. If you don’t have an assurance provider, engage one now to get their advice upfront. Ensure you understand the expectations, so you can develop your programs and disclosures with these in mind. At a minimum, you'll need a clear audit trail and documentation of processes and controls to support your disclosures.

---

As with many recent ESG policies in the EU, the CSRD has far-reaching implications. Even if you’re not officially in scope under the CSRD, it pays to stay ahead of the curve. Frameworks and regulations coming out of the EU have always been indicative of where the world is headed on ESG and corporate accountability.

Regulation aside, investor expectations will only continue to rise. Your ability to produce auditable ESG reports with investor-ready information is crucial for survival in the decades ahead.