Managing CSRD Compliance: Key Strategies and Impacts on Data Management 

Recent Changes to the Corporate Sustainability Reporting Directive (CSRD) 

A recent EU "Omnibus" Regulation package³ provides clear frameworks for the EU Taxonomy Regulation, Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) as part of the European Green Deal, focusing sustainability reporting obligations on companies with more than 1000 employees who have the biggest impacts on people and the environment. The "Stop the Clock" proposal⁴ introduces delays to CSRD implementation, with the EU Commission voting to postpone CSRD compliance deadlines for certain companies, specifically affecting listed companies and those on EU regulated market. This results in phased deadlines for listed companies, with those on EU regulated markets facing adjusted compliance timelines, providing legal certainty to businesses managing their reporting and due diligence obligations.

Understanding CSRD

The CSRD applies to all large companies, regardless of whether they are listed on the stock market. It also applies to non-EU companies operating in the EU if they meet certain criteria (see Expanded Scope below), similar to the requirements of the EU AI Act and DORA regulations introduced over the past couple of years. Non-EU parent companies with significant operations in the EU, as well as their EU subsidiaries, are subject to CSRD requirements and must ensure that these entities comply with the directive.

The goal of the CSRD is to improve transparency and accountability in sustainability practices and help stakeholders evaluate companies’ sustainability performance. To meet CSRD obligations, companies report both financial and sustainability information in a standardized manner. A double materiality assessment is a key step for companies to comply with CSRD, requiring them to evaluate both their impact on sustainability issues and how these issues affect their financial performance.

“[The CSRD will] end greenwashing, strengthen the EU’s social market economy and lay the groundwork for sustainability reporting standards at global level,” an EU Parliament press release ascertained on November 10, 2022.⁵

Key Aspects of CSRD

These requirements encompass a wide range of information, including the company's business model, policies, strategies and performance related to ESG factors. Under the ESRS reporting framework, companies must meet detailed reporting requirements, including mandatory general disclosures as outlined in ESRS 2, to enhance transparency and accountability. Companies are also expected to report on their due diligence processes, risk assessment and management practices, along with any adverse impacts of their activities on people and the environment.

To achieve compliance with CSRD, companies must include sustainability information in their management reports, ensuring integration of financial and ESG data as required by European legislation in the following ways:

1. Broader Applicability 

Expanded Scope: The CSRD applies to a wider range of companies, including listed companies on an EU-regulated market exchange, and non-EU companies with significant operations in Europe (with a turnover of over €150 million euro in the EU – pending Omnibus Proposal)⁶. Non-EU parent companies and their EU subsidiaries are also within the scope of CSRD, meaning both the parent entity and its EU subsidiaries must comply with the directive’s sustainability reporting requirements.

Note also that the Voluntary Sustainability Reporting Standard for SMEs (VSME)⁷ provides a voluntary framework designed specifically for micro-enterprises and small businesses that are not legally required to report under CSRD. It ensures that SMEs can easily integrate their sustainability reporting with the requirements of larger companies subject to CSRD, specifically if required to report on supply chain sustainability information.⁸ It provides a simpler, more flexible approach to sustainability reporting to demonstrate their efforts in this regard to various stakeholders, such as investors.

Phased Implementation: The directive will be implemented in phases, starting with large undertakings and public interest entities (PIEs) in 2025, and gradually extending to other companies.

2. Detailed Reporting Standards 

European Sustainability Reporting Standards (ESRS): Companies must follow ESRS, which provides detailed criteria for reporting on various sustainability metrics, including environmental, social and governance (ESG) factors.

Double Materiality: Businesses are required to assess both the impact of their activities on the environment and society, and how sustainability issues affect their business performance, a concept referred to as “double materiality.”⁹ Under the new CSRD reporting requirements, companies must address both financial materiality—how sustainability issues can impact the company’s financial health, such as cash flows, risks, and access to funding—and impact materiality, which focuses on how a company’s operations affect environmental and social issues. Both perspectives are essential for comprehensive CSRD disclosures.

Expanded Requirements: To comply with the CSRD, companies need to collect, process, assess and ultimately report on more detailed and new data. The CSRD includes 12 standards and 82 reporting requirements. These more detailed reporting requirements mean organizations must provide comprehensive, auditable CSRD disclosures to demonstrate compliance with EU sustainability regulations.

3. Mandatory Verification  

Third-Party Verification: The CSRD mandates that sustainability reports be verified by external auditors to ensure the accuracy and reliability of the reported data. External assurance plays a crucial role in this process by providing independent validation of the information, enhancing the credibility of sustainability reports and ensuring compliance with CSRD requirements.

4. Digital Reporting Requirements 

Machine-Readable Data: Companies must provide digital tagging of sustainability information, making the data easily accessible and understandable. 

5. Alignment with International Standards 

Global Consistency: The CSRD aligns with international sustainability reporting standards, such as those set by the Global Reporting Initiative (GRI)10 and the Task Force on Climate-related Financial Disclosures (TCFD),¹¹ promoting global consistency in ESG reporting. 

