CSRD: EFRAG publishes Initial Observed Practices from Selected Companies

In July, EFRAG published a paper titled “IMPLEMENTATION OF ESRS: Initial Observed Practices from Selected Companies”. This document offers valuable insights into the preliminary practices and challenges encountered in implementing the European Sustainability Reporting Standards (ESRS) as observed in selected companies during Q2 2024. The study collected input from twenty-eight large European-based undertakings across eight industries, with a balanced representation between financial institutions (FIs) and non-financial institutions (non-FIs), including banks, insurers, and asset managers within the FI category.

Aimed at primarily large listed and unlisted undertakings subject to ESRS, the study focuses on four key areas: Double Materiality Assessment (DMA), datapoints, value chain analysis, and ESG reporting organizational approaches.

At cleversoft, our main focus is on the outcomes for financial institutions, aligning with our Standard CSRD Service aimed at serving these entities.

Here are the findings of the study:

Datapoints (DP):

• Many companies have not yet incorporated the results of their Double Materiality Assessment into their data point analysis. This can potentially lead to overload of reported data, which can deviate attention from the most important information that needs to be reported.
• Most companies use Implementation Guidance 3 (EFRAG IG 3) to conduct a gap analysis, with some also leveraging it to prepare for the upcoming digital tagging system.
• Key statistics on Data Points
  • Around 80% of companies report challenges in retrieving data, encountering similar difficulties across Environmental (E), Social (S), and Governance (G) aspects.
  • Approximately 75% of companies are using the phase-in option, while about 40% apply Information Materiality at the datapoint level, and 10% aim for full disclosure of datapoints related to material topics.
  • Nearly 95% of companies utilize Implementation Guidance 3 for gap analysis, with about 20% also using it as a foundation for the upcoming digital tagging/reporting taxonomy (XBRL taxonomy).

Value Chain (VC):

• Several companies have adopted a simplified, aggregated mapping of the value chain (covering upstream, downstream and own operations only). They are using transitional provisions with plans to expand beyond direct (Tier 1) business relationships in future reporting cycles.
• Key Statistics on Value Chain
  • Around 90% of companies are still refining their value chain mapping, trying to find the right level of detail.
  • About 45% have already moved toward a more detailed mapping of their value chain, extending beyond just upstream, downstream, and their own operations.

ESG Reporting Organizational Approaches:

While EFRAG does not prescribe a specific ESG reporting approach, insights from interviews show the emerging trends. The new reporting requirements are prompting companies to rethink and evolve their approach to ESG reporting.

• Different companies are using various organizational structures for ESG reporting, which may continue to evolve.
• Companies report that CSRD reporting has enhanced collaboration between departments such as Sustainability, Finance, Risk, IT, and business units.
• There is an increased emphasis on standardizing ESG reporting processes, including implementing data quality controls similar to those used in financial reporting, particularly in preparation for assurance.
• Additional resources and capabilities are required, such as more staff, better knowledge, data management, and technology upgrades, with IT transformations starting at different times across companies.
• Key statistics on ESG Reporting Organizational Approaches:
  • All companies are actively working on cross-departmental collaboration for ESG reporting.
  • The ownership model for the ESG reporting process is still evolving with around 65% assigning ownership to a single function (like the Chief Sustainability Officer or Chief Financial Officer), while approximately 35% adopt a co-leadership approach (e.g., CFO handling reporting and CSO managing the Double Materiality Assessment).
  • Approximately 90% of companies have begun enhancing data quality controls, similar to those used in financial reporting.
  • Around 85% of companies recognize the need for IT transformation to support their ESG reporting efforts.

CSRD Service offering by cleversoft

At cleversoft, we closely monitor regulatory developments and studies related to the CSRD, ensuring their integration into our cleversoft standard CSRD service. We maintain an ongoing communication with financial industry stakeholders to understand their explicit needs.

In addition, our team of CSRD specialists actively participates in all relevant workshops and events, including those hosted by EFRAG, to gain firsthand insights that inform our service’s continuous enhancement.

We are finalizing the service implementation based on the current regulatory status and preparing for the first client onboarding.

We offer a holistic 360-degree service designed to guide financial institutions through the complexities of the CSRD. For more information about our CSRD Services, we invite you to explore our website.