The 3 stages of CSRD maturity
And why it’s crucial to start preparing for the final stage
The Corporate Sustainability Reporting Directive (CSRD) marks a pivotal shift towards transparency and accountability for European businesses. This game-changing legislation mandates companies to reveal crucial Environmental, Social & Governance (ESG) data, paving the way for a more sustainable future. In this blog post, let’s explore the three stages of CSRD maturity and understand why it’s crucial to kickstart preparations for the ultimate stage sooner rather than later. Additionally, we’ll share essential questions to consider when choosing the right software tool to support your journey in stage 3.
The CSRD timeline: Who needs to comply?
Let’s start by outlining the CSRD compliance timeline, ensuring you have a clear understanding of when your organization needs to take action. The EU CSRD regulation unfolds in four distinct phases:
- Companies already governed by the Non-Financial Reporting Directive (NFRD) must initiate reporting in 2025, detailing their activities for 2024.
- Large companies not currently subject to the NFRD are slated to commence their reporting obligations in 2026, encompassing their data for 2025.
- Listed SMEs (excluding micro undertakings), small and non-complex credit institutions, and captive insurance undertakings are scheduled to embark on their reporting in 2027, reflecting their performance for 2026.
- International companies with a net turnover exceeding €150 million within the EU, meeting all other CSRD requirements, are set to begin their reporting journey in 2029, covering their activities for 2028.
Stage 1: Understanding CSRD’s impact
In the initial stage of CSRD maturity, companies grapple with a fundamental question: “What is the CSRD, and how does it affect us?” This represents a pivotal moment where organizations come to grips with the profound implications of this legislation. The Corporate Sustainability Reporting Directive (CSRD) brings forth three primary implications for organizations:
1. Enhanced transparency and accountability
The CSRD mandates organizations to disclose comprehensive Environmental, Social & Governance (ESG) information. This requirement significantly bolsters transparency, enabling stakeholders to gain deeper insights into an organization’s sustainability practices. Companies must be ready to share detailed ESG data, which can significantly impact their reputation and stakeholder trust.
2. Standardized reporting requirements
CSRD introduces standardized reporting requirements for ESG data, simplifying stakeholder comparisons and evaluations of sustainability performance across various organizations. This standardization promotes consistency and credibility in sustainability reporting. Companies will need to adapt their reporting processes to align with these standardized formats. The exact requirements are described in the European Sustainability Reporting Standards (ESRS).
3. Expanded scope and compliance commitments
CSRD broadens the scope of companies subject to sustainability reporting obligations compared to its predecessor, the Non-Financial Reporting Directive (NFRD). This means that more organizations, including Small and Medium-sized Enterprises (SMEs), must adhere to sustainability reporting requirements. Organizations will have to invest in systems, processes, and expertise to gather, validate, and report ESG data accurately and efficiently.
Stage 2: Collecting and consolidating ESG data
Once companies have recognized the significance of CSRD, the next phase centres on answering the question, “How can we efficiently gather and consolidate the relevant ESG data?”
Collecting and consolidating Environmental, Social & Governance (ESG) data in compliance with the Corporate Sustainability Reporting Directive (CSRD) carries several key implications for organizations. Here are the three primary considerations during this process:
1. Data quality and precision
One of the central implications of collecting and consolidating ESG data for CSRD compliance is the imperative of maintaining data quality and accuracy. Organizations must ensure that the data they collect is reliable, comprehensive, and error-free. This necessitates robust data collection processes, validation procedures, and data management systems to prevent inaccuracies that could undermine the credibility of their sustainability reporting.
2. Data standardization and uniformity
CSRD advocates standardized reporting, which extends to the data collection and consolidation phase. Organizations should align their data collection methods with CSRD requirements to ensure consistent reporting across different periods and within the industry. Standardization simplifies the comparison of ESG data, making it more meaningful to stakeholders.
