Back to news

Round Table CSRD On Your Desk By Varrlyn

3 November 2023

The central theme for discussion was the Corporate Sustainability Reporting Directive (CSRD). This innovative directive aims to modernize andenhance regulations related to the social and environmental information that companies must report. A broader spectrum of large companies, along with listed SMEs, will now be obligated to provide sustainability reports. The updated rules are designed to ensure that investors and other stakeholders have access to essential information for assessing companies’ impact on people and the environment. Additionally, it enables investors to evaluate financial risks and opportunities stemming from climate change and other sustainability factors.

Varrlyn envisions these measures extending well beyond mere reporting. They span from shaping strategy and policies to managing performance, implementing technology and controls, to change management, and preparing for audits. The initial implementation of these new rules will fall upon companies in the 2024 financial year, with the first reports published in 2025. Therefore, we are keen to understand the current state of affairs at the operational level.

The primary goal was to assemble an audience for an insightful exploration of how the Corporate Sustainability Reporting Directive (CSRD) manifests in day-to-day operations. The event aimed to offer a platform for addressing questions and cases, leveraging expertise from designated professionals specializing in Sustainability Regulations, Natural Capital Investments, and Sustainability Data within the financial markets sustainability domain.

It was a pleasure to host representatives fromprominent financial institutions dedicated to prioritizing sustainable businesspractices. The diverse gathering featured a unique amalgamation of participants, encompassing both buy and sell-side perspectives, along with abalance of IT and business viewpoints.


DATIA, a Swedish-based climate fintech firm helped answered the question:

How to best prepare your financial products ​for regulatory sustainability disclosure?

The discussion highlighted the challenges in ESG data comparability and information asymmetry among investors.

DATIA anticipates that the Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR) will reduce information asymmetry and address issues like greenwashing. They emphasize the benefits of standardized ESG data, such as improved risk assessment and access to cheaper capital for companies with better ESG scores.

Challenges faced by companies are in producing impact statements and the need for automated processes to enhance data quality and coverage.

In terms of preparation the process of transforming Article Six products into Article Eight or Nine.

Three main steps are highlighted:

1.     Assessing the current investment strategy
2.    Incorporating principal impact data into the investment process
3.    Implementing reporting procedures

Datia recognizes the dynamic nature of data reliability and emphasizes the importance of disclosure in both precontractual and periodic reports. The methodology creation process includes selecting key performance indicators, applying thresholds, testing outcomes and disclosing the assessment approach. Practical considerations involve exclusions, revenue stream analysis, benchmark comparisons, and the use of conservative estimations for positive contributions.

Case 1 Discussion Responsible Investments Data Hub

Challenge:​ Building a Responsible Investments Data hub faces a challenge in understanding the requirements of business stakeholders. The project is significantly delayed due to rapidly changing business requirements, resulting in senior management losing trust in the project’s progress. The main challenge is to find ways to overcome or prevent this issue.

The need for a data hub in the context of ESG or Responsible Investments should be driven by specific reasons, such as reporting, regulatory compliance, or adding value to customers. The IT department might not be the primary stakeholder for this initiative.  Clear definition of ownership and accountability is key.

Building a technology solution without a clear vision and understanding of where it’s heading in the next five years can result in ineffective data collection. Setting clear definitions, making assessments, and having a strategic vision are essential before gathering and matching data. Collecting data based solely on green labels without meaningful definitions can lead to a large collection of useless data. The regulatory context is difficult, but the process should be more straightforward. The primary challenge lies in achieving alignment across the organization, necessitating collaboration and shared goals.

Case 2 Discussion Agri Food Fund Reporting​

Challenge: The challenge revolves around how a funds owner should report and disclose information for such a fund, considering its setup involving venture capitaland private equity. The inquiry seeks guidance on what aspects are crucial toreport, what information to prioritize, and what preparations are necessary to effectively report on the fund.

It’s crucial to note that for SFDR (Sustainable Finance Disclosure Regulation), disclosure is required at both the product level and the entity level. However, for CSRD (Corporate Sustainability Reporting Directive), funds are typically excluded from direct CSRD reportingas the focus is on reporting at the entity level.

Foods can represent various asset classes, such as venture capital, transitional investing in private equity it can be land or it can be loans. Defining what a food fund is becomes crucial, especially in the context of compliance with SFDR (Sustainable Finance Disclosure Regulation) Article 8 or 9. It’s essential to note that SFDR requires disclosure at both the product and entity levels. However, under CSRD (Corporate Sustainability Reporting Directive), funds are typically excluded from direct reporting as the focus is on the entity level. Approximately 10% of SFDR information can be repurposed for CSRD content, requiring effort to prepare and integrate the data effectively. Furthermore, information from voluntary initiatives, particularly TCFD, can be utilized to enhance sustainability reporting.

Getting more clearance about the value chain is key. When it comes to the supply chain in the context of a food fund, it’s crucial to understand the complexity involved. Even with good intentions, challenges can arise in ensuring the integrity of the entire process. Large corporations often struggle to have full visibility across the value chain, but new regulations aim to address this issue.

Case 3 Discussion Overlap ESG legislations​

Challenge: The ambiguity arises in understanding what has already been accomplished with KYC legislation. The inquiry explores the potential connection between KYC (KnowYour Customer) and ESG (Environmental, Social, Governance) legislation. If a link exists, the focus shifts to understanding how to avoid redundant efforts for upcoming ESG legislation.

While there is no direct link between KYC (Know Your Customer) legislation and CSRD (Corporate Sustainability Reporting Directive), the overlap lies in the information collected for KYC purposes. KYC primarily addresses combating money laundering and terrorism, and the European Sustainability Reporting Standards, particularly those related to governance, touch on topics like bribery and corruption. The information already gathered or reviewed for KYC, especially on corruption-related topics, can be leveraged for CSRD reporting. CSRD allows for narrative disclosure, providing an opportunity to use this existing information effectively. Inessence, you can utilize the data collected for KYC to contribute to your CSRD report, making the process more efficient and integrated.

For CSRD, finding answers involves delving into internal systems, such as KYC, HR, operational, and lending books. Many companies likely have substantial information, although not all of it may meet the required standards. The key is to understand the existing data in these systems and determine if it aligns with CSRD definitions. It’s a comprehensive process that requires thorough exploration and assessment of the available information. In a large organization, the challenge lies in identifying where to obtain the necessary information, who to contact, and what precisely the definitions are. The difficulty often arises in tracking down this information, as access to all systems and data is limited. This scenario is aptly captured by the quote,”If we only knew what we know.”