Implications of the Corporate Sustainability Reporting Directive (CSRD) for advertisers
The Corporate Sustainability Reporting Directive (CSRD), published by the European Commission on December 14th 2022, marks a pivotal shift in sustainability reporting for nearly 50,000 EU companies. Replacing the Non-Financial Reporting Directive (NFRD), the CSRD seeks to enhance transparency, comparability, and accountability. This article provides a condensed exploration of the CSRD, covering its rationale, global impact, application, reporting requirements, and implementation timeline.
Why the CSRD?
The CSRD addresses the limitations of its predecessor, the NFRD, acknowledging that existing legislation fell short in delivering comprehensive sustainability reporting. The European Commission emphasized the necessity of high-quality reporting to instill confidence in the market for sustainable investments. The directive aims to bridge the “accountability gap” and provide investors with a clearer picture of a company’s sustainability impact.
Extending beyond EU borders
Despite being an EU directive, the CSRD’s scope extends to companies outside the EU with subsidiaries within its jurisdiction by requesting the CSRD reporting to these organizations as well. This emphasizes the EU’s commitment to global sustainability standards and recognizes the interconnected nature of modern business.
Double materiality point of view
Retaining the concept of “double materiality” from the NFRD, meaning that the CSRD mandates companies to disclose the impact that their activities may cause to the environment and to the society, while detecting financial issues due to sustainability and climate change. This encourages businesses to adopt a more comprehensive self-assessment aligned with sustainable development goals.
Standardization for better reporting
A key aspect of the CSRD is the requirement for standardized digital reporting, aimed at streamlining the currently diverse reporting formats. This move seeks to eliminate greenwashing, strengthen the EU’s social market economy, and lay the groundwork for global sustainability reporting standards.
CSRD scope
The CSRD significantly expands the number of companies subject to sustainability reporting, encompassing nearly 50,000 entities compared to the 11,000 covered by the NFRD.
Large companies meeting specific financial thresholds, irrespective of their EU status, are included. Non-EU companies with a substantial EU presence fall under the CSRD if they meet two of the following conditions:
- €50 million in net turnover
- €25 million in assets
- 250 or more employees
These companies must disclose sustainability information in their management reports, aligning financial and sustainability data for simultaneous publication. The submitted data, required to be in a standardized digital format, undergoes “limited third-party assurance,” involving an auditor’s evaluation to ensure accuracy and reliability.
CSRD Timeline
The CSRD is set to be implemented in the following stages:
- From January 1, 2024, for large public-interest companies already subject to the NFRD.
- From January 1, 2025, for large companies not previously subject to the NFRD.
- From January 1, 2026, for listed SMEs and other undertakings, with SMEs having the option to opt-out until 2028.
How CSRD will impact advertisers (Scope 3 CO2 emissions)
The Corporate Sustainability Reporting Directive (CSRD) marks a transformative force in corporate sustainability reporting, emphasizing transparency, accountability, and global standardization. Under this directive, the mentioned companies are now obligated to report their carbon footprint, covering scope 1, scope 2, and scope 3 emissions that encapsulate all activities within the value chain. This reporting requirement extends to the carbon footprint generated by advertising activities, including online paid media activations.
Advertisers must account for emissions related to the activation of paid media campaigns, considering the energy (KWh) used by MarTech platforms for ad delivery and user tracking. Consequently, advertisers face the challenge of optimizing campaigns not only for return on advertising spend (ROAS) but also for reducing carbon emissions. Balancing advertising key performance indicators (KPIs) while minimizing their carbon footprint becomes a crucial consideration.
For this, Indaru has developed EcoMetrics, a carbon footprint calculator which helps advertisers to measure the CO2 emissions from their digital campaigns. This tool allows brands to understand which publishers, formats and strategies are the least carbon efficient and which ones could help to reduce the carbon footprint of the advertiser, while keeping an eye on the performance of other KPIs such as ROAS.
As advertisers navigate compliance complexities, embracing sustainable reporting is not just a regulatory obligation but a strategic imperative. Especially for companies aiming to thrive in an era shaped by environmental, social, and governance considerations. The CSRD presents both challenges and opportunities where new technologies, such as EcoMetrics, will help advertisers to contribute to the global movement towards a more responsible and transparent corporate ecosystem while proactively engaging in sustainability practices.
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