New EU regulation raising the bar for frontrunning sustainability work is coming - and fast. The Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) will mean that sustainability work, including climate work, can no longer be an add-on in companies, but a strategic topic that belongs to the management teams’ and boards’ agendas.
Now if ever, companies must level up their climate work and make it a strategic part of the value proposition and a mechanism to building a resilient business. So what is this new regulation, and how does it raise the bar for climate work?
CSRD and CSDDD: two sides of the same coin
2025 marks an exciting year for sustainability reporting (no, really). That’s when the first CSRD-aligned sustainability reports will be coming out in the EU. Implemented in stages, the CSRD requires companies to report on environmental, social and governance themes material to their business. Materiality is based on a double materiality assessment, looking at both impacts and risks of the company as well as on the company through these themes.
Although the more familiar GRI reporting framework provides a good foundation, the CSRD disclosure requirements go a step further. For example, under emission reduction disclosures, GRI has not required companies to specify how their targets are aligned with global climate goals. The CSRD in turn requires companies to report on how their targets are in line with the Paris Agreement goal to limit global warming to 1.5 degrees.
Whereas the CSRD only requires companies to report on sustainability matters, the CSDDD makes due diligence and active management of key human and environmental risks in the company’s entire value chain obligatory. The CSDDD only applies to large companies and comes into effect in the late 2020’s, again in stages. However, with the value chain perspective at the core of CSDDD, even small and mid-size companies should be preparing to respond to the demands of the regulation. And, depending on the maturity of a company’s climate work, the timeline to get CSDDD-ready is tight.
Climate has to become as ordinary and holistic as profit
CSRD and CSDDD requirements mean that the entire organization must align on climate. The CSRD disclosure requirements alone are extensive and require cross-functional efforts. For example, company climate targets must now be accompanied by reporting on what kind of financial backing these targets have, how the company is advancing in its transition plan to the targets, how the business strategy supports the targets and how remuneration policies are tied to climate transition plans. This means that climate is no longer just an operational matter, but must also be raised to the level of boards and top management.
The CSDDD raises the stakes even higher. Under the CSDDD, not aligning business strategy, remuneration policies and the company’s climate transition plan with the 1.5 degree goal may mean the company is failing to comply with their legal requirements - resulting in actual penalties, restrictions or obstacles to doing business, as well as opening up the door to potential lawsuits.
Once companies’ internal CSRD taskforces have survived the first round of reporting, gathered the data and identified gaps where extensive reporting isn’t possible just yet, that’s when the hard work of filling in those gaps starts in preparation for CSDDD requirements. That means e.g. taking a hard look at business models and how they link to the company’s emission trends, planning how to tackle hard-to-abate emissions, and ensuring that each function has enough time and resources to integrate climate targets to their work.
A 1.5 degree aligned business model: who will get there first?
With the new regulation and stakeholder demands, it is clear that a climate-aligned business strategy is becoming a compulsory part of doing business. As well as becoming a compliance issue, frontrunners will use this as a means to manage risks, develop new offerings, deepen stakeholder relationships and achieve operational efficiencies.
With the first CSRD reports coming out next year, we will begin to see how the yardsticks for how we measure companies and their performance will change. 2030, the end date for most company near-term climate targets, is just 5 short years away. It’s time to pick up the pace.
Looking to fast-forward your company’s climate work?
We warmly welcome you to join Combient Pure’s Scope 3 Decarbonization Accelerator, running from October 2024 to June 2025. The first module will focus on existing and upcoming Scope 3 related regulatory requirements and implications for companies, with a hybrid workshop on October 8 in Helsinki and online. Participating companies can start with a light Scope 3 maturity assessment to support the work.
Learn more in our blog post
Sign up here (for Combient companies only)
