CSRD Gap Analysis: The Complete Guide for your Sustainability Journey
The corporate world is witnessing a major shift with the arrival of the Corporate Sustainability Reporting Directive (CSRD). Is your company prepared to embrace this transformative process?
The CSRD at a glance
In the dynamic landscape of sustainability reporting, a revolutionary framework is taking center stage – the Corporate Sustainability Reporting Directive (CSRD). Mandated by the European Union, the CSRD isn't merely a set of rules; it's a visionary force that is reshaping how companies should engage in sustainability practices.
The core objectives behind the CSRD are clear. The EU envisions a future where transparency and accountability are key, where reporting standards are harmonized across member states, and where sustainability becomes an integrated part of corporate strategies, surpassing regulatory compliance.
Yet, what truly sets CSRD apart is its commitment to the Double Materiality Assessment. This comprehensive evaluation focuses on both financial and impact materiality, distinguishing CSRD from existing frameworks (such as the GRI or the SASB). It plays a crucial role in defining reporting scopes, aligning European Sustainability Reporting Standards (ESRS) with material topics identified in this assessment.
For companies, whether novices to sustainability reporting or seasoned participants, the Double Materiality Assessment marks a major milestone. And following this assessment, the next crucial step unfolds: the Gap Analysis. In this article, we will focus on what this analysis entails, exploring its significance and guiding you through the essential steps.
Curious to know if your company falls under the CSRD scope? [Check here] for more information.
What is the CSRD Gap Analysis and why is it important?
The CSRD gap analysis is a crucial step for CSRD compliance, laying the groundwork for your journey towards comprehensive sustainability reporting, especially relevant for companies with prior corporate sustainability disclosures through other frameworks.
Its primary objective is to identify areas where current sustainability practices align with CSRD requirements and map the existing gaps. While a complex and resource-intensive process, it offers efficiency by allowing companies to build upon previous work instead of starting from scratch. This not only streamlines the process but also proves more cost-effective and less time-consuming.
In essence, the gap analysis transforms the challenge of CSRD compliance into an opportunity. It navigates complexity by facilitating the identification of pre-existing alignments and streamlining the journey toward meeting CSRD standards. This efficiency, as said, is particularly advantageous for companies with a foundation in previous sustainability disclosures
Methodology for an effective Gap Analysis:
At Vivid Earth, we typically break down the Gap Analysis process into two major phases - the preparation for the gap analysis and the mapping of the gaps:
1º - Preparation for the Gap Analysis
This initial phase can run concurrently with the double materiality assessment as it is not dependent on material topics. The primary objectives here are to:
Define and prepare the right tool for gap mapping, be it a spreadsheet or a relevant platform/tool (our three favorite CSRD tools are: Workiva, Maplecroft and Clarity AI). Ensure thorough internal discussions to decide, as this will serve as the repository for all gap analysis information.
Conduct a "Current Situation Analysis," involving a comprehensive assessment of the current state of your company's sustainability reporting. This includes a detailed examination of existing reports, data collection methods, disclosure practices, as well as an analysis of previously used frameworks.
Perform an "ESRS Reporting Requirements Analysis" to ensure your team is well-versed with European Sustainability Reporting Standards (ESRS). This knowledge prevents errors and enhances efficiency during the subsequent gap mapping.
2º - Mapping of the Gaps
The second phase of the process, the actual gap analysis, should commence only after the completion of the first phase and the definition of material topics from the Double Materiality Assessment. The main objectives and steps in this phase are:
Define the ESRSs and respective datapoints in scope for CSRD reporting based on the material topics that derived from the Double Materiality Assessment.
Map the gaps between in-scope ESRSs and previous sustainability-related information already disclosed. This crucial step, expected to demand a significant amount of effort and time, utilizes the previously defined tool to organize and categorize all gap information. Typically, gaps are organized based on their alignment:
Fully aligned (indicating no gap – no additional information needed).
Partially aligned (indicating a need for more or different information).
Not aligned (indicating a need to start disclosing this information).
It is extremely important to detail the gaps with as much information as possible in order to facilitate the next steps in the CSRD roadmap.
The final step in the CSRD Gap Analysis process involves reviewing and discussing the gap analysis report, to ensure team alignment and to verify for errors in data collection or process definitions. This report is based on the finalized information gathered in this second phase of the process.
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Why should your company perform a CSRD Gap Analysis?
Undertaking a gap analysis as part of the compliance journey with the Corporate Sustainability Reporting Directive (CSRD) offers a variety of benefits for companies navigating the evolving landscape of sustainability reporting. Here are key advantages associated with this approach:
Improved Operational Efficiency: The gap analysis process helps visualize inefficiencies in data collection, reporting systems, and internal processes. Addressing these inefficiencies reduces costs and efforts, supporting not only CSRD compliance but also enhancing overall operational efficiency.
Proactive Compliance: By systematically identifying gaps, companies can proactively address deficiencies in their sustainability reporting before CSRD compliance deadlines. This approach minimizes the risk of non-compliance, potential penalties, and prepares companies for the next steps in the CSRD journey.