6. Enhanced Transparency and Accountability 

Uniform Reporting: The directive aims to enhance transparency and accountability by requiring companies to disclose high-quality, standardized, comparable and reliable sustainability information. Under the CSRD, there are specific disclosure requirements for sustainability matters that obligate companies to disclose information on sustainability risks, including their greenhouse gas emissions and other environmental, social, and governance impacts. This ensures that companies publicly disclose information relevant to their sustainability performance and compliance, covering ESG factors that are material to their operations such as climate change, biodiversity, water and waste management, human rights, labor practices, anticorruption measures, and diversity and inclusion.

Stakeholder Trust: Improved transparency helps build trust among investors, customers, and other stakeholders through more reliable sustainability reporting. Legislative acts such as the EU Taxonomy¹² and the CSRD¹³ work together to improve the reliability and usefulness of sustainability information to investors. While the EU taxonomy provides clear criteria for economic activities to qualify as "sustainable," the CSRD greatly enhances the breadth, depth and uniformity of the EU's ESG and sustainability reporting ecosystem.¹⁴

7. Regulatory Scrutiny and Penalties 

Compliance Monitoring: Companies must regularly monitor their compliance with CSRD requirements to avoid penalties. Enforcement of CSRD compliance is carried out through national law by EU member states, with each country establishing its own enforcement mechanisms and determining penalties for non-compliance. These penalties can include substantial fines and legal consequences, which will vary by country. For example, in the UK, fines could be up to €580,000 and in Germany, they could reach up to €10million or 5% of company turnover.¹⁵

8. Strategic Business Imperative 

Sustainability Integration: The CSRD encourages companies to integrate sustainability into their core operations, unlocking competitive advantages and aligning business strategies with sustainability goals. CSRD compliance also promotes sustainable investments by providing the high-quality, transparent sustainability data that investors rely on to make informed decisions. This data is essential for meeting the requirements of the Sustainable Finance Disclosure Regulation (SFDR), which depends on CSRD disclosures to enhance transparency and comparability for investors while supporting the flow of capital into sustainable ventures.

The Role of Data Management in CSRD Compliance

Trusted data and its management are at the core of regulatory compliance. This is especially relevant for ESG reporting, where multiple dimensions of a company’s operations affect society and the environment. Understanding and reporting these impacts requires input from many actors across the modern enterprise, including internal departments and external partners.

The CSRD deepens these requirements in several critical ways:

Environmental Data:

• Carbon Emissions: Scope 1, 2 and 3 emissions, covering company operations, energy use and supply chain. 

• Energy Consumption: Energy usage details, renewable sources and efficiency measures. 

• Waste Management: Waste generation, recycling rates and disposal methods. 

• Water Usage: Water consumption, sources and conservation efforts. 

• Biodiversity Impact: Effects on ecosystems and biodiversity. 

Social Data:

• Employee Diversity and Inclusion: Workforce demographics and diversity initiatives.

• Labor Practices: Working conditions and compliance with labor standards. 

• Community Engagement: Community projects and stakeholder initiatives. 

• Health and Safety: Workplace safety incidents and preventive measures. 

• Human Rights: Policies, due diligence and compliance with international standards. 

Governance Data:

• Board Composition: Diversity, independence and expertise. 

• Executive Compensation: Pay structures and alignment with sustainability goals. 

• Ethical Practices: Anti-corruption policies and regulatory compliance. 

• Risk Management: Assessment and mitigation strategies. 

• Transparency and Reporting: Disclosure and communication practices. 

Data Sources in the Modern Enterprise:

• Internal: HR, finance, operations and sustainability data. 

• External Partners: Suppliers, contractors and industry information. 

• Third-Party Audits: Data from external audits and certifications 

It is clear that data used in the CSRD originates from many diverse sources across an enterprise and its ecosystem of vendors. This diversity can present a level of complexity that many businesses struggle to manage effectively. There are several critical factors in this process: 

Data Collection and Integration: Under the CSRD, companies must report a comprehensive array of ESG metrics. Implementing effective data management systems enables the seamless collection and integration of data from diverse sources, ensuring thorough and precise reporting. 

Data Quality and Accuracy: Reliable ESG reporting hinges on high-quality data. Data management tools play a critical role in ensuring that information used in CSRD reports is accurate, consistent and validated, which is vital for meeting regulatory standards and avoiding penalties.

Audit-Readiness: The CSRD requires companies to furnish audit-ready ESG data. Maintaining robust data management practices ensures detailed record-keeping and data lineage, simplifying the demonstration of compliance during audits. 

Automation and Efficiency: Leveraging data management technologies to automate the collection, processing, and reporting of ESG data significantly reduces manual effort, minimizes error risk, and enhances the overall efficiency of the compliance process. 

Data Analytics and Insights: Utilizing advanced data analytics tools allows companies to extract valuable insights from ESG data, enabling the identification of trends, risk assessment and informed decision-making. These insights are essential for strategic planning and enhancing sustainability performance. 

Regulatory Compliance: Centralized data management systems guarantee that all ESG data is stored, processed and reported in alignment with the CSRD and other pertinent regulations, ensuring companies remain compliant with evolving regulatory demands. 

