The Corporate Sustainability Reporting Directive (CSRD) aims to enhance corporate transparency and accountability by mandating comprehensive sustainability reporting. One critical aspect of CSRD is the implementation of sector-specific standards. These standards tailor sustainability reporting requirements to the unique risks and opportunities different industries face.
In this article, we'll explain the significance of sector-specific standards under the CSRD and provide detailed guidance on how companies can comply with the Directive.
What are sector-specific standards under CSRD?
Sector-specific standards under CSRD are designed to address the individual sustainability impacts, risks, and opportunities prevalent within specific industries. Unlike cross-cutting or topical standards, which apply universally, sector-specific standards cater to the unique characteristics of different sectors, ensuring more relevant and precise sustainability reporting.
Leading companies utilise CSRD reporting software to manage their efforts toward improved ESG performance and compliance with ESG regulations.
Key elements of sector-specific standards
1. Tailored reporting requirements
Sector-specific standards provide detailed guidance on the sustainability topics that are most significant to particular industries. These standards ensure companies report highly relevant issues to their operations and stakeholders. Thus, they address environmental, social, and governance (ESG) topics linked to topical standards that must be covered adequately.
2. Consistency and comparability
By applying sector-specific standards, companies within the same industry can achieve high consistency and comparability in their sustainability reports. This benefits investors and other stakeholders seeking to compare performance across similar businesses.
3. Additional layers of detail
Sector-specific standards add granularity to existing sustainability topics, potentially increasing the number of sub-topics or sub-sub-topics considered in the materiality assessment. This allows for a more precise understanding of sector-specific impacts and risks.
Implementing sector-specific standards
1. Identifying relevant standards
Companies need to identify which sector-specific standards apply to their operations. These standards are based on industry classifications, such as those defined in the NACE Rev. 2 classification system, a statistical classification of economic activities in the European community.
2. Materiality assessment
Conducting a thorough materiality assessment is crucial. This assessment helps companies identify which sector-specific sustainability matters are significant for their business. The evaluation should consider the external impacts of business operations and the financial implications of sustainability issues.
3. Reporting and disclosure
Companies must disclose detailed information on the identified material sustainability matters. This includes describing the governance structures, strategies, and management processes to address these matters. Sector-specific disclosures should be integrated with general European Sustainability Reporting Standards (ESRS) reporting requirements, ensuring a cohesive and comprehensive sustainability report.
4. Transitional provisions
As sector-specific standards are phased in, companies may use transitional provisions to adapt their reporting processes. These provisions allow companies to initially use entity-specific disclosures, informed by existing best practices and frameworks such as International Financial Reporting Standards (IFRS) or Global Reporting Initiative (GRI), until sector-specific standards are fully implemented.
Benefits of sector-specific standards
1. Enhanced relevance
Sector-specific standards, tailored to specific industry contexts, ensure that the reported information is highly relevant to stakeholders, enhancing the utility of sustainability reports.
2. Improved stakeholder engagement
By addressing sector-specific issues, companies can engage more effectively with stakeholders who are mainly concerned with specific industry-specific impacts.
3. Better risk management
Detailed sector-specific disclosures enable companies to identify, assess, and manage ESG risks pertinent to their industry, thereby improving overall risk management strategies.
Sector-specific standards are pivotal to the CSRD framework, designed to provide industry-tailored sustainability reporting requirements. By implementing these standards, companies can ensure that their sustainability reports are highly relevant, consistent, and comparable, enhancing transparency and accountability. Leveraging sector-specific standards will support compliance, strengthen stakeholder trust, and improve long-term business resilience.
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