CSRD in the Food Industry: Preparing for EU Sustainability Standards

In a few years, we’ll all be talking about the wonderful effects of the CSRD on sustainability in business. But right now? It’s probably giving many business leaders a bit of a headache. If you’re in the food business, this article is here to help you get to grips with this new directive. 

UNDERSTANDING WHAT THE CSRD MEANS FOR YOU

The EU’s Corporate Sustainability Reporting Directive (CSRD) will have a major impact on many businesses across the EU’s food industry. It makes sustainability reporting mandatory under an extensive set of European Sustainability Reporting Standards (ESRS). If you work in food in the EU or supply an EU food company, you must get ready to meet the new sustainability reporting challenges imposed by the directive. 

In this article, we’ll go over the key features of the CSRD for food businesses. It will explain: 

• the current status of the CSRD and ESRS; 
• the areas you need to report on; 
• the companies that will be most impacted; 
• the steps that food companies should take to prepare themselves. 

The CSRD will be a challenge, especially for companies that have not yet engaged seriously in sustainability reporting. 

The good news is that data collecting and reporting are a “key enabler” for wide-ranging sustainability programs - and the business benefits they bring. McKinsey research showed us that much back in 2022. So, now’s the time to engage with the CSRD requirements proactively, and look forward to reducing risks, increasing market share, and opening up investment opportunities. 

Where are we up to with the CSRD?

The new CSRD may be the talk of the town in summer 2023 - but it’s been a long time coming! 

The origins of the CSRD can be traced back nearly 25 years when a non-financial reporting regulation for EU businesses was first proposed. That regulation was ratified in 2014. In turn, the non-financial reporting regulation is the basis for what has become the CSRD, which passed into EU law in December 2022. Each  EU member state must now bring it into national legislation in an appropriate time frame. 

While the CSRD itself creates the legal mandate for reporting, the specific details of the reporting requirements are described in the ESRS. Although these details are extensive (covering a 250-page annex), we are still waiting on EFRAG to create sector-specific reporting requirements. 

One of the key innovations of the CSRD is the principle of “double materiality”. The concept was first devised in 2019 to bring together the two principles of “financial materiality” and “impact materiality”. Without a conscious commitment to sustainability, companies of all sizes won’t deliver on impact materiality: as a GRI white paper on double materiality explains “research findings are clear - organizations tend towards prioritizing financial materiality”. In a system of voluntary reporting, businesses will simply ignore the information that makes them look bad. 

Together, the directive and the associated standards are a major update in the way that businesses handle sustainability. It’s no surprise to see that sustainability professionals have been greeting the ESRS with excitement - Irene Martinetti calls it “a game changer” for the circular economy. 

What will you need to report?

The fundamental characteristics of the ESRS basics are now pretty clear. The twelve major standards in the ESRS indicate the information that companies will need to report. 

These are as follows: 

On environment 

E1 Climate

E2 Pollution

E3 Water and marine resources

E4 Biodiversity and ecosystems

E5 Resource use and circular economy

Social impact

S1 Own workforce

S2 Workers in the value chain

S3 Affected communities

S4 Consumers and end users

Governance

G1 Business Conduct

Additionally, two compulsory cross-cutting areas include essential business information. And in time, there will be some more specific guidance for every sector. As of August 2023, the guidelines for the food and beverages sector are at the earliest stage of research. 

Some food companies will find that some standards are not material to their business activity. In these cases, they must submit a “materiality assessment” that explains exactly why. One of the main points of the CSRD is to stop companies from wriggling out of reporting details that make them look bad. So, the materiality assessment is itself a big chunk of work.  

Which food industry companies will the CSRD impact?

Here’s some good news for smaller companies. If you’ve just opened your first bakery, you’re selling your mum’s chutneys, or you’re storing vegetables for local farmers, it’s extremely unlikely that the CSRD will give you too much bother. 

The directive will only apply to the largest businesses and publicly listed SMEs. This is still a big group - by some estimates, around 50,000 companies across the EU - but plenty of the smallest businesses will be exempt. 

The companies that are included, and the phase-in dates, are explained in Article 5 of the directive: 

Several specific data points are phased in differently, as described in Appendix C of the annex. 

Micro-undertakings and unlisted SMEs will not have new legal obligations from the CSRD. However, anyone who supplies an in-scope company will experience some knock-on impact. 

Everything in the value chain will count towards the sustainability reports. So, suppliers may need to deliver more sustainability information than they had in the past. Fortunately, there will be legal caps on the amount of information that a company can ask for from their suppliers. 

Regardless of their legal obligations, many unlisted SMEs and micro-undertakings will use the CSRD’s implementation as an opportunity to enhance their sustainability reporting. To support more proactive companies, EFRAG is currently developing a set of voluntary reporting standards for SMEs. 

The CSRD imperatives for the food industry 

There’s no easy way to say this: but any in-scope food business in the EU should prepare for their CSRD obligations. Even if your business won’t be “phased in” for a while, pre-empting the requirements will give you time to become completely ready. 

We suggest that four tasks should be on the agenda for every food company. They are: developing a full understanding of the CSRD and the ESRS; getting ready for a highly granular assessment of the materiality impact of your business processes; engaging with your suppliers; and implementing appropriate technology. 

1. Develop a mature understanding of the demands of sustainability reporting. As well as the legislation itself, there is already extensive third-party documentation to help meet the requirements - for example, the KPMG / WBCSD guide to standard E5 (circular economy). And although no one has been through the CSRD process yet, we can learn from case studies of rigorous sustainability reporting. One good example is the cereal manufacturer Arala’s comprehensive approach to “scope 3” emissions. 
   
   
2. Get used to the idea of being more thorough. Antony Yousefian shows how this might look for bread products, - with a comprehensive list of inputs and sourcing practices. There’s no way around reporting on the unflattering business dimensions: and you need a system of granular inspection and assurance to make this happen. 
   
   
3. Start conversations with suppliers about sustainability. A 2022 CDP report showed that globally, the companies engaging with suppliers over sustainability issues are limited: only 38% engage on climate change, 55% on deforestation, and 16% on water security. For companies in the EU (or dealing with EU companies), these numbers must improve dramatically to ensure widespread compliance with the CSRD. 
   
   
4. Audit and enhance your technology capabilities. Gathering and sharing data about inputs can be time-consuming for food businesses at every stage of the supply chain. Cambridge University researchers have shown how gathering and re-entering data can cost hundreds of days of people’s time each year. A fully digital and AI-ready infrastructure can make these tasks considerably easier. Services like Klimato can take care of many of the challenges of reporting on food products’ climate impact - without your company needing new staff. 

Many sections of the food industry have been preparing for the CSRD for years. In 2021, for example, the EU Potato Processor’s Association reported that many of its members were already using GRI standards for consistency and clarity. So - if you haven’t already invested in your reporting structures, you are already lagging. 

Conclusion

In time, we’ll see more off-the-shelf solutions for the complex requirements of the CSRD and ESRS. But right now, being ready is the best you can do. 

It’s easier said than done - and not every company is in a good position.  As the World Benchmarking Alliance found out in 2022, only 5% of companies surveyed had even undertaken a basic scientific assessment of their surroundings. Understanding your company’s impact under double materiality is a challenge that you can start engaging with now. 

If there’s one key way to prepare, the right software could provide many of the overarching answers you need to make this work. As Nitish Mittal explained in a July 2023 interview, the “right technologies that are scalable” will be a key part of that process. Klimato offers one such solution: supporting businesses with sustainability data that’s up-to-date, localized, and reliable.