Challenges for businesses with CSRD:
- Wider Reporting Scope – Under CSRD, companies will need to report on a range of non-financial matters, including environmental, social, and governance (ESG) factors, with a greater focus on how these issues affect their business and how their operations affect the planet and society. This new directive applies to both large listed and non-listed companies, increasing the number of businesses subject to sustainability reporting from around 11,000 under the previous NFRD to about **50,000** under CSRD .
- Double Materiality – CSRD introduces the principle of double materiality, meaning companies need to report both:
- How sustainability issues affect the company (financial materiality).
- How the company’s activities impact society and the environment (environmental and social materiality).
- This requires companies to take a dual-lens approach to risk assessment and impact reporting, which increases the complexity of the data they must gather and disclose.
- Data Collection and Assurance: Gathering reliable, auditable data from all parts of the organization and supply chain is essential. CSRD mandates that reported information be assured by a third party, similar to financial audits. This is a major step up from the voluntary or non-audited disclosures under previous regulations .
- Aligning with European Sustainability Reporting Standards (ESRS): The CSRD is tightly aligned with the European Sustainability Reporting Standards (ESRS). Companies will need to report according to specific metrics and methodologies defined by these standards, which could require significant updates to their existing sustainability reporting systems. Many businesses will have to upgrade or develop new processes to ensure compliance with these new, more detailed guidelines .
- Supply Chain Reporting: A company’s responsibility under CSRD doesn’t stop at its own operations. It extends to its entire value chain, meaning firms must gather data from suppliers and partners to report on impacts beyond their direct control. This is especially challenging for companies with complex global supply chains, where obtaining consistent data can be difficult.
Does your business or company need to comply with CSRD?
The CSRD will apply to a broad range of companies, starting with larger businesses but gradually extending its reach. Compliance requirements depend on the company’s size, industry, and public listing status:
From 2025: Large public-interest entities with over 500 employees already covered by the NFRD.
From 2026: Large companies (even if unlisted) that meet **two out of three** criteria:
- More than 250 employees.
- Turnover exceeding €40 million.
- Total assets over €20 million .
- From 2027: Listed SMEs, although they can opt out until 2028. Non-listed SMEs are exempt for now, but may face indirect pressure as they are often part of the value chain for larger businesses.
- From 2028: Non-EU companies with **net turnover over €150 million** in the EU, if they have at least one subsidiary or branch in the EU that meets certain size thresholds.
How your CSRD timeline should look like:
Businesses should ideally allow 12 to 18 months to prepare for CSRD compliance. (If you haven’t don’t worry, talk to us)
This period is crucial for upgrading or implementing new systems for data collection, reporting, and assurance. Companies should already be assessing their current ESG practices and identifying gaps to meet the new demands:
- Late 2023: Conduct an initial gap analysis on current ESG reporting and assess data governance across the organization.
- Early 2024: Set up systems and tools for data collection across business units and the supply chain, ensuring data is accurate and auditable.
- Mid-2024: Engage with external auditors and third-party verifiers to ensure the necessary assurance processes are in place for reporting by the 2025 deadline.
- Late 2024: Perform dry runs of the reporting system, ensure alignment with ESRS, and validate data accuracy to be fully compliant by 2025.
How AI driven processes and automated workflows help overcome these challenges for ESG and CSRD?
The sheer scope and complexity of the CSRD’s requirements make compliance difficult without technology-driven solutions. AI-powered SaaS platforms can streamline the entire reporting process, significantly reducing the time, resources, and costs involved in becoming compliant. Here’s how these solutions help address key challenges:
- Automated Data Collection & workflows:<
AI and automated workflows make it easier to gather, validate, and consolidate ESG data from multiple sources across the company and its supply chain. This reduces manual data entry errors, speeds up the process, and ensures data is always up to date. - Double Materiality Analysis:
AI can analyze vast datasets, assessing both the financial impacts of sustainability risks and the company’s external environmental and social impacts. This allows businesses to meet double materiality requirements efficiently by highlighting the most material issues across both lenses . - Compliance Alignment & Report Generation:
SaaS platforms can be configured to automatically align with ESRS and CSRD frameworks, streamlining report generation by pulling the right data and presenting it in the required format. This removes the need for companies to constantly interpret new reporting rules themselves. - Auditable Data & Assurance:
AI-driven platforms can maintain full audit trails, tracking every piece of data from its source to its final report. This helps companies meet the CSRD’s requirement for third-party assurance by ensuring that all data is verifiable and traceable . - Supply Chain Data Management:
Advanced AI tools can help companies track sustainability metrics across complex supply chains. Automated workflows ensure timely data collection from suppliers, partners, and subcontractors, while also flagging potential risks, allowing companies to take corrective action before it impacts reporting. - Efficiency and Resource Optimization:
By automating data collection, analysis, and reporting, SaaS platforms allow companies to manage CSRD compliance with fewer resources. This helps reduce the strain on internal teams and ensures that sustainability reporting is scalable, even as regulations evolve and expand .
The CSRD brings a host of new challenges for businesses, but companies that act now to implement the right ESG and reporting solutions will be better positioned to meet the demands on time and with fewer resources. These tools simplify complex reporting tasks, ensure data accuracy, and help businesses stay ahead of regulatory requirements. By starting early and leveraging technology, companies can not only achieve compliance but also turn sustainability reporting into a strategic advantage.
To learn more on CSRD compliance and ESG reporting, submit details below and we will get back to you shortly!
