All you need to know about the CSRD | Legislation Preparation

Anna Roos van Wijngaarden
October 24, 2023

If you’re looking to carry the ‘Made In Europe’ seal with pride, you’re going to have to be a little bit of a legislation expert as well. The European Union’s sustainability approach is set to revolutionize the entire fashion industry from production to disposal. There are so many different rules in the pipeline, that it’s hard to keep track. Luckily, we’ve done it for you. In Legislation Preparation we tackle political monsters from the original documents to the concrete solution in a language we can all understand. On for today: the Corporate Sustainability Reporting Directive (CSRD)

Who Needs to Comply and When

Let's start with the good news: you're probably not the bullseye of this intimidating new rule everyone's buzzing about. The CSRD reporting standard primarily targets:

  • Companies making over €250 million in net turnover located within the EU or catering to an EU market of that scale.
  • Large companies that meet two of the following three criteria: €40 million in net turnover, €20 million in assets, or 250 employees.
  • Public interest entities, which include listed companies, banks, insurance companies, and more, employing 500 or more people.

The directive has been in the proposal stage since April 21, 2021, as part of the European Green Deal and the Sustainable Finance Agenda. The European Commission submitted the proposal to the European Parliament and Council, which approved or 'adopted' the CSRD on November 10 and 28, 2022, respectively. The first group of companies will commence reporting in the financial year 2024. Different groups have varying starting points, depending on whether they already fell under the previous monster: the Non-Financial Reporting Directive (NFRD).

What's It All About

In pursuit of the European Green Deal's objectives, the EU has decided to modernizing and strengthening the old rules on the disclosure of impact information. Under the CSRD, companies will be obliged to report on environmental, social, and governance (ESG) impacts following a stringent framework. The rules are designed to enhance transparency, accountability, and traceability within the supply chain. This should assist investors, civil society organizations, consumers, and others in assessing a company's sustainability plans.

In addition to forcing companies to report on sustainability, the CSRD seeks to bring uniformity to these reports. While the exact format is still under development, it will be grounded in 'double materiality'. It means that the approximately 12 thousand companies subject to the new directive must provide insights into how their business activities pose risks to stakeholders and how they can benefit them.

The new directive also encompasses mandatory long-term goal setting and progress measures including intangibles like social capital. It must align with other laws such as the SFRD and EU Taxonomy and companies must engage verification parties to guarantee the accuracy and precision of their reports.

How It Will Affect Your Business

You might think, "Lucky me, no rules for me," but consider this: the CSRD is not merely a requirement; it's your roadmap to traceability. By delving into the guidelines before your turn comes, you can start tracking the origins of your raw materials and ensure they are ethically sourced. This proactive approach allows you to confidently showcase your sustainability achievements when the time comes. It won't be long before conscious consumers demand concrete measures and KPIs. The CSRD is your guide to get these in place.

What You Can Do Now to Be Prepared

  1. Find an ethically-minded manufacturer. On Manufy, we have a multitude of suppliers with values like 'women-owned business' and 'upcycled,' so they likely have a strong grasp of their impact across different processes. This will make CSRD compliance much smoother.
  2. Educate yourself about the new rules well in advance of their implementation. Speak with colleagues from larger brands who will have to comply sooner.
  3. Consider conducting a Life Cycle Assessment (LCA) for your current products. An LCA helps you track your product's impact across different categories, pinpointing areas where you can make changes to improve your impact. This will make reporting a breeze when the time comes.
  4. Under the CSRD, brands must also develop a strategy for communicating impact information to consumers using impact labels. This could be a fun branding opportunity—how can you design this label to align with your brand's character?