3. Resource allocation and expertise
The collection and consolidation of ESG data for CSRD compliance often require substantial resources, both in terms of time and expertise. Organizations may need to invest in specialized software, tools, and personnel with the requisite skills to manage and analyze ESG data effectively. Strategically allocating these resources is vital to meeting CSRD reporting obligations efficiently.
Stage 3: Preparing for inline XBRL (iXBRL) reporting
The final and, perhaps, the most critical phase of CSRD maturity revolves around generating the mandatory report in Inline XBRL (iXBRL) format. iXBRL combines XHTML and XBRL code, ensuring both human and machine readability. The iXBRL report must be audited and filed.
Preparing an iXBRL report brings several implications for organizations. Here are the three primary considerations:
1. Structured and precise data reporting
iXBRL necessitates organizations to tag and structure their sustainability data precisely and uniformly. This level of detail guarantees that the data is machine-readable and can be easily analyzed by both regulators and stakeholders. The implication for organizations is the need to invest in accurate tagging processes and software tools to ensure the data’s correct representation. This can be time-consuming and may require training for employees responsible for reporting.
2. Digital-First approach
The iXBRL format encourages organizations to embrace a digital-first approach to reporting. This entails creating the report directly in native XHTML, rather than converting it from other formats like Word or PDF. A Digital-First approach offers benefits such as better-structured code, improved readability, and enhanced navigation. However, organizations must adapt their reporting processes to generate documents in this Digital-First format, which may entail workflow adjustments and technology adoption. Read more about the benefits of a Digital-First workflow in this blogpost: “How to Ensure ESEF and CSRD Compliance – and Elevate Your Annual Reports with a Digital-First Approach”
3. Investment in software and expertise
To produce an CSRD report, organizations often need specialized software and expertise. They may need to invest in software tools that can generate iXBRL documents and support the tagging process efficiently. Additionally, organizations may require the expertise of professionals who understand iXBRL and can ensure compliance with the format’s requirements. This investment in software and expertise is necessary to produce accurate and compliant iXBRL reports.
Guided checklist for choosing the right iXBRL reporting software
When selecting a software tool for the production of your iXBRL report first find an answer to the following questions:
Q: Do you have to comply with CSRD only or also with ESEF?
A: If so, you need a solution that is capable of tagging both non-financial information using the CSRD taxonomy and financial information using the ESEF taxonomy.
Q: Do you want to publish your report in multiple formats?
A: If you want to publish your corporate report not only as an iXBRL publication but also as a PDF and possibly as a dynamic website to increase the accessibility of your report, you need a solution that is capable of multichannel publication.
Q: Do you want to publish a fully designed iXBRL report?
A: If so, you need a solution that enables your creative agency to design and produce an engaging corporate report in an efficient manner.
Q: Does the solution offer a Digital-First workflow?
A: As mentioned above, a Digital-First workflow offers great benefits when producing an iXBRL report compared to a more traditional PDF-First approach.
Final thoughts
In conclusion, the final stage of CSRD maturity involves the publication of an iXBRL report. Preparing for the publication of an Inline XBRL report is not a task to be taken lightly. It involves selecting a software platform that can meet the diverse needs of multiple departments within your organization, including finance, communications, and the ESG department. It also means you will have to adapt your reporting process to streamline the “last inch” in reporting.
That’s why it’s crucial to start preparing in time!
Is your annual reporting ready for the future?
As regulations become increasingly stringent, and stakeholder expectations rise, annual financial and non-financial reporting will grow more complex. Fortunately, innovative software solutions are emerging to transform reporting into a positive experience for your team and stakeholders.
With the right Digital-First tools, you can seamlessly integrate ESEF and CSRD compliant XBRL tags and publish your reports in multiple appealing formats, including mandatory iXBRL, PDF, dynamic websites, or InDesign. This ensures compliance while enhancing corporate communication.
Learn more about how F19 can empower your organization to create the annual report of the future using our cloud-based, Digital-First reporting platform.