The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) are ushering in a new era of corporate accountability and transparency in sustainability reporting. While the CSRD and ESRS primarily target companies within the EU, their impact extends far beyond European borders. Indian businesses, particularly those engaged in exports to the EU or operating as subsidiaries of European companies, will need to comply with these reporting requirements.
Given India’s growing role in the global market, understanding and aligning with CSRD and ESRS is crucial. Businesses that fail to adapt may face challenges such as losing key European clients, encountering trade barriers, or being at a competitive disadvantage. On the other hand, companies that proactively implement these frameworks can position themselves as sustainability leaders, gaining access to better financing opportunities and enhanced reputation.
The CSRD is a significant piece of legislation within the EU that broadens the scope of sustainability reporting requirements for a large number of companies. It mandates that large EU companies, as well as non-EU companies that generate over €150 million in annual revenue within the EU, disclose comprehensive information related to their sustainability performance.
In the context of CSRD, the ESRS plays a crucial role by providing a detailed reporting framework. These standards delineate the specific disclosure requirements that companies must adhere to across various ESG dimensions. This means that companies will need to report on a wide range of sustainability-related issues, ensuring greater transparency and accountability for their environmental and social impacts.
Indian companies with EU operations, significant exports to the EU, or those in EU-linked supply chains will need to comply with CSRD and ESRS requirements. These changes in global sustainability regulations impact companies through various ways.
Indian businesses exporting to the EU or operating as subsidiaries of EU-based companies must provide detailed sustainability reports. This includes disclosures on climate risks, carbon emissions, labor practices, and governance structures.
CSRD compliance requires enhanced data collection, reporting infrastructure, and external assurance. Companies may need to invest in sustainability teams, ESG software, and third-party auditors to meet the directive’s stringent requirements.
Indian suppliers to EU companies will face pressure to align with CSRD-aligned ESG metrics. This could lead to increased scrutiny over carbon footprints, human rights policies, and responsible sourcing practices.
Proactive alignment with CSRD and ESRS can enhance Indian companies' attractiveness to EU investors, customers, and partners. Early adopters may gain a competitive edge by demonstrating compliance and commitment to sustainability.
India is strengthening its own ESG reporting regulations, such as the Business Responsibility and Sustainability Reporting (BRSR) framework mandated by SEBI for the top 1,000 listed companies. Companies aligning with CSRD can leverage synergies between Indian and EU regulations to streamline their reporting processes.
Businesses in India should first determine whether they fall under the CSRD’s scope. This involves evaluating revenue generation from the EU, partnerships with EU companies, or the presence of subsidiaries in Europe. However, even if a company does not directly fall under CSRD, it should assess the impact of the directive on its supply chain. Many EU businesses will require sustainability disclosures from their suppliers, making compliance essential even for indirectly linked firms.
Implementing a robust data collection and management system is crucial to meeting ESRS disclosure requirements. Companies must ensure that they are accurately tracking emissions, social impact metrics, and governance practices.
Investing in ESG data management software can streamline the reporting process, improve accuracy, and reduce compliance risks. Businesses should also establish protocols for internal data verification to prepare for external assurance requirements.
Conducting a thorough gap analysis will help businesses understand where they currently stand versus these new requirements. This involves reviewing existing sustainability reports and comparing them with the new regulations. Companies should prioritize addressing high-impact gaps, such as climate risk disclosures, carbon accounting, and governance transparency. Creating a roadmap with clear milestones can help organizations transition effectively.
Businesses must establish strong internal governance structures to oversee sustainability reporting. This includes defining clear roles and responsibilities for sustainability teams, finance departments, and leadership.
Training employees on ESG reporting standards and ensuring alignment with international frameworks will help Indian firms stay ahead of regulatory developments. Companies should also consider engaging third-party auditors early in the process to ensure that their reports meet assurance requirements.
Open communication with EU clients, investors, and business partners is essential. Companies should proactively seek feedback on their ESG performance and align their reporting strategies accordingly. Participation in sustainability-focused industry associations and forums can provide valuable insights into evolving EU expectations, helping companies remain informed and adaptable.
The CSRD and ESRS mark a significant shift in global sustainability reporting, impacting Indian companies engaged with the EU. By proactively adapting to these regulations, businesses can ensure continued market access and gain a competitive edge in the evolving ESG landscape. Early preparation and strategic alignment with these standards will be key to navigating the new regulatory environment successfully.
At Keslio, we are deeply passionate about sustainability reporting, having the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios.
To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