How IDMC Supports Better Compliance with CSRD Regulations 

IDMC provides a comprehensive AI-powered data management platform that addresses regulatory compliance, including ESG standards, by helping minimize data risk and maximize transparency throughout the data lifecycle. It facilitates safer data use through monitoring and automating data discovery and classification, ingestion, integration, mastering and quality controls. This approach helps govern your data to remain clean, accurate, transparent, consistent and protected, assisting customers to meet the regulatory policies.

IDMC automates and streamlines policy compliance processes through its cloud-native platform, offering flexibility and scalability to adapt to new regulatory mandates. This reduces manual workload and errors and minimizes risks associated with integrating multi-point solutions. It enhances cost-effectiveness with consistent policy enforcement and audit trails, thus reducing the total cost of ownership through an integrated data management solution. 

The core data management capabilities of IDMC to support the CSRD are: 

1. Data Collection and Integration 

• Unified Data Platform: IDMC provides a unified and connected platform to collect and integrate ESG data from various sources, including internal departments and external partners. IDMC offers an ESG enterprise data architecture to manage this process. Centralized data collection and analytics processes will make the verification of sustainability reports more efficient. Auditors and audit teams can easily access and verify many CSRD/ESRS requirements by using the collected and analyzed data.¹⁶

2. Data Quality and Democratization 

• Data Quality Tools: IDMC includes robust data quality tools that help maintain the accuracy and consistency of ESG data. These tools reduce errors and improve the reliability of sustainability reports. This enables the cleansing of ESG Data in IDMC, which will provide trusted data for sharing with the right stakeholders across the organization through an application such as Cloud Data Marketplace.

3. Streamlined Reporting 

• Automated Reporting: IDMC offers automation features that streamline the reporting process, e.g., TCFD Reporting for Compliance in US, UK, as well as IFRS ISSB S1, S2 for other regions. Automation also enables real-time tracking and reporting of sustainability metrics, promoting timely decision-making and continuous improvement. By automating repetitive tasks, businesses can allocate resources to strategic aspects of CSRD compliance, such as enhancing sustainability practices and driving innovation.4 

• ESG Reporting: Partnered with all the leading ESG reporting vendors (like Workiva) and ESG Rating Agencies (D&B, Ecovadis, HowGood, etc.,), manage this data using Informatica for ESG reporting in the Informatica Data Catalog, automating data lineage and developing the right governance of both business and technical metadata.

4. Master Data Management  

• Create an accurate, reliable source of truth for ESG data using Informatica Master Data Management, a service of IDMC. This service can de-duplicate, match and merge data related to key ESG domains — such as supplier, product and reference — into the common data model using ESG reporting solutions for carbon accounting and last mile reporting, efficiently managed through hyperscaler partnerships (AWS, GCP, Azure, OCI).

5. Compliance Monitoring 

• Real-Time Monitoring: IDMC provides real-time monitoring and alerts for CSRD compliance. This helps companies stay on top of regulatory requirements and make necessary adjustments proactively. 

6. Data Governance and Security 

• Governance Framework: IDMC includes comprehensive data governance frameworks that ensure proper management and protection of ESG data. This can be done through the ESG business value framework which provides the controls, use cases, such as carbon emissions, human rights and environmental impact. It requires capabilities such as risk assessments and data integration, leveraging IDMC platform services and ESG accelerators — such as the ESG self-service portal through Cloud Data Marketplace, API integrations and Supplier 360 in MDM) — to effectively navigate up and down the business value chain. This framework focuses on enhancing data management practices to meet ESG reporting standards, increase business transparency and maximize value. 

7. Scalability 

• Scalable Solutions: IDMC’s scalable solutions can accommodate complex operational structures and group-level reporting. This flexibility is essential for large organizations with diverse data needs.

8. Third-Party Verification 

• Audit Support: IDMC facilitates third-party audits by providing accurate and complete ESG data. This ensures that sustainability reports meet CSRD standards and pass external verification. 

Summary

The CSRD reinforces the discipline for sustainability in modern enterprises. It requires senior management to explain whether and how their companies manage sustainability performance, and why they took particular actions. Therefore, this new regulation can boost companies' reputation and accessibility to funds by quantifying their commitment to sustainability. As Forbes highlighted in a recent article, “Companies that invest in sustainable practices — from supply chains to energy use — weather disruptions better and come out stronger. These efforts not only mitigate risks but also position businesses to seize new opportunities in an uncertain world.”¹⁷

Informatica, through its IDMC platform, can drive real value for modern enterprises by supporting regulatory compliance with CSRD and achieving cost savings through automated workflows. It also provides trusted data that leverages ESG data as a strategic asset to support better business decision-making, which in turn improves brand reputation by responsibly managing compliance risks.  

Further Reading 

Managing Digital Operational Resilience Act (DORA) Compliance 

Shaping the Future of AI: Understanding and Preparing for the EU AI Act 

Chart the Course for Responsible AI Governance  

Advance Your Enterprise with Data Cataloging for Next-Gen Data Governance  

Unlock the Benefits of AI-Powered Data Lineage to Boost Your Business Success

ESG Compliance: How to Meet ESG Reporting Standards with Data Management

How Organizations Can Achieve ESG Data Mastery