Overview
The Corporate Sustainability Reporting Directive (CSRD) and related EU Taxonomy play an essential part in financing the transition promoted by the European Green Deal. In addition, as part of the EU 'Fit for 55' package and its decarbonisation efforts, the EU introduced a new regulation for goods imported from outside the EU: the Carbon Border Adjustment Mechanism (CBAM).
Under the new directives and regulation, your company will need to demonstrate it runs its business in a sustainable and responsible manner. This requires extensive amounts of data that will need to be collected and correct documentation to ensure full alignment. These legislations will impact all types of companies in the upcoming years and your customers, suppliers and investors will be reliant on your reporting.
CSRD
The new CSRD, which updates previous corporate sustainability reporting under the Non-Financial Reporting Directive (NFRD), will require companies to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and planet – a unique principle called ‘double materiality’.
⮞ Who should comply and what are the timescales?
- Companies listed on regulated markets in the EU (apart from listed micro-enterprises), and large companies. A large company is one that meets two out of three of the following criteria: more than 250 employees, a turnover of over €40 million and over €20m total assets. These companies will also have to take into account information at subsidiary level.
- Listed SMEs, although there will be a transitional period when SMEs can opt out until 2028. However, there are big benefits for SMEs to comply with the reporting.
- Non-EU companies with a net turnover of €150 million in the EU, and with at least one subsidiary or branch in the union.
1 January 2024 – for companies already reporting in line with NFRD (reporting in 2025 on 2024 data).
1 January 2025 – for large companies that are not currently subject to NFRD (reporting in 2026 on 2025 data).
1 January 2026 – for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 on 2026 data).
1 January 2028 - reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds.
Learn more about CSRD and what it means for your business
EU Taxonomy
The EU Taxonomy supports the CSRD to help scale up sustainable investments and combat the greenwashing of ‘sustainable’ financial products. Companies affected by the Taxonomy will have to disclose:
- the proportion of their turnover derived from products or services associated with economic activities that qualify as (environmentally) sustainable; and
- the proportion of their capital expenditure and the proportion of their operating expenditure related to assets or processes associated with economic activities that qualify as environmentally sustainable.
⮞ Who should comply and what are the timescales?
Companies under the scope of the NFRD and CSRD (companies with more than 500 employees).
FY2022 - reporting on eligibility;
FY2023 - reporting on eligibility and alignment.
Learn more about the EU Taxonomy and what it means for your business.
The benefits
The benefits of aligning your business to the EU Taxonomy and the new CSRD include:
- Communicate your carbon reductions externally
- Guide company decision making
- Encourage funding from green investors
- Reduce the risk of greenwashing
- Prevent non-compliance under the mandated reporting
- Integrate financial reporting with non-financial reporting
CBAM
The Carbon Border Adjustment Mechanism (CBAM) is the world’s first border carbon tax.
Organisations importing goods into the EU will need to pay a tax, linked to the carbon emissions of the items imported. The goal of the policy is to ensure the carbon price of imports matches that of domestically produced goods. Ultimately, the EU hopes the CBAM will create a level playing field, while bolstering industry decarbonisation.
The first iteration of the CBAM will come into force from October 2023. The pilot will focus on high emitting sectors, including cement, fertilisers, iron and steel, aluminium, hydrogen, and electricity, with more sectors to be included following its permanent implementation in 2026. Following this, companies will be required to declare the embedded carbon emissions of their imported goods and purchase an equivalent number of CBAM certificates.
This will have far reaching implications for international markets and companies conducting trade across EU borders. There is uncertainty as to what exactly CBAM will look like in its final iteration, as pilots and feedback stages are still taking place. Regardless of this final form, it will mean a significant global ramp-up of emissions reporting and associated paperwork.
⮞ Who should comply and what are the timescales?
- From 1 October 2023, until 1 January 2026, applicable companies will need to submit quarterly reports detailing their emissions. They will not pay any taxes on these emissions during this window. The first report will need to be submitted by the end of January 2024.
- From 1 January 2026, companies importing goods into the EU will have to declare their embedded emissions, then purchase the equivalent number of CBAM certificates.
- If importers have evidence to back up claims that a carbon price has already been paid during production, this amount will be deducted.
How we can help
CSRD: with a comprehensive understanding of the requirements, the Carbon Trust will perform an assessment of the organisation’s current alignment with CSRD environmental requirements and provide a detailed action plan for compliance through a series of stages:
- Workshop and Review. Review all publicly available information to assess the company's current alignment with CSRD requirements
- Data Request and collection. Prepare a data request to asks for all existing document/data/information that will indicate current alignment
- Gap Analysis. Create an assessment tool to input all information to identify gaps or required changes
- Presentation of gap analysis and action plan. Prepare a report that summarizes the identified gaps and recommendation for how to address them. This will integrated into a wider strategy advise to go beyond compliant and become a sustainable leader in your industry
EU Taxonomy: we want to help companies with complex carbon mitigation criteria to assess their EU Taxonomy alignment and understand their roadmap to maximise alignment through a series of stages:
- Data review. Review your eligibility assessment and business model. Discuss and simplify the alignment criteria for your economic activities
- Workshops. Help to understand the data you need, how to get it, how to convert it into the EU Taxonomy’s criteria, and help you conduct any environmental specialist work you need.
- Specialists tasks. Specialist tasks needed to show alignment, including verified LCAs, creating evidence of substantial reductions, sector-specific expertise, and enablement work
- Specialist report and EU Taxonomy roadmap. Prepare a report with an assessment of your alignment, supplementary information from the result of any specialist assessments, and a tailored roadmap on how to further align.
CBAM: with the EU's Carbon Border Adjustment Mechanism (CBAM) now in effect, the scrutiny of the embedded emissions of goods imported into the EU has gained significant prominence. Using the Carbon Trust's experience in aiding companies to navigate and adhere to ever-evolving regulatory frameworks, we can assist your business during this regulatory transition. We provide comprehensive solutions to facilitate alignment with CBAM requirements, including:
- Carbon footprinting services for your products and wider value chain. Measure, verify and report the emissions of products being imported into the EU.
- Emission Reduction target setting and Net Zero Roadmap. Establish and reduce the emissions of your products in line with realistic emissions reductions and Net Zero targets to lower the impact of CBAM on your customers.
- Climate related risk and opportunity assessments. Understand and manage the effect of climate-related risks and opportunities on your business.
