5 steps to prepare for CSRD reporting on your investments

As an investor, you’re already familiar with sustainability obligations like the SFDR. But with the Corporate Sustainability Reporting Directive (CSRD), the scope of your responsibilities is expanding.

If you hold financial or operational control over portfolio companies, you’ll need to consolidate their ESG data as part of your own disclosures. While this may sound daunting, we’re here to help you break it down into manageable steps.

This guide walks you through the essentials of preparing for CSRD reporting, ensuring you’re ready to meet these new requirements with confidence.

Financed emissions reporting: a quick recap

Before diving into the CSRD, let’s quickly revisit financed emissions reporting.

Frameworks like the Partnership for Carbon Accounting Financials (PCAF) allocate emissions proportionally to ownership stakes. For example, if you own 10% of a company, you’re responsible for 10% of its emissions.

While financed emissions reporting is crucial, the CSRD goes far beyond this. It requires investors to evaluate their entire portfolio’s environmental, social, and governance (ESG) performance—not just greenhouse gas emissions.

5 steps to prepare for CSRD compliance

1. Understand the boundaries for CSRD reporting

The CSRD introduces new rules about which portfolio companies you must include in your ESG disclosures. If you have financial control (you own more than 50% of a company’s shares) or operational control (you have the authority to make decisions about a company’s operations), you’ll need to consolidate their ESG data into your reporting.

This means you must treat these portfolio companies as subsidiaries, incorporating metrics such as board diversity, employee welfare, and environmental impacts in your consolidated disclosures.

What you need to do:

• Identify companies under your financial or operational control.
• Start gathering baseline data from these entities to avoid compliance headaches later.

Operational control: When you have decision-making authority over a company’s operations, even if you don’t own a majority stake.

2. Conduct materiality assessments at the portfolio level

Materiality assessments are key to meeting CSRD requirements. They help you identify which ESG issues are most significant, both for individual portfolio companies and for your consolidated reporting.

The CSRD emphasizes double materiality, meaning you must consider both:

• Impact materiality: How a company affects the environment and society.
• Financial materiality: How sustainability issues impact a company’s financial performance.

Steps to conduct a materiality assessment:

1. Engage portfolio companies to identify their most relevant impacts, risks, and opportunities (IROs).
2. Define thresholds for what’s considered material.
3. Document findings and maintain an audit trail to ensure compliance.

Example:
A logistics company in your portfolio might identify fuel consumption as a material issue under financial materiality, while air quality impacts from vehicle emissions could be significant under impact materiality.

3. Build strong relationships with portfolio companies

CSRD compliance depends on collecting accurate, reliable ESG data from your portfolio companies. Establishing strong communication channels with these companies ensures you get the information you need.

How to streamline data collection:

• Provide clear guidance on CSRD requirements and how to meet them.
• Use automated tools and surveys to simplify data gathering.
• Collaborate with companies to align data collection efforts with ESRS requirements.

By supporting your portfolio companies, you can help them improve their reporting processes, while strengthening your own ESG strategy.

4. Use technology to simplify CSRD compliance

Technology can make CSRD compliance much more manageable, especially for investors with complex portfolios. Sustainability management platforms allow you to centralize data collection, analyze ESG performance, and prepare consolidated reports.

What to look for in a platform:

• Multi-standard functionality: A tool that lets you report under CSRD, SFDR, and other frameworks using the same data.
• Data integration: A system to collect, store, and analyze data across all portfolio companies.
• Scenario planning: Features to assess risks and opportunities across your portfolio.

Example:
A real estate fund could use a platform to track metrics like energy efficiency and emissions intensity across properties, ensuring data aligns with CSRD and other frameworks.

5. Start preparing early

The CSRD’s phased rollout means your reporting deadlines might not be imminent, but starting now will save you from stress later. Early preparation allows you to identify gaps in your processes and ensure your data is comprehensive and accurate.

Why act now:

• Materiality assessments and data collection take time, especially for large or diverse portfolios.
• By preparing early, you can build a robust reporting process and avoid last-minute surprises.
• Starting now demonstrates your commitment to sustainability, building trust with stakeholders.

Proactive steps to take today:

• Map out your portfolio and determine reporting boundaries.
• Engage with companies to initiate materiality assessments and data collection.
• Invest in a sustainability platform to streamline your processes.

Start taking action today

CSRD compliance might feel overwhelming, but it’s also an opportunity to elevate your sustainability practices. By understanding reporting boundaries, conducting materiality assessments, and leveraging technology, you can navigate these requirements with confidence.

Ultimately, this isn’t just about meeting regulatory demands—it’s about aligning your investments with long-term ESG goals, driving transparency, and strengthening your portfolio’s resilience.

Start your journey today, and position your firm as a leader in sustainable investing.