Perspectives

The Corporate Sustainability Reporting Directive (CSRD) is set to revolutionize corporate reporting, placing sustainability at the forefront of business strategy. For startups, this shift represents more than just compliance; it’s a chance to innovate and lead in a market increasingly driven by sustainability values. In this blog post, we’ll explore how startups can turn the CSRD’s requirements into a springboard for growth, from leveraging sustainable practices to enhancing market reputation and investor appeal.

CSRD at a Glance

The CSRD establishes a new corporate sustainability reporting Directive that aims to enhance the dissemination of sustainability information within the corporate sector. The CSRD amends the scope and reporting requirements of the Non-Financial Reporting Directive (NFRD), which only provides guidelines for environmental, social, and governance (ESG) reporting. Under the CSRD, reporting requirements through reports on large companies’ environmental and social impact activities will be mandatory. As it stands now, only micro, small, and medium-sized enterprises listed on EU-regulated markets will be impacted, with additional dependencies around the company’s number of employees, net turnover, and balance sheet. Importantly, though, the reporting requirements won’t enter into effect for startups until 2028, and will be less extensive than for large companies.

CSRD reporting relies on the principle of double materiality. Companies need to reveal how their operations impact the environment and society, as well as how their sustainability targets, initiatives, and risks influence their financial performance. All CSRD reports must be made accessible to the public, and the CSRD requires independent audits of these disclosures to ensure their accuracy and thoroughness.

How Does the CSRD Fit into the Broader EU Context?

The 2024 European Union elections marked a shift to the political right in the European Parliament, raising concerns among climate activists about potential rollbacks of the European Green Deal. Recent developments highlight the complexities surrounding the Green Deal, particularly from the perspective of right-wing, far-right, and center-right lawmakers. While these parties criticize climate policies’ economic impacts, the Green Deal is more likely to be revised rather than entirely abandoned due to its significant implications for industrial competitiveness and energy independence

Enacted in 2020, the Green Deal aims to comprehensively address climate change by making the Paris Agreement’s net-zero emissions goal by 2050 legally binding. This ambitious framework, encapsulated in the Fit for 55 package, set targets for reducing greenhouse gas emissions by 50% by 2030 and introduced a suite of environmental policies covering biodiversity, sustainable farming, and industry regulations. However, the Green Deal faced mounting resistance as its directives, like the CSRD and the Corporate Sustainability Due Diligence Directive (CSDDD), became more stringent.

Initially embraced by Member States eager to showcase environmental leadership, these regulations eventually stirred opposition among businesses and conservative lawmakers. The European People’s Party (EPP), bolstered by its electoral gains, now advocates for delaying the CSRD and CSDDD enforcement until a thorough review can lessen the reporting burdens on companies. For startups in the sustainability and green technology sectors, navigating this evolving political landscape requires strategic foresight. While potential regulatory revisions may pose challenges, they also present opportunities for startups across innovation, market leadership, and new partnerships within the evolving EU landscape.

CSRD and the opportunities it presents for startups

1. Making a tangible proof point for investors: When meeting with Greentech startups, heard a sense of frustration that investors seem less engaged when founders highlight the sustainability aspects of their work compared to more economically tangible aspects. Promisingly, though, investors are overwhelmingly supportive of the CSRD and similar regulation, with most of them believing this data will enable better investment decisions. This suggests that regulation like the CSRD can elevate sustainability from an ethical talking point to concrete criteria that will enable smart investing.
2. Leveling playing field for companies: Regulation like the CSRD makes it possible for investors, consumers, policymakers, and other stakeholders to evaluate and compare companies’ responsible business approach. As things stand now, companies are able to cherry pick their sustainability data, leaving many stakeholders guessing as to their objective ESG performance. Standardized reporting like what is required by the CSRD means all companies are required to provide , for example in terms of supply chain management or climate change mitigation strategies, making it possible to assess them fairly against one another. For those who have been investing thoughtfully in their ESG efforts since the beginning, this is an opportunity to shine compared to peers ahead of your next funding round or in policymaker meetings, even presenting CSRD-compliant data proactively before the compliance deadline.
3. Building demand for climate tech: Last in our list, but perhaps most exciting in terms of long-term impact: we believe the CSRD will build on the growing investment in climate and greentech over the last decades. Since companies will be incentivized to prioritize ESG, this could very well result in a new wave of bringing innovative technology to challenges like waste management or biodiversity protection, injecting sustainability into processes that might otherwise have negative environmental consequences. Measurement and reporting will also grow in importance, with new opportunities for experts in this domain to build out B2B software-as-a-service products to accurately reflect emissions across a company’s supply chain.

For startups, the shift from voluntary to mandatory reporting introduced by the CRSD is not only a compliance challenge, but a great opportunity to differentiate themselves in a competitive market. Embracing the CSRD can drive innovation, build trust with stakeholders, and attract investors increasingly focused on sustainable and responsible growth – if done and communicated right. Reach out to learn how we can partner to put in place the right structures for CSRD compliance, navigate and influence the political debate around ESG policies as well as the CSRD, should it be reviewed, and communicate your commitment to long-term sustainability and compliance together.