August 17, 2023
From 2026, VP Capital must comply with the European directive requiring companies to report on their impact on people and the environment. The obligation has implications for how we will approach our report in the future. We are therefore now taking the first steps towards compliance.
The Corporate Sustainability Reporting Directive (CSRD) stems from the Green Deal. In 2019, European Commission President Ursula von der Leyen announced a plan to make Europe the world’s first climate-neutral continent by 2050. According to the European Commission, we can achieve this target if, among other things, there is a higher level of investment in sustainable activities and businesses. To ensure that investors, consumers, policymakers and other stakeholders can easily search for reliable, transparent and comparable ESG information, the CSRD was introduced.
Moreover, since March 2021, investors and financial institutions are required to report on their sustainable investment decisions and the sustainable products they offer. They therefore need the information from companies and organisations to fulfil their own obligations described in the Sustainable Finance Disclosure Regulation (SFDR). The SFDR distinguishes between three types of investment products based on their focus on sustainability. They are named after the articles of the SFDR in which they are described. Article 6 products do not invest in sustainability, Article 8 products contribute to solutions to planetary and/or social challenges and Article 9 products have sustainable investment as their main objective.
The CSRD is not the first European law relating to sustainability reporting. Since 2017, under the Non-Financial Reporting Directive (NFRD), listed companies, banks and insurance companies have already been required to publish a sustainability report. The CSRD increases the number of companies required to prepare a report. All companies meeting two of the following three criteria:
- a net turnover of more than €40 million
- a balance sheet total of more than €20 millio
- 250 of meer werknemers
will fall under the CSRD in the future. There are about 50.000 of these companies.
Michel Meerkerk, Director Finance & Legal: "Starting in 2026, we will be required to report on financial year 2025 according to the European directive. Public utility companies will start a year earlier."
Roadmaps and transition plans
Precisely what companies will be required to report on is laid out in the uniform European standards developed by the European Financial Reporting Advisory Group (EFRAG). Companies will have to describe their current sustainability strategy and their efforts and actions relating to the environment, social topics and administrative policy as thoroughly as possible. The key performance indicators to monitor ESG targets and the corresponding annual measurements are also part of the required information. "To structure our current report, we based our report on the format outlined in the European standards. Both for the ESG and impact performance chapter of our family office and that of our portfolio, the themes of ‘Environment’, ‘Social’ and ‘Governance’ were singled out."
In addition, companies that fall under the CSRD must look ahead by preparing roadmaps and transition plans to meet future targets. "For CO2, we have already drawn up a roadmap with reduction targets through 2030."
How the various stakeholders are involved in the sustainability policy must also be discussed in detail. "That information is very useful for us as investors,” Meerkerk says. “But because we are a family office that invests in mutual funds and companies in eight areas, it will be quite a challenge for us to gather all the information that is requested. For much of our portfolio – which consists of large and/or listed companies – we will be able to rely on annual reports in the future, because that type of company also falls under the CSRD. Many of the impact companies and other companies we invest in do not yet meet the CSRD criteria, which makes it harder to gather input because these companies are not required to report."
However, we have been measuring certain environmental and social data for some time. "We closely monitor the carbon emissions, energy mix, absenteeism and diversity of our family office and direct investments. In total, we monitor 13 planetary and 12 social KPIs. Much of this must be described in the CSRD."
Another challenge is the EU Taxonomy. "Since early 2022, our investments that fall under the NFRD or the SFDR have been required to indicate whether their activities are in line with the EU Taxonomy, a European framework for assessing whether investments and activities are sustainable."
This is no easy task since companies need to calculate what percentage of their turnover comes from products and services in line with the EU Taxonomy's sustainable activities. They must also indicate what percentage of their CapEx and OpEx are related to EU Taxonomy assets or processes. "We conclude that only a small minority of our investments have already started working on this. That must improve in the future, otherwise we cannot report on it correctly."
Not an easy task
Moreover, an important element of CSRD is involving your stakeholders in your sustainability policy. "This must be done much more broadly and formally than it is now. In addition, we will carry out a double materiality analysis. Material topics are sustainability topics that are significant or relevant to your operations and to people and the environment. Double materiality means that you take into account impact materiality (the significant impact of your business on people or the environment) and financial materiality (the impact of external risks and opportunities on your company's cash flow). That will not be an easy task either. For these reasons, we want to start preparing now. This year, we are already taking the steps to conduct the stakeholder survey and a double materiality analysis."