CSRD compliance for asset managers

In a significant shift within the European Union’s approach to corporate sustainability, the Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023. This directive, replacing the Non-Financial Reporting Directive (NFRD), marks a new era in sustainability reporting.

With its initial reporting phase having commenced on January 1, 2024, businesses previously covered under the NFRD are now transitioning to the new standards set by the CSRD.

CSRD vs. NFRD: Understanding the changes

The CSRD differs fundamentally from its predecessor, the NFRD, particularly in its approach to materiality. Known as ‘double materiality,’ this approach mandates that companies report how sustainability issues affect their business and how their business activities impact society and the environment. This broader scope of reporting aims to provide a more comprehensive understanding of a company’s sustainability performance.

The CSRD is a game-changer for asset managers and companies across the EU. It extends the scope of applicability far beyond the NFRD, encompassing a wider range of companies. It now applies to:

  • All large companies, both public and private, meeting specific size criteria (exceeding certain thresholds in terms of employee numbers, turnover, or balance sheet totals).
  • All companies listed on regulated markets, except for micro-enterprises.
  • Companies classified as being of public interest, such as banks and insurance companies, regardless of their size.

This expansion means that a significant number of businesses that were not previously obliged to report under the NFRD will now need to comply with the CSRD. This includes many medium-sized companies that play pivotal roles in the European economy. These entities must now adhere to more detailed reporting requirements, ensuring greater transparency and consistency in sustainability reporting across the EU.

Integration with other reporting frameworks

The CSRD is designed to be interoperable with other global reporting frameworks. Key among these are the Task Force on Climate-related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI), and the Sustainable Accounting Standards Board (SASB) standards. This alignment ensures that the CSRD is part of a broader, cohesive global effort towards sustainable business practices. It also aids companies in creating reports that are comprehensive and globally relevant, simplifying the reporting process for businesses operating internationally.

Carbon accounting

A significant aspect of the CSRD is its emphasis on environmental impact, particularly carbon accounting. This shift towards detailed carbon footprint reporting recognises the urgent need for climate action. While this transition may entail short-term work for companies in adapting their reporting processes, the long-term gains are substantial. Enhanced carbon accounting leads to more informed decision-making, better risk management, and ultimately contributes to global efforts to combat climate change. Asset managers, therefore, must view this as an investment in sustainable future growth.

The role of engagement using SI Engage

Engagement with portfolio companies is more crucial than ever under the CSRD. Asset managers need effective tools and strategies to navigate these complex reporting requirements. SI Engage emerges as a vital resource, offering tailored solutions to help asset managers and companies alike in comprehensively understanding and implementing CSRD requirements.

By choosing SI Engage, asset managers can ensure that they are both compliant with the CSRD and at the forefront of sustainable investment practices.

The CSRD represents a significant advancement in corporate sustainability reporting, demanding higher transparency and accountability from companies. Asset managers must adapt to these changes, and with SI Engage, they have a powerful ally in meeting these new challenges. The importance of robust engagement strategies cannot be overstated in this new era of sustainability reporting, making SI Engage an indispensable tool for those seeking to lead in sustainable investment.

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