Is there a need to dilute CSRD?

Introduction

The article titled “A Reality Check in the Face of Short-Sighted Deregulation Calls” addresses the growing debate on the implementation of the EU Corporate Sustainability Reporting Directive (CSRD). It highlights concerns over bureaucratic burdens and emphasizes the importance of strategic, long-term planning for sustainability reporting. The article puts forth three key points that outline the critical aspects of CSRD and how it benefits the market, ultimately focusing on clarity, transparency, and resilience. In this blog, we share our views based on our experience so far helping clients in different industries complete their first CSRD reporting. 

Key Point 1: Misinterpretation and Over-Compliance

The first key point the article raises is the issue of over-compliance and misinterpretation of the CSRD standards. Many companies, especially larger ones, are demanding excessive data from smaller entities within their value chain. This results in over-compliance, driven largely by a misunderstanding of the CSRD requirements. For example, only estimated Scope 3 emissions are mandated, yet companies are overextending this to other metrics, overwhelming smaller suppliers and deviating from the principle of materiality.

NordESG’s View: From our perspective, over-compliance not only burdens smaller entities unnecessarily but also distracts companies from focusing on what matters most. The CSRD’s intent is to enhance material, relevant disclosures. A more targeted approach would benefit the entire value chain, ensuring efficient use of resources and making sure the data provided holds true strategic value.

Key Point 2: Long-Term Cost Efficiency and Competitiveness

The second key point addresses the economic benefits of the CSRD in terms of long-term cost efficiency. The article clarifies that although there are significant upfront costs associated with implementing the CSRD, these will be mitigated over time as recurring reporting costs are expected to decline. Furthermore, the directive’s harmonized standards are likely to boost market competitiveness, making companies more transparent and better able to adapt to shifting investor expectations.

NordESG’s View: We believe that viewing sustainability costs through a long-term lens is crucial. Initial compliance investments are indeed steep, but the value they bring in the form of improved data accuracy, transparency, and investor trust pays off in the future. Early adopters are already seeing ESG-related costs as a minor fraction of their overall administrative expenses, which will reduce over time. As the global economy pivots towards sustainability, those who invest now will be well-positioned to capture future opportunities.

Key Point 3: Unified Reporting Framework for Market Clarity

The third point focuses on the CSRD’s role in providing a unified reporting framework. By replacing the previous Non-Financial Reporting Directive, the CSRD aims to reduce the reporting burden caused by a lack of convergence between different standards. The article emphasizes that without this unification, companies will continue to struggle with fragmented reporting demands from ESG rating agencies and market actors. Furthermore, without effective market-based solutions like CSRD, public authorities might have to resort to extreme regulatory measures, such as product bans.

NordESG’s View: A consolidated, clear framework like the CSRD is essential for avoiding complexity and confusion in sustainability reporting. At NordESG, we see the directive as a significant step towards enabling companies to address sustainability challenges more systematically. If the market can lead this transformation effectively, the need for stricter, potentially disruptive regulations diminishes. It also fosters a level playing field, where standardized data helps both investors and companies make informed decisions.

Conclusion

In summary, the article challenges short-sighted deregulation narratives and urges stakeholders to recognize the strategic value of the CSRD in enhancing corporate sustainability efforts. The points regarding over-compliance, long-term cost efficiency, and the unified framework resonate with the need to take a more mature, holistic approach to sustainability. At NordESG, we firmly believe that by sticking with the CSRD and resisting the temptation for policy U-turns, the EU will not only strengthen market transparency but also position itself as a leader in the global sustainability transition. Embracing standardized disclosures is key to building resilience and ensuring the competitiveness of European companies in a rapidly evolving global market. It will ensure the transition into a more sustainable aligned future (net-zero / Paris Agreement aligned) and long term value creation that considers the demands of all stakeholders and not only the shareholders.