CSRD requires more strategic involvement by risk managers to meet sustainability reporting demands, FERMA states
FERMA issues first EU Policy Note, detailing how risk managers can help companies navigate reporting processes coming from the Corporate Sustainability Reporting Directive
Brussels, 23 September 2024 – FERMA has issued an EU Policy Note on the Corporate Sustainability Reporting Directive (CSRD) addressing how risk managers can support organisations across both sustainability reporting and materiality assessments.
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The Policy Note, produced with global consulting firm Protiviti, explores crucial aspects of CSRD and the new European Sustainability Reporting Standards (ESRS) for risk managers, providing guidance on helping organisations navigate the complexities around areas such as double materiality assessment and identifying the relevant impacts, risks and opportunities (IROs) in the short, medium and long term.
The Policy Note highlights five high-level areas where risk managers can have strategic involvement in meeting CSRD requirements:
- Stakeholder identification and evaluating IRO for stakeholders
- Materiality processes and identification of thresholds
- Linking the risk quantification through Enterprise Risk Management (ERM) processes to sustainability reporting
- Linking reporting to value-chain due diligence requirements, stemming from the Corporate Sustainability Due Diligence Directive (CS3D)
- Integrating list of key actions taken in remediation plans in the overall ERM process
CSRD came into effect on 05 January 2023 and is a cornerstone of the European Green Deal, supporting companies in the adoption of a development model to facilitate the transition towards sustainable environmental and social goals. The Directive affects approximately 50,000 companies, and large corporations are required to publish their first CSRD-compliant annual reports in January 2025.
Commenting on the Directive, Valentina Paduano, Chair of the Sustainability Committee, FERMA, said: “The role of risk management will be central to how companies meet their sustainability reporting requirements under CSRD. Risk managers will need to lead in areas such as identifying and mitigating the impacts and risks, and pinpointing and enabling related opportunities.”
She added: “Companies with ERM systems in place will have to expand their risk analysis and management activities to encompass new areas of inquiry introduced by the Directive. For those without such systems, they will need to introduce structured risk management programmes if they are to meet the reporting standards required under CSRD.”
Based on the work carried out to compile the Policy Note, the document also includes recommendations for policymakers. Firstly, it proposes the European Commission with the European Financial Reporting Advisory Group consider developing simplified risk management guidance on double materiality and IRO reporting. Secondly, it suggests making explicit reference to the role of risk managers or ERM processes as being “good practice” in sustainability reporting.
Typhaine Beaupérin, CEO, FERMA, concluded: “As the scrutiny on companies relating to sustainability-related risks increases, both from a regulatory and investor standpoint, there is a growing business imperative to position the risk manager within the strategic decision-making process of organisations. In the context of CSRD, FERMA has provided in this Policy Note a clear indication of how that greater strategic interaction can be facilitated.”