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In the ever-evolving landscape of corporate responsibility, the EU’s Corporate Sustainability Reporting Directive (CSRD) has emerged as a significant regulatory framework, akin to the GDPR for Environmental, Social, and Governance (ESG) considerations. This article explores the key aspects of the CSRD and its implications for startups, shedding light on the practical day-to-day impacts and offering actionable advice for navigating the sustainability reporting landscape.
Understanding the CSRD
The CSRD mandates companies to report information across 12 ESG categories, encompassing environmental, social, and governance dimensions. This directive is set to impact over 50,000 companies, with more than 10,000 entities outside the EU falling under its purview. For many of these businesses, it marks the first time they are obligated to provide comprehensive sustainability reporting, involving over 1,000 data points.
Many startups will fall below the reporting thresholds of the CSRD. Nevertheless, they will be indirectly impacted.
- Client Impact: If a startup has clients that are subject to the CSRD, those clients will need to collect corporate sustainability data from the startup.
- Investor Impact: Venture capital, private equity funds, and other investors are expected to incorporate ESG considerations earlier in their due diligence processes. Investors are concerned about the potential impact on revenues if startups cannot provide essential sustainability information required by customers, potentially affecting sales and exit valuations.
- Consumers: Consumers are demanding more sustainability data. Companies that can produce this data may gain a competitive edge.
Not sure where to begin? Here is a checklist that startup leaders can use to start preparing to meet upcoming ESG demands:
- Governance: Establish ESG governance approach at the board level — whether managed through a committee or by the full board. Designate an executive team member responsible for overseeing ESG objectives.
- Regulations: Review the laws of the counties in which you are operating to determine whether any of the new sustainability regulations will apply.
- Business Risk: Catalogue the requests for sustainability information you have received from clients and investors, and quantify the business risk associated with inaction.
- Education: Educate leadership teams on global ESG context and industry-specific risks. Seek external expertise for customized training and strategy development.
- Climate: Anticipate requests for 2024 carbon footprint data from investors and clients. Select a carbon reporting service provider and begin collecting data gathering now. Estimate a minimum of three months for this project.
As the CSRD looms large on the horizon, startups must proactively embrace ESG considerations to remain competitive in an evolving business landscape. By understanding the regulatory landscape, addressing day-to-day impacts, and implementing strategic measures, startups can navigate the complexities of sustainability reporting and build a foundation for long-term success.
Christine Uri is a Top 100 Voice in Sustainability. She advises general counsel on the development and implementation of environmental, social, and governance (ESG) programs. As a former Chief Legal Officer and Chief Sustainability Officer for a global sustainability company, Christine knows what it takes to move ESG to the top of the corporate agenda. Christine believes that improving corporate performance on ESG measures is critical to building a more sustainable world. She is passionate about inspiring and empowering in-house legal teams to provide ESG leadership. You can follow Christine on LinkedIn.
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