Sustainability reporting is more formal—and consequential—than ever before. The European Union's Corporate Sustainability Reporting Directive (CSRD) came into effect on January 1, 2024. This wide-reaching directive requires thousands of companies, including many located outside Europe, to report on their climate and sustainability risks and impacts by following the disclosure requirements in the European Sustainability Reporting Standards (ESRSs). Moreover, disclosures will need to be independently assured. 

Last year, my colleague Nicole Lambert published this guide to CSRD. She also wrote an FAQ on double materiality—a cornerstone of ESRS reporting. 

In this article, we’ll look at: 

• Specific considerations for U.S.-based companies who will be affected by the requirements
• The prevalence of climate change reporting under the ESRS and how to prepare
• Getting started with leadership engagement

Why U.S. headquartered companies need to prepare now 

While the CSRD derives from European law, its implications are far reaching, with 50,000 companies in the European Union and another 3,000 or more U.S.-based companies expected to be affected. Many non-EU based organizations will have disclosure obligations, and even those not required to report will feel its impact. The first wave of reports will be issued in 2025 with additional waves of reporting required for companies when they meet the criteria outlined below:

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At least one subsidiary in the scope of CSRD (e.g. €40m net turnover large or listed EU subsidiary or branch)

In today's connected and globalized world, few companies will find themselves wholly exempt from ESRS obligations. Most companies with activities in the EU will eventually fall into the scope of reporting. In many cases, requests from customers, as they fulfill their own reporting obligations, will mean that U.S companies must provide sustainability information before they are required to report. 

Read more: 8 secrets to effective sustainability reporting

Companies are starting to develop their reporting strategy to identify how best to align with future ESRS reporting requirements. At thinkPARALLAX, we are working with a number of clients who supply parts and materials to EU headquartered entities. As their EU customers have begun their ESRS journey, their U.S. suppliers, who form part of their supply chain, are facing requests for emissions data and product carbon footprinting data. 

Our advice: To prepare for both customer requirements and their own reporting obligations, we recommend that businesses develop a fit-for-purpose data management and reporting strategy to allow them to meet both customer and regulatory requirements. 

Companies who adopt a reporting readiness roadmap, including the adoption of voluntary reporting frameworks such as Taskforce on Climate-Related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI), find themselves well-positioned to meet ESRS reporting requirements. This strategy is an excellent way to prepare organizations for the complexity and opportunity ahead. 

Read more: Rethinking sustainability reporting: tailoring communications for maximum impact

Climate focus

While the ESRS contains 12 standards across environment, social, and governance pillars, climate change readiness, resilience, and mitigation are a core focus of the standards. This requirement is underpinned by the EU’s recognition of the widespread and systemic effects of climate change on the economy as a whole. 

While a company’s report will hinge on the results of its double materiality assessment, most companies will report on some aspect of climate change. In fact, if a company deems climate change not material, it must provide an explanation of the conclusions of its materiality assessment. 

Reporting on climate change under the ESRS requires a company to disclose information on its climate change risks and opportunities, policies, targets, transition plans, data on energy use and mix (including scope 1, 2 and 3 emissions), any reduction programs, as well as carbon credits and internal carbon pricing.

Our advice: Not only will companies need to provide emissions data to support climate disclosures, it will need to be reliable and traceable due to the mandatory assurance requirement for reporting companies. In short, climate change reporting is here to stay and will be increasingly unavoidable in the future. It is essential that companies ensure their climate governance is robust and their climate data is transparent, traceable, and reliable. 

How to get ahead and turn ESRS reporting into an opportunity

ESRS reporting will result in a significant shift in data management, reporting, and transparency. Many companies are currently grappling with how to get off the starting blocks. A key foundation to successful ESRS reporting is an engaged, multifunctional team that sees ESRS as more than just a compliance exercise. We are working with not only Chief ESG & Sustainability Officers but also CEOs, CFOs, Head of Legal and Transformation who recognize the opportunity that CSRD presents. Equally, teams can feel overwhelmed and unsupported where there is a lack of cohesive vision on the journey ahead. We collaborate with leadership teams who are facilitating change and developing communications strategies that foster a positive culture around ESRS compliance. 

Next steps 

In summary, the ESRS is here and companies must get going. Here’s how you can start: 

• Understand how the ESRS will affect your company—as a supplier in your customer’s value chain or as a reporting entity 
• Start the conversation—engage with senior leaders and executives to build internal engagement and buy-in 
• Start to develop a reporting strategy 
• Prepare to carry out a Double Materiality Assessment 
• Focus on quality data capture, management, and reporting 

We are here to help. Reach out to book a meeting with one of our sustainability experts anytime. We can guide you through these essential processes:

• Adoption of reporting frameworks such as TCFD and GRI to prepare for ESRS disclosures 
• Using North Star to quantify, track, report, and reduce (GHG) 
• CSRD engagement and training for key stakeholders and leadership teams
• Communicating the overall business case beyond compliance