European directive on hazardous waste: what are the consequences for the companies concerned?

What is the CSRD directive?

The European CSRD (Corporate Sustainability Reporting Directive), and its predecessor the NFRD (Non Financial Reporting Directive), which was applied in France via the DPEF (Déclaration de Performance Extra-Financière) and judged insufficient, are the materialization of the European Union’s determination to achieve carbon neutrality by 2050(European Green Deal or Pacte Vert).

The aim is to make companies more transparent about their extra-financial performance. Through reporting standards (known as ESRS European Sustainability Reporting Standards), their extra-financial declarations must become reliable, comparable and comprehensible to all (investors, shareholders, partners, governments, managers, employees, suppliers, subcontractors, customers). A platform has been created by the European Commission (ESAP European Single Access Point) to centralize all financial and sustainability information.

This directive aims to improve the quality, accessibility and traceability of non-financial information. A company’s activity should no longer be assessed solely in terms of its financial performance, but also its environmental impact. The aim is to identify the effects of a company’s activity on the environment.

The European SRHR Directive is based on the principle of double materiality:

Impact of the company’s activities on the climate <– > Impact of climate change on the company’s activities.

The companies concerned consider this double materiality to be a worrying aspect of the directive. Indeed, they are unfamiliar with this exercise, which until now has been based solely on financial information. Most of the companies concerned have serious questions about the way in which this double materiality is to be achieved, and the resources to be devoted to it.

The dual materiality analysis mechanism is based on :

• On impact materiality (the company’s impact on people and the environment)
• Financial materiality (the impact of social and environmental issues on the company’s business)

Each company will then be asked to produce a double materiality matrix with appropriate indicators.

This directive, initiated by the European Commission in April 2021 and published in the EU’s Official Journal on December 16, 2022 (and implemented in France since January 2024 by EU Directive 2022/2464), complements the SFDR Sustainable Finance Disclosure regulation and taxonomy.

CSRD Directive, which companies are concerned?

The European CSRD directive applies to companies (financial and non-financial) with the following characteristics:

• Companies listed on European regulated markets (including listed SMEs)
• Large European companies (listed or unlisted) exceeding at least two of the following three thresholds: 250 employees, €40 million sales[8] and/or €20 million balance sheet total.
• Non-European companies whose subsidiaries (or branches) generate sales in excess of €150 million in the EU[9].

Some 50,000 companies are concerned by the CSRD, compared with just over 11,000 under the NFRD.

The schedule for publication of the^1st report is as follows:

• January^1, 2025 (financial year 2024): concerns European and non-European companies already covered by NFRD reporting.
• January^1, 2026 (financial year 2025): concerns large European companies and non-European companies listed on a European regulated market not subject to the NFRD.
• January^1, 2027 (financial year 2026): concerns listed European and non-European SMEs.
• January^1, 2028 (financial year 2027): concerns non-European companies with European sales in excess of €150 million through a subsidiary or branch.

According to a study published by Bakertilly at the end of 2023, 51% of companies surveyed are concerned about the application of this directive. Why are they worried? It’s likely that they are not ready, nor are they already organized in such a way as to meet the requirements of the European CSRD directive.

What information will be published via CSRD?

Companies subject to the CSRD obligation will have to include indicators in their annual management report to justify the double materiality logic required of them.

In practice, the CSRD requires that the report include :

• A description of the company’s BOM (Business Operations Model) and strategy
• The company’s sustainability objectives and deadlines
• A description of the role of administrative, management and supervisory bodies with regard to sustainability issues
• A description of the expertise and skills of these bodies in carrying out this role (or how they will acquire this expertise and skills)
• A presentation of the company’s sustainability policies
• Information on sustainability-related incentive schemes offered to members of administrative, management and supervisory bodies
• A presentation of the due diligence procedure for sustainability issues
• A presentation of the main actual or potential negative impacts of the company’s activities
• A presentation of the measures taken by the company to prevent, mitigate, correct or eliminate negative impacts (actual or potential) and of the results obtained.
• A description of the risks associated with sustainability issues (including the company’s dependencies in this area) and how the company manages them.
• A complete description of the indicators relating to the information to be published presented above

The information to be published as part of the CSRD will comply with the recommendations of the TCFD (Task-Force on Climate-related Financial Disclosures) in four categories: (1) governance, (2) strategy, (3) management of impacts, risks and opportunities, (4) indicators and targets. And by complying with the 10 ESG (Environment Social Governance) themes

What organizational impacts can companies expect?

Overall, there are three main phases to consider.

