CSRD under the Spotlight: The Top 7 Challenges Affecting Businesses

Author: Sarah Shannon
Date:  January 23, 2024

Let’s discuss and demystify the seven main challenges of the Corporate Sustainability Reporting Directive (CSRD) businesses face today. 

First of all, if you've not heard about CSRD you soon will. The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation designed to improve how large companies report on their sustainability efforts and in turn how their operations affect people and the planet. These reporting obligations will be phased in from January 2024 and present a series of challenges for businesses.

So, what are the main difficulties companies face because of the CSRD? 

1. Complex Compliance  

One of the biggest challenges is the need for detailed report to comply with the new CSRD rules. The directive requires detailed reporting on sustainability matters. Companies will spend a lot of time and money collecting, checking, and reporting this data. Developing good data collection systems and making sure the information is accurate is key. At first this can feel like a tough task, but it is possible when a robust process with the right tools are in place. 

2. Unequal Burden on Small Businesses 

The CSRD affects approximately 50,000 large companies in the European area - this has a knock-on effect impacting smaller companies along their supply chain. Smaller companies asked to respond to large organisations questionnaires, may struggle with the reporting demands because they lack resources and expertise. Luc Hendrickx, enterprise policy director at European association SMEunited, has emphasised that SME organisations would ‘need sufficient time to raise awareness amongst their members on the new obligations, organise information sessions, train entrepreneurs and personnel, and develop tools.’ Hendrickx added, ‘some big companies [were] already cancelling their contracts with SMEs as they are not able to report.’ 

3. Detailed Reporting 

CSRD drives in-depth sustainability reporting. Companies must disclose information about many sustainability topics, like their impact on the environment, social programmes, and governance practices. Collecting accurate and useful data is made easier with investment in new tools and tech. 

4.  Adverse Impacts in Global Supply Chains 

Companies also face challenges in dealing with negative impacts, especially in global supply chains. They must identify and reduce risks related to environmental and social factors across the supply chain. Setting up effective processes for this involves working closely with suppliers and partners, each with their own sustainability issues. Remember the positives of being a responsible business that identify the risks of working with unethical work practices outweigh the negatives. 

5. Climate Change Impact 

Climate change is a central focus of CSRD, making it necessary for companies to disclose information about their emissions, energy use, and plans for reducing carbon footprints. Adapting to these requirements might force companies to make substantial changes, which can be expensive and complex. However, all organisations in the long run will have to make the changes – better to be sooner than later. Companies not capable of responding to CSRD demands risk losing work too.  

6. International Companies  

For international firms with significant EU operations, complying with the CSRD adds more headaches. They need to follow the directive while also sticking to other international reporting standards and regulations. Board members may argue it results in more work and higher costs. We’d argue you will lose work from the growing number of  businesses focused on responsible sourcing. 

7. Reputation and Communication 

Maintaining a good reputation and understanding what stakeholders think is crucial. With the CSRD's focus on transparency and sustainability, businesses must report accurately and communicate their efforts to stakeholders effectively. Not doing this could harm their hard-won reputation and trustworthiness. 

Large Enterprise Concerns 

Feedback shared at CSRD workshops is data management is a major worry. The concerns relate to collecting, managing, and reporting sustainability data. Companies are suffering from issues such as data availability, data comparison, and the use of technology emphasising the need for effective data management solutions. The adoption of data management tools like Pulse Market can offer substantial cost benefits.  

Time was another significant concern voiced. The CSRD timeline is tight. Implementing CSRD strategies can be complex and time-consuming. Expert input early is key. Talk to us about our managed service with CSRD consultants with analytic and reporting expertise combine the power of our data management tools. 

The cost of implementing CSRD strategies was also highlighted. Companies are searching for cost-effective ways to implement their CSRD strategies. 

Other concerns raised is about limited awareness, lack of personnel, complexity, and CSRD not being taken seriously. There is clear need for greater education and awareness as well as adequate resources (time, expert people, and tools) to implement effective CSRD strategies.

Conclusion 

Ultimately CSRD is a positive step towards sustainability and transparency for large EU companies. However, it comes with challenges. To overcome these, companies must invest in the right resources, technology, and strategies to meet the rules while benefiting from improved sustainability and transparency. Businesses must continue to innovate and adapt in response to the evolving landscape of sustainability reporting. Companies that succeed in creating a thriving culture of implementing effective sustainability practice will enjoy long-term growth. In turn we can all then look forward to a more sustainable future. 

At Pulse HQ we are witnessing a ground swell of workshops and training sessions to raise CSRD awareness. This reminds us of the great GDPR panic of 2018. For those feeling confused but ready to take on the CSRD challenge our data management tools are the answer. 

Learn more about Pulse Tools. Book a demo today

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