# Why the new CSRD is breaking down the walls between ESG and finance
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-05-28
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: New CRSD Regulations: Impact on Financial Reporting &
Meta Description: Learn how Workiva can help your company navigate the new EU CRSD reporting requirements. Ensure compliance and disclosure of financial and sustainability data
URL: https://financedigest.com/why-the-new-csrd-is-breaking-down-the-walls-between-esg-and-financehtml

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_By **Andromeda Wood,** Senior Director of Global XBRL Strategy, Workiva_

Financial reporting has historically been an arduo us and time-consuming task, due to the many different factors involved. Companies must be able to provide stakeholders with an accurate depiction of finances, including revenues, expenses, profits, capital, and cash flow.

It’s not surprising that [proposed changes in regulations will have an impact](https://www.financedigest.com/german-gas-commission-agrees-proposals-to-ease-impact-of-soaring-prices.html "German gas commission agrees proposals to ease impact of soaring prices") on internal processes. The new proposals for the [Corporate Sustainability](https://www.financedigest.com/why-covid-has-increased-the-need-for-corporate-sustainability-innovation.html "Why COVID Has Increased the Need for Corporate Sustainability Innovation") Reporting Directive (CSRD) builds on the existing Non-Financial Reporting Directive (NFRD) and will apply to all large companies and all listed companies in the EU. This means an increase from 11,000 who were subject to existing requirements, to nearly 50,000 that will [need to follow detailed EU sustainability](https://www.financedigest.com/why-coding-needs-to-be-re-evaluated-for-sustainability-objectives.html "Why coding needs to be re-evaluated for sustainability objectives") reporting standards.

As these changes come into play, sustainability is moving to the [top of investors’](https://www.financedigest.com/top-ten-biggest-mistakes-by-novice-investors-and-how-to-avoid-them.html "TOP TEN BIGGEST MISTAKES BY NOVICE INVESTORS – AND HOW TO AVOID THEM") priority lists and      regulation is directing investors to care, or at least make sure that the sustainability of a fund is disclosed. In addition, they must ensure that the information and [funds are assessed against a common set](https://www.financedigest.com/norways-wealth-fund-tells-firms-to-set-net-zero-emission-goals.html "Norway’s wealth fund tells firms to set net zero emission goals") of criteria (for example, EU sustainable finance, in particular the EU Taxonomy and associated SFDR).

As a result, how a company performs against environmental, social and corporate governance (ESG) factors now has a direct effect on whether [funding can be secured](https://www.financedigest.com/hungary-pledges-legal-changes-to-secure-eu-recovery-funding-govt.html "Hungary pledges legal changes to secure EU recovery funding – govt"). Companies who fail to get this right may [face challenges](https://www.financedigest.com/factbox-the-challenges-automakers-and-now-tesla-face-with-humanoid-robots-2.html "Factbox-The challenges automakers, and now Tesla, face with humanoid robots") accessing capital.

**Taking a closer look at CRSD**

Social movements and increasing concerns around climate [change have driven much introspection within the investor](https://www.financedigest.com/bayer-hits-8-month-high-as-investors-welcome-ceo-change.html "Bayer hits 8-month high as investors welcome CEO change") community. More [emphasis has been placed](https://www.financedigest.com/future-cheque-clearing-model-places-emphasis-on-speed-and-innovation.html "FUTURE CHEQUE CLEARING MODEL PLACES EMPHASIS ON SPEED AND INNOVATION") on individual responsibility, and investors want to be sure that their investment is aligned with their morals. In fact, in a [recent survey](https://www.financedigest.com/recent-survey-of-cfos-reveals-what-finance-teams-should-be-prioritising-in-2021.html "Recent survey of CFOs reveals what finance teams should be prioritising in 2021") conducted by Workiva, 66% of all respondents in France wanted to know whether a company lived up to their social and moral beliefs before investing.

As the needs of investors have changed, it’s evident that the [existing NFRD was no longer](https://www.financedigest.com/chinese-findings-on-mars-suggest-water-existed-for-longer-on-planets-surface.html "Chinese findings on Mars suggest water existed for longer on planet’s surface") sufficient. Following three years of consultations, [market pressure and political](https://www.financedigest.com/the-political-wildcard-what-is-trumps-us-presidential-nomination-doing-to-financial-markets.html "The political wildcard: What is Trump’s US presidential nomination doing to financial markets?") discourse, the CRSD has been proposed to enhance and strengthen the measures already in place. The new directive seeks to emphasise that the [term ‘non-financial’ is technically](https://www.financedigest.com/technical-textiles-market-2021-2031-potential-growth-attractive-valuation-make-it-is-a-long-term-investment.html "Technical Textiles Market (2021–2031)| Potential growth, attractive valuation make it is a long-term investment") incorrect. Sustainability factors have a [financial impact](https://www.financedigest.com/how-mifid-ii-will-impact-financial-advisor-communications.html "HOW MIFID II WILL IMPACT FINANCIAL ADVISOR COMMUNICATIONS") on the business. As such, both [sustainability and financial](https://www.financedigest.com/cobots-in-the-financial-workplace-reducing-costs-attracting-talent-and-enhancing-sustainability.html "Cobots in the financial workplace: Reducing costs, attracting talent and enhancing sustainability") factors will be considered together as part of the organisation’s Annual Financial Report.

