CSRD: small acronym, big changes

If you already know what the acronym ‘CSRD’ stands for, then there’s a fair chance you’re involved in the work to comply with it. If you don’t, then you might want to stick around. Because while the title ‘Corporate Sustainability Reporting Directive’ gives distinctly beige vibes, it’s about to give us more information on companies and their approach to sustainability than ever before. Think of it as a new scorecard for environmental and social impact.

From 2025 onwards, large companies will need to disclose information on over a thousand specific elements. This will cover everything from greenhouse gas emissions, waste generation and climate change risks, to diversity, human rights, employment conditions and community engagement. It even includes cyber security, data privacy, corruption and bribery amongst many other things. How businesses operate will come under scrutiny, and so will the credentials of all the companies that they buy from and sell to. The resulting report that the EU has set out is designed to be scrutinised by auditors, but it will also be on the public record. So, in theory, anyone will be able to use this information to judge which brands they want to spend money with – or not.

The idea is, of course, to make organisations accountable for their actions (or inaction) across a range of environmental, social and governance areas. The first reports must be ready by 2026, covering the previous financial year and smaller companies will start this work a year later, giving them extra time to prepare and adjust to the demands of a task that takes a significant amount of time and resource. Part of this is due to the rigors of what is called ‘double materiality’, which means that companies now have to report two ways – on how their activities affect the environment and society (impact materiality) and also how environmental and social issues affect their business (financial materiality).

Overall, some 50,000 companies will need to produce these reports. And as it raises the bar on transparency for sustainability, employment conditions and governance across the EU, it could lead to a system of sanctions, such as fines, on those not meeting what is expected of them and who can’t demonstrate work in progress.

“Because it’s not just a one-off report,” explains Peter Bragg, our Sustainability & Government Affairs Director. “This is an annual activity, which will mean a fundamental change for so many businesses. It will also be an important driver that informs everyone’s approach to sustainability and broader strategy in the future.”

Dirk Meier, Senior Project Director for our implementation of CSRD across Canon EMEA adds, “Not only that, CSRD will also bring financial information, non-financial information and assurance together for the first time in one cohesive view.” This means that the CSRD will give auditors, customers, stakeholders and employees a clear view of progress, which is basically the point.

This entirely transparent way of reporting also means that underperforming businesses risk reputational damage, with all the potential impacts on the bottom line that this alone can bring. For example, depending on where they fall down, it could also open them up to legal challenges from concerned citizens, environmental groups and even employees.

This is a level of risk which is raising concerns for many organisations, especially smaller businesses. Both around the immediate investment involved in meticulously analysing their current business practices and also the need to put solutions in place to improve any areas of concern. “It will potentially be a huge cultural shift for many organisations,” says Peter. “But while there will be a short-term impact on revenue, it shouldn't be something to be scared of.” Dirk adds, “The very fact that all companies will have to go public will drive change, which means better business in the longer term.”

But what of the companies that have subsidiaries in the EU? Well, in 2028, the CSRD extends out of the EU and goes global, requiring parent companies to also comply with the directive. And this too can surely only be a good thing. “The link between companies that have strong sustainability and strong financial outcomes is well established,” says Peter. “Of course, it is generally understood that these are just well-run companies - that they have deep knowledge of the broader issues of risk, they seek to future-proof from an operational perspective and know the importance of happy employees.”

And this is a really important point. So many companies, us included, have already been keeping close tabs on sustainability for some years, even while it hasn’t been legally required. For us, it’s something we do because we believe that looking after people and the planet is the key to success and opens the door to new possibilities. This is closely tied to our philosophy of Kyosei – living and working together for the common good. To us, the CSRD is simply a means to ensure that the same high standards apply across all businesses, for the benefit of society as a whole. As Peter points out, “We are committed to becoming more sustainable and helping our customers and partners to become more sustainable too, so why wouldn't we embrace something that will hopefully accelerate that process?”

Learn more about sustainability at Canon and how we are transforming the way we operate and manufacture to shape a more sustainable world for people and for our planet.