Case of a company already subject to NFRD

Phase I: from ratification of the directive by the European Commission to the end of June 2023

Objectives

• Read and understand the CSRD text
• Learn about current ESRS standards projects
• Carry out a gap analysis between expectations and the company’s existing reporting system
• Carry out an impact analysis on company processes (operational, management and support)
• Conduct an impact analysis on the company’s IS (Information System), technologies and tools
• Make a quantitative diagnosis of the updating effort required (human resources, budget, impact on production) and assess the changes to be implemented.
• Define an action plan and its monitoring and steering governance
• Execute action plan

Organizational impacts

• Mobilize in-house human resources to reinforce the task force already set up for this purpose in response to NFRD injunctions. The risk would be to deplete the human resources of certain operational teams, with a direct and noticeable impact on production.
• Modify the company’s operational governance. Moving from “control tower” governance to hybrid governance, while maintaining strict adherence to the essential governance principles of transparency, accountability, fairness and performance.

Phase II: end of June 2023 to end of 2024

Objectives

• Ensure that the final standards do not include any changes to EFRAG’s projects
• Identify/construct/collect the necessary information and begin drafting sustainability reports in accordance with the cross-sector ESRS standards adopted by the European Commission.

Organizational impacts

• Update the job descriptions of certain employees with a view to the new tasks of compiling sustainability and other ESG-related information.
• Upgrade IS to automate data identification and transmission to systems
• Implement a workflow to guarantee the reliability and traceability of information

Here, the impacts are characterized on the one hand by the standardization of the HR plan, and on the other by the progress of projects aimed at optimizing the company’s IS.

Phase III: 2025

Objectives

• Publish^1st sustainability reports (fiscal 2024) according to cross-sector ESRS standards
• Collect the necessary information and begin preparing sustainability statements in accordance with the first sector-specific ESRS standards, as adopted by delegated act by the European Commission at the end of June 2024 (to be confirmed).

Organizational impacts

Integrate functions dedicated to CSRD reporting activities into the organizational structure (organization chart) on a permanent basis.

Case of a company that has never published sustainability information

Phase I: from ratification of the directive by the European Commission to the end of 2023

Objectives

• Familiarize yourself with sustainability reporting and the CRSD
• Conduct an initial materiality analysis
• Carry out an exhaustive mapping of the major sustainability issues (impacts, risks and opportunities) specific to the entity.
• Identify future sustainability reporting needs (strategy, indicators, action plan)
• Carry out a diagnosis of the organization (processes, structure, systems and tools) to get an idea of the road ahead and anticipate the actions to be implemented.
• Integrate the requirements in terms of information to be collected as anticipated by the cross-sector standards published by EFRAG and due to be approved by the European Commission
• Adapt organization, processes, reporting and control frameworks, and information systems

Organizational impacts

• Mobilize human resources internally to set up the task force needed to meet the requirements of the European CSRD directive (construction/identification of indicators, their origin and the people/departments in charge of consolidating reporting). The risk is to deplete the human resources of certain operational teams, with a direct and immediate impact on production.
• Modify the company’s operational governance. Moving from “control tower” governance to hybrid governance, while maintaining strict adherence to the essential governance principles of transparency, accountability, fairness and performance.

Phase II: over 2024 and 2025

Objectives

• Refine materiality analysis and precisely identify the information that needs to be published
• Implement new processes and reporting systems
• Collect the information needed for the^1st sustainability reports
• Define the content of these statements and how they will fit into the annual management report
• Design sustainability reports in accordance with adopted cross-sector ESRS standards
• Incorporate into the action plan the information gathering requirements anticipated by the first ten sector-specific ESRS standards.
• If necessary, benchmark the relevant sustainability reports already drawn up in accordance with the European SRHR Directive and available.
• Choose the body that will audit the sustainability statements after their^1st publication in early 2026

Organizational impacts

• Modify the mapping of operational teams and update the HR plan, based on the creation of a center in charge of CSRD issues.
• Formally set up a task force to lead IS evolution projects (this could be the same task force set up in phase I), to facilitate data identification, reliability, traceability and feedback.

Here too, the impact is characterized on the one hand by the standardization of the HR plan, and on the other by the progress of projects aimed at optimizing the company’s IS.

Phase III: 2026

Objective

Publish the^1st sustainability reports for fiscal 2025 in accordance with cross-sector ESRS standards.

No comparative information is required for the^1st year of application.

Organizational impacts

Integrate functions dedicated to CSRD reporting activities into the organizational structure (flowchart).

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