Effective Risk Mitigation: Understanding and addressing gaps early allows companies to mitigate risks associated with non-compliance. The gap analysis positions the organization in a prime scenario to navigate the regulatory landscape more effectively.
Enhanced Strategic Alignment: A gap analysis provides a structured framework for aligning current sustainability practices with the strict requirements of the CSRD, ensuring that reporting efforts are strategically aligned with overarching business objectives and that the work required is cost-efficient.
Competitive Advantage: Companies that successfully identify and bridge the gaps gain a competitive advantage compared to those that ignore this gap analysis process. It proves to be cost and time-efficient, allowing companies to allocate resources more effectively and be well-positioned for successful CSRD compliance.
Common Challenges and Solutions
Conducting a thorough gap analysis for CSRD compliance, despite its numerous benefits, presents unique challenges that require strategic solutions. Understanding and addressing these challenges are crucial to ensure a seamless transition toward meeting the rigorous standards set by the CSRD. Here, we explore specific hurdles associated with the gap analysis process that we've gathered so far and propose practical solutions, including ways in which Vivid Earth can assist:
Complexity of the ESRS Datapoints:
Challenge: Interpreting and navigating the intricate details of the European Sustainability Reporting Standards (ESRS) can be challenging and time-consuming.
Solution: Ensure your team possesses the needed expertise and is acquainted with the requirements before starting the gap analysis process. Vivid Earth simplifies the complexity of ESRS standards by providing in-depth guidance. We break down complex requirements into actionable steps for an effective gap analysis.
Identifying ESRSs in Scope:
Challenge: Pinpointing the European Sustainability Reporting Standards (ESRSs) in scope and the specific data points requires a comprehensive understanding of regulatory standards, as well as a clear vision of the company’s sustainability material topics.
Solution: Align ESRSs in scope with the material topics identified in the double materiality assessment. To overcome this challenge, Vivid Earth provides expert guidance in identifying and defining ESRSs that align with your organization's specific requirements. We navigate complexities, ensuring your ESRSs are aligned to material topics and organizational needs. This meticulous approach guarantees that your sustainability reporting is not only compliant but also strategically aligned with your business objectives.
Organizing the Gaps:
Challenge: Mapping the gaps between current reporting practices and ESRS requirements requires a comprehensive understanding of both, and keeping the information up-to-date and organized is not always easy.
Solution: Ensure you have the right tool ready to gather all your gap analysis information and know how to use it. Vivid Earth encourages the use of a spreadsheet that is specific to your company and to your gap analysis.
Engaging Stakeholders Effectively:
Challenge: Engaging stakeholders for gap analysis insights can be challenging without a structured approach.
Solution: Ensure the right stakeholders are involved during this process and that the right communication channels are defined. Vivid Earth facilitates stakeholder engagement strategies, ensuring relevant stakeholders contribute valuable insights, enriching this analysis process.
What comes next?
After concluding the CSRD gap analysis, the next phase involves creating a specific compliance roadmap. Begin by thoroughly synthesizing the findings from the gap analysis. Following this, prioritize the identified gaps based on their material impact. This targeted approach allows your organization to address the most significant aspects aligning with both CSRD requirements and broader sustainability objectives.
Translate these prioritized gaps into clear, measurable goals. These goals become the bedrock of a strategic roadmap, guiding your organization toward a successful and purposeful sustainability journey. This systematic approach simplifies the process, ensuring an organized and effective transition towards CSRD compliance.
The Bottom Line
In conclusion, the journey toward CSRD compliance is a strategic imperative for businesses committed to sustainability and transparency. The gap analysis is not merely a compliance checkpoint but a catalyst for transformative change, paving the way for a more resilient and consistent report.
As you embark on this path, remember to synthesize the findings, prioritize action, and craft a roadmap tailored to your organization's unique needs. The process is complex, but the rewards – from enhanced stakeholder trust to a competitive edge – are substantial.
Why Vivid Earth?
At Vivid Earth we bring the implementation expertise and depth of understanding of the CSRD and ESRS requirements and standards to steer our clients towards an efficient and value-creating reporting initiative. Our approach leads to the discovery of actionable insights that allows companies to not only report on the necessary details, but also take advantage of new strategic market opportunities while mitigating corporate risk.
Should you have any questions or require assistance on your CSRD compliance journey, don't hesitate to reach out via email or by filling out the form below.
We look forward to learning more about your needs and sharing our perspective.
Highlighted CSRD Tools:
Workiva: The one platform for assured integrated reporting.
Watershed: Seamless CSRD Gap Analysis tool.
Clarity AI: Tech-based reporting tools to ensure compliance with relevant regulatory frameworks.
Sources
European Union. Corporate Sustainability Reporting. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
EFRAG. Publication ESRS documents December 2023. https://www.efrag.org/News/Public-471/Publication-of-the-3-Draft-EFRAG-ESRS-IG-documents-EFRAG-IG-1-to-3-
GRI. Global Reporting Initiative Standards. https://www.globalreporting.org/standards/
