CSRD: key learnings from the first reports to succed in 2025

1. Double materiality

Being specific when describing impacts, risks and opportunities

To comply with the CSRD and meet readers’ expectations, companies need to be more precise in describing IROs, and in particular the effects of risks on the business model. This analysis should enable readers and the company to understand precisely the impact of each IRO on its business model and where it fits in the value chain. Note that companies used to publishing a TCFD report have often been better on this aspect.

Describe the dual materiality analysis process

Auditors will expect to see how you evaluate your IROs and have constructed your scores. However, Frank Bold’s analysis reveals that only 21 out of 100 companies have described this process for financial materiality in their CSRD report. This description is essential to demonstrate how the company has identified, assessed and prioritized environmental, social and governance (ESG) issues, taking into account both dimensions of materiality.

The following content is expected:

Methodology used: What tools, frameworks or approaches were adopted.

Stakeholders consulted: Who was involved (customers, employees, NGOs, investors, etc.).

Key findings: The material issues identified and their prioritization.

Link to strategy: How these results influence the company’s strategy and priorities.

Integrating due diligence into impact analysis

The CSRD emphasizes the importance of consulting stakeholders when assessing double materiality, notably through the notion of “due diligence”. This principle involves making inquiries of third parties to confirm or gather relevant information on issues that concern them directly and may have a significant impact on them.

Our recommendations for integrating due diligence into your impact analysis :

Explain the methodology: Describe the steps taken to identify the stakeholders to be consulted and the reasons for your choice (for example, their role in the value chain, their exposure to risks, or their influence on the company’s impacts).

Justify your priorities: Specify why certain subjects or stakeholders have been given priority in your analysis, while mentioning any limitations of your approach.

Document interactions: Mention the tools used (questionnaires, interviews, public consultations) and the type of information obtained.

Link results to your strategy: Explain how stakeholder feedback influences your strategic decisions and risk management.

Ensure traceability: Include appendices or references to help your auditors understand the robustness of your process. On the KP platform, you can access an audit trail to automatically keep track of all this information, and give specific access to your auditor.

2. ESRS E1 Climate

Transition plan and reduction targets

Climate data plays a central role in CSRD compliance. In addition to reporting on emissions (scopes 1, 2 and 3), information on decarbonization levers is eagerly awaited. However, it is often on this second aspect that companies lack precision.

To meet the requirements of the directive, as well as the expectations of auditors and stakeholders, it is crucial for companies to provide clear, detailed information on their emissions reduction strategy.

Areas for improvement identified:

Publication of a clear transition plan: Although the majority of companies have set reduction targets, less than half have communicated a precise transition plan. A detailed plan is essential to demonstrate a credible approach aligned with ESRS E1 requirements.

Inclusion of locked-in emissions: Better identification and disclosure of “locked-in” emissions is essential to enhance the quality of information and meet listeners’ expectations.

Specific, phased targets: It is recommended to define specific reduction targets for each scope, accompanied by a clear timetable. This practice, adopted by 60 of the 100 registrants analyzed, is a good basis to follow.

Improving the quality of disclosures: The accuracy and transparency of published data must be enhanced to fully comply with ESRS E1. This includes the description of concrete actions to achieve targets and indicators to monitor progress.

The integration of European taxonomy criteria enables companies to ensure that their transition plans are aligned with EU climate objectives. In addition, the XBRL format for climate data ensures transparency and comparability of reports.

Good to know: locked-in emissions correspond to GHG emissions induced by the company’s assets or products during their operational lifetime.

Addressing Scope 3 Emissions

Many companies continue to face challenges in managing and reporting Scope 3 emissions, often the most complex to measure. Here are some recommendations to better meet CSRD and ESRS requirements:

a. Ensuring Comprehensive Coverage of Significant Emissions

All significant Scope 3 emissions must be included as comprehensively as possible. In cases of data gaps, it is crucial to:

Explain why certain emissions are not included.
Specify measures planned to collect missing data in the future.

This transparency enhances credibility and demonstrates a proactive approach.

b. Clarifying Your Methodology

The diversity of emission sources and estimation methods for Scope 3 can be confusing. To avoid misunderstandings, clearly describe:

The methodologies used (e.g., calculations based on actual data or estimates).
The emission factor databases employed (e.g., ADEME, DEFRA).
The assumptions made and the limitations of your analyses.

A clear, detailed methodology reassures stakeholders and facilitates data auditing.

c. Prioritizing and Structuring Your Approach

Scope 3 covers many categories (suppliers, transportation, product usage, etc.). Identify and prioritize the categories with the greatest impact on your business. This focus helps concentrate efforts on the most significant levers to reduce emissions.

3. ESRS E4 Biodiversity in the CSRD Report

Biodiversity remains a complex issue for many companies, reflected in the quality and depth of published reports. Here are some areas for improvement to meet regulatory and stakeholder expectations:

Recognizing the Materiality of Biodiversity Issues

Biodiversity impacts must be considered material when they contribute to exceeding global ecological and health thresholds. Recognizing this is essential for guiding a strategic and coherent approach.

Detailing Material and Sensitive Sites

To improve transparency:

Provide a list of material sites with their locations.
Identify sites located in or near sensitive or protected ecosystems.

This approach highlights risk areas and prioritizes necessary actions.

Describing Negative Impacts on Biodiversity

Precise communication should include:

Direct negative impacts from your operations (e.g., land use, pollution).
Indirect impacts throughout the value chain, such as those from suppliers or product use.

4. Due Diligence

The CSRD requires companies to detail their due diligence processes in reports, particularly regarding ESG risk identification and mitigation measures. These requirements complement directives such as the Corporate Duty of Vigilance. Key practices to integrate into your CSRD approach include:

Aligning with Recognized International Frameworks

Some companies have effectively structured their approach using established frameworks, such as:

The UN Guiding Principles on Business and Human Rights, adopted by 22 analyzed companies.
The OECD Guidelines for Multinational Enterprises, followed by 16 companies.

These frameworks provide a solid foundation for identifying, preventing, and mitigating ESG risks in the value chain.

Involving Stakeholders

Better integration of stakeholder perspectives and interests is essential to meet CSRD requirements. However, many reports still show gaps in this area. To improve:

Actively involve stakeholders in your risk assessment processes.
Document and communicate stakeholder contributions to your risk analyses.

Detailing Remediation Processes

The CSRD requires companies to explain mechanisms for addressing identified negative impacts. To fully meet these expectations:

Include transparent grievance mechanisms allowing stakeholders to report violations or negative impacts.
Describe concrete actions taken to correct impacts, including timelines and outcomes.

Highlighting Best Practices

Companies can differentiate themselves by exceeding regulatory requirements:

Develop a table of priority ESG risks with associated mitigation measures.
Ensure regular follow-up on your processes, sharing performance indicators related to due diligence.

Conclusion

To fully meet CSRD requirements, companies must adopt more rigorous and transparent practices by clarifying their methodologies, involving stakeholders, and ensuring process traceability. These efforts not only enhance regulatory compliance but also lay the groundwork for a sustainable transformation aligned with the expectations of investors, regulators, and society.

By leveraging the lessons from this inaugural year, companies can improve the quality of future reports and integrate sustainability at the core of their strategy, becoming key players in the transition to a more responsible economy.

CSRD: Leveraging the First Reports to Drive Improvement by 2025