There are also practical changes to the [way the information is prepared](https://www.financedigest.com/five-ways-businesses-can-prepare-themselves-for-the-digital-economy-be-kaler-pilgrim.html "Five ways businesses can prepare themselves for the digital economy – Be Kaler Pilgrim"). Companies will now be [required to digitally](https://www.financedigest.com/fraud-protection-why-customer-onboarding-requires-digital-identity-processing.html "Fraud Protection: Why Customer Onboarding Requires Digital Identity Processing") tag reported information (powered by Inline XBRL) to ensure that it is machine-readable, standardised and comparable. This also has the benefit of speeding the data to the users. In addition, there is an assurance obligation with respect to the sustainability disclosures, ensuring that audit professionals will be required to confirm the validity and accuracy of reviewed information.

![Andromeda Wood](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/andromeda-wood-1736838309643-compressed.png)

Andromeda Wood

**A challenge arises**

Historically the production of the financial statement has sat in the office of the CFO, but ESG [data encompasses a wide range of factors which may reside across different departments outside of finance](https://www.financedigest.com/theres-nothing-artificial-about-the-role-of-ai-and-data-in-the-finance-industry.html "There’s nothing artificial about the role of AI and data in the finance industry "). As a result, this information doesn’t sit as part of a repository, but is a critical part of the [management of sustainability operations](https://www.financedigest.com/synapse-appoints-new-finance-and-operations-manager-to-support-the-rapid-growth-of-the-business.html "Synapse appoints new Finance and Operations Manager to support the rapid growth of the business"). More information from across the company will be required, both to align [operations with a sustainability](https://www.financedigest.com/robot-operating-system-market-is-witnessing-a-sustainable-growth-due-to-increase-in-demand-scrutinized-in-the-new-analysis.html "Robot Operating System Market is witnessing a Sustainable Growth Due to Increase in Demand Scrutinized in the New Analysis") strategy and to fulfil disclosure requirements in areas such as carbon footprint and employee demographics.

Organisations need to [come up with a clear](https://www.financedigest.com/whats-coming-next-in-the-clearing-and-settlement-world.html "What’s coming next in the clearing and settlement world?") approach to ensure that their reporting processes are well-managed end-to-end and produce the right format to remain compliant. This will be beneficial with the rising investor demand for good quality ESG data due to the recent  [Sustainable Finance Disclosure Regulation](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32019R2088) (SFDR) and the [EU Taxonomy](https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en) coming into force.

**Breaking down the internal siloes to achieve success**

The first [step towards compliance](https://www.financedigest.com/12-steps-to-implementing-off-payroll-ir35-compliance.html "12 steps to implementing Off-Payroll (IR35) compliance") is performing a frank assessment of what is in place and what areas need attention. Alignment with the existing [finance processes will give companies the opportunity](https://www.financedigest.com/how-finance-leaders-can-turn-the-inflation-challenge-into-opportunity.html "How finance leaders can turn the inflation challenge into opportunity") to use the experience they already have to help bring the ESG data and controls up to speed.

This [approach will result in shared oversight of all operations and joint reporting will break](https://www.financedigest.com/oil-falls-on-demand-worry-as-fed-make-or-break-moment-approaches.html "Oil falls on demand worry as Fed ‘make or break moment’ approaches") down the walls between finance and sustainability, which will ultimately help streamline operations.

This is where [technology can be implemented to support](https://www.financedigest.com/uk-launches-270-million-pound-fund-to-support-green-heating-technology.html "UK launches 270 million pound fund to support green heating technology") the organisation’s intentions. Automation can be used to accurately and efficiently collect and integrate [data from different departments](https://www.financedigest.com/data-analytics-scenario-planning-and-the-finance-department.html "Data analytics, scenario planning, and the finance department") across the business. From this, the data can be analysed to determine the materiality, before being collated into the right easily-audited format.

**A future-proofed solution**

Interest in environmental, social and governance (ESG) issues will only continue to intensify. Investors want to be sure that the companies they [invest in are genuinely committed to sustainable](https://www.financedigest.com/closing-the-sustainable-investment-gap.html "Closing the sustainable investment gap") practices, and unlikely to have a detrimental impact on the planet and society. Large [investors already see the importance of valuing a company based on a broader set](https://www.financedigest.com/uks-most-liveable-city-manchester-sets-its-sights-on-the-world-from-tourists-to-property-investors.html "UK’s most liveable city, Manchester sets its sights on the world, from tourists to property investors") of standards, as these are inextricably linked to current and future performance.

The new regulations will force organisations to be more transparent with their reporting, enabling would-be [investors to have a clear understanding of their practices](https://www.financedigest.com/preventing-poor-esg-practices-from-costing-you-investors.html "Preventing poor ESG practices from costing you investors") and intentions. Additionally, this will allow them to compare and contrast with other companies within industries. It’s critical for organisations to get their houses in order, by streamlining processes now to prevent losing out on [future investments](https://www.financedigest.com/investing-in-the-future-with-alternative-web-data.html "Investing in the future with alternative web data").


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