What the CSRD Means for Companies in the European Union

With the Green Deal, the European Union (EU) announced its vision of becoming climate neutral by 2050 around five years ago. Since then, laws and initiatives have followed to drive the transformation of the economy towards greater sustainability. One of these pieces of legislation is currently particularly concerning to companies: the CSRD.

CSRD stands for Corporate Sustainability Reporting Directive and contains new EU requirements regarding what companies must include in their annual reports in the future. For the first time, companies must now not only disclose how sales and profits have developed, but also how sustainable their own business activities are. This also places obligations on HR departments. They themselves play a role in reporting and their expertise is crucial for integrating the topic of sustainability efficiently and successfully into the company.

CSRD: Sustainability is given equal status to financial reporting

The CSRD massively expands existing reporting obligations in both breadth and depth. It will apply gradually from 2024, and the first reports must be submitted from 2025. Initially, 500 companies in Germany are required to report – in the future, around 15,000 will have to report. In addition, the content and structure of sustainability reports are prescribed: They must be part of the company’s annual report. In addition, the sustainability report must be externally audited. This also means that the management board and supervisory board are liable if the reporting is incorrect.

The EU is thus creating something fundamentally new. For the first time, sustainability indicators are being treated equally to financial indicators. The CSRD sets new parameters and is intended to ensure greater transparency and comparability. This makes it an important lever in the EU’s plan to make it difficult for companies that refuse to undergo a sustainable transformation. Because one thing is certain: in the future, the financing of companies will depend heavily on what their own sustainability balance sheet looks like.

CSRD also means major challenges for HR

The CSRD therefore has a significant impact on companies – and particularly on HR departments. The reporting depends on the question of who is responsible for it, i.e. how the topic of sustainability is organized in the company, and on the task of finding suitable staff. In addition, the HR department itself plays a central role in the reporting.

Currently, the topic of sustainability is organized very differently in companies. Some companies already have large and strategically positioned sustainability departments that are, among other things, preparing for the upcoming reporting requirements. However, many companies are surprised by the scope and effort of the CSRD reporting requirements and are frantically looking for the right staff. The question of how to integrate sustainability into the company strategy is often neglected by management. This is a mistake that HR departments should not repeat. They face two key questions: How should sustainability be organized? What profiles are we looking for?

The question of the right profiles is anything but trivial. The topic of sustainability is relatively new. While departments such as accounting, finance or IT function in a similar way everywhere, there are no blueprints for the topic of sustainability. Nor are there any long-established training courses or qualifications. Although the first courses of study and further training in this area have been offered for some time, we are still a long way from standardized competencies.

Structural integration is crucial according to the CSRD

“Many companies are trying to solve this problem by recruiting consultants who specialize in sustainability from large auditing firms,” ​​said Kirsten Altenhoff, Managing Partner of GK Unternehmens- und Personalberatung. “However, demand is now very high and the market for these consultants is highly competitive.”

This leads to high salaries that smaller companies often simply cannot afford. “Experts from other companies are also currently rare, as the subject area is still so new and is defined and lived differently in each company.” The basic rule for successful recruiting is: “Pure reporting experience is not enough to meet the challenges that come with and go beyond CSRD.”

Even if suitable experts are found, it is a fallacy to believe that they can start working more or less in a vacuum. Without a structural integration of sustainability into the strategy and structure of a company, the burden caused by reporting will be even greater – and significant opportunities will remain unused.

Almost all areas of the company are affected by the CSRD. Sustainability managers therefore need very broad qualifications and experience. They need an understanding of the entire company, they need a holistic view and they must be able to talk to and involve all stakeholders.

For a study, the Center for Sustainable Transformation, together with GK Personalberatung, conducted interviews with around 15 sustainability managers about their roles, their tasks and their challenges. The main result: good sustainability managers combine such complex skills that they have the potential to be the CEOs of tomorrow.

For HR departments, this means that sustainability managers and their teams must be selected and staffed very carefully. “In addition to technical sustainability expertise, good knowledge of the entire company, the formal and informal structures and cultural premises are crucial in order to be able to act quickly and effectively,” says Kirsten Altenhoff.

“For many companies, staffing sustainability teams internally is therefore an interesting alternative. However, training and further education in the area of ​​sustainability is then largely carried out “on the job” – and is therefore not always smooth. However, in addition to the existing knowledge of the company, internally recruited teams from different departments are often associated with greater acceptance, both within the team and from internal stakeholders.”

Human resources departments must position themselves early

However, it is essential to set up a functioning structure within the company into which sustainability can be profitably integrated. This is where HR expertise is needed – and is a key factor in determining the future viability of a company.

The CSRD is more than just a reporting requirement; it is a milestone in the fundamental change in the economy. Companies that do not fundamentally adapt to this change and help shape it will have a hard time. Banks and investors will pay close attention to sustainability reports and strategies in the future.

But the HR department’s responsibility goes even further. A central part of the upcoming reporting (CSRD) is the social issue. The competence here clearly lies with HR. For many companies, the topic of social reporting will be even more important than the topic of ecological reporting.

That means that HR has an active role to play in reporting. HR departments must actively accept and shape this new role and position themselves early on. There are great opportunities here to secure and expand influence – and at the same time help shape the future of the company in the long term.

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(Featured image by Towfiqu barbhuyia via Unsplash)

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First published in SRD. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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