Welcome to the second of our series on the EU Corporate Sustainability Reporting Directive (CSRD). If your business is a small or medium-sized enterprise within the EU, or if it has operations in the EU, this directive is relevant to you, even if you do not immediately fall into scope. 

In this instalment, we will explain why CSRD is something you should be aware of and what you need to do in the short term in order to remain competitive.

First, here is a reminder of when firms fall into scope under CSRD and what is meant by Scope 1,2, and 3 Emissions under the directive

CSRD eligibility by company size and type applies as follows: 

Timeframe	Company Type
2024 Fiscal Year; reports published in 2025	EU Listed Companies (including international companies listed in the EU) > 500 employees Firms already applicable under NFRD (current legislation)
2025 Fiscal year; reports published in 2026	Large companies not currently subject to NFRD> 250 employees €50m plus net turnover*
2026 Fiscal year; reports published in 2027	EU Listed SME’s> 50 Employees€10m+ net turnover€5m total assets*Note: Potential opt out exemption until 2027; reports published in 2028
2028 Fiscal year; reports published in 2029	Subsidiaries of non-EU companies with €150m + net turnover. Further details to follow.

*must meet two of three applicable thresholds.

What is meant by Scope 1, 2, and 3 Emissions? 

Green House Gas (GHG) emissions are classified into categories being Scope 1, Scope 2 or Scope 3 emissions.  This is a way of grouping emissions between those created by the company and those created by its wider value chain.

Scope 1 Emissions: These are the direct emissions from sources that a company owns or controls, such as emissions from owned company vehicles. 

Scope 2 Emissions: These are indirect emissions from the generation of electricity, heating, and for example, HVAC (Heating, Ventilation and Air Conditioning), that the company buys from another source. 

Scope 3 Emissions: These are all other indirect emissions that occur in a company’s value chain. They can include emissions from the production of raw materials, business travel, or the use and disposal of products the company sells.

Scope 3 Emissions and ‘SME’ Supply Chain Participants 

Many SME’s are part of the supply chain of larger CSRD-eligible firms. What this means is as an SME, you must now consider how your operations contribute to the Scope 3 emissions of your CSRD-eligible trading partners. Therefore, even if your SME is not directly subject to CSRD regulations, you may need to report on and manage Scope 3 emissions to satisfy the requirements of the larger firms you do business with.

As we move into the remainder of 2024 and beyond, understanding and managing your carbon emissions as a company will be a critical aspect for SMEs within these supply chains. Preparing for these requirements not only involves tracking and reporting emissions but also implementing practices that could mitigate their impact. This proactive approach will be essential until such time your SME comes under the direct scope of CSRD and in our view, is one of the most challenge aspects of the directive for the SME community. 

As an SME, what else should I be considering regarding Sustainability disclosures?

CSRD and Competitiveness 

With the CSRD pushing for more transparent and standardised sustainability reporting, early adopters of sustainability practices and reporting can potentially gain a competitive edge by showcasing their environmental efforts. Here are some considerations for SME’s in the short term:   

• Private and Public Tendering: CSRD-compliant firms can potentially stand out in private tender processes by meeting increasingly stringent sustainability requirements, helping them secure contracts and preferred partnerships. Public contract tendering typically already requires sustainability disclosures to be made by the tenderers, depending on the sector. 
• Acquiring Talent: A robust ESG strategy can attract top talent, as many prospective employees prefer companies that prioritise corporate social responsibility. 
• Website Disclosures: Many companies are opting to begin publicly disclosing their sustainability practices ahead of CSRD eligibility, helping them to ‘stand out from the crowd’. 
• Developing Relationships with Larger In-Scope Firms: As a guide, smaller firms can leverage the CSRD framework to align with the sustainability goals of larger in-scope companies, fostering supply chain relationships through shared environmental and social values.

What tangible steps can I take now to start our sustainability journey? 

Here are some areas you can consider as an organisation to start your CSRD-compliance journey: 

• Conduct an Energy Audit: Evaluate energy use in operations to identify areas where consumption can be reduced or rationalised. This helps establish an energy-consumption baseline and highlights ‘quick wins’. There are many companies that can undertake this process for you, and it may involve installing energy monitoring equipment that analyses specific assets and departments. 
• Review Company Travel: Perform a detailed analysis of employee travel practices, including air, rail, and road transportation. Your travel management company should be able to supply this information to you quickly and easily. 
• Assess Company Vehicle Emissions: Monitor the emissions of vehicles used for business purposes. Consider transitioning to low-emission vehicles or EV’s (if you wish to consider the tax implications, feel free to reach out to our taxation experts here at Ormsby & Rhodes). 
• Engage your Supply Chain: Reach out to suppliers to understand their sustainability practices and encourage them to provide data on their emissions. 
• Set Clear Reporting Procedures: Develop internal reporting mechanisms to collect and analyse sustainability data accurately. This makes it easier to track progress and identify areas needing improvement.
• Appoint Sustainability Champion(s): Appoint sustainability leads for the company who are responsible for managing and monitoring goals and net zero targets. 
• Educate and Train Employees: Provide training to employees on the importance of sustainability and how their actions contribute to the company’s CSRD compliance goals. Many businesses opt to share energy insights on screens to encourage energy saving.

Engage the Experts: As your Accountancy partner, we are here to help you navigate CSRD-compliance, however, you may also wish to engage a sustainability consultant to support you with your roadmap. 

What’s next? In part three we will examine sustainability accreditation and grants you may wish to consider to support your green transition. 

We hope you found this article helpful. As always, our experts here at Ormsby & Rhodes are on hand to help you navigate your regulatory and compliance obligations. 

Connect with our experts directly by emailing info@ormsby-rhodes.ie or browse our business solutions at www.ormsby-rhodes.ie.