Introduction

The Corporate Sustainability Reporting Directive (CSRD) is a significant EU sustainability regulation, affecting financial institutions (FIs) by mandating transparency on sustainability impacts. This regulation aims to provide better information for financial stakeholders to inform investment and financing decisions.

The impending challenge to financial institutions

FIs face unique challenges under CSRD due to their diverse investments across multiple sectors. The lack of sector-specific guidance from EFRAG exacerbates these challenges. FIs can either conduct detailed Double Materiality Assessments (DMAs) or use high-level groupings with external data proxies. Both approaches present difficulties, leading to varied and potentially incomparable outputs, complicating compliance efforts and data collection from clients.

The survey’s purpose

A survey of 14 Nordic and European financial sector firms aimed to understand the sector’s response to CSRD and internal strategies to address its requirements. The survey revealed the most pressing issues and the steps FIs are taking to comply with the new regulation.

Survey findings

Survey results indicated a strong focus on reporting, with 84% of respondents discussing CSRD at the executive level. However, these discussions mainly centred on resource allocation for reporting rather than strategic integration. Notably, 40% of respondents believed CSRD would not immediately impact their investment or lending strategies, despite recognising the need for changes.

Implications for CSRD success

The current reporting-focused approach conflicts with CSRD’s intent to drive actual sustainability impact changes. FIs must link CSRD outputs to business model adjustments, particularly in financing policies, where 90% of their impacts occur. Strategic use of CSRD can lead to de-risking assets and creating new financial products with positive impacts.

Priority on the short-term

Nearly 40% of companies have 3+ FTEs dedicated to CSRD, yet only 7% plan to increase these resources after the first year. This short-term focus risks failing to meet longer-term compliance needs. First-wave companies are on track with DMAs and data gap assessments, while second-wave respondents show varying degrees of preparedness.

Sector-wide challenge to meet data requirements

Data collection is a significant challenge due to the extensive requirements of CSRD and the diverse holdings of FIs. Only 10% of respondents expect to meet data requirements within 2-3 years. FIs must prioritise early discussions on data capabilities and begin systematic data collection and analysis to gain a competitive advantage.

Our reflections from Nordic Sustainability

Nordic Sustainability views CSRD as a transformational tool, requiring a shift in thinking and a strategic approach. Recommendations include:

• Using CSRD as a strategic tool: Treat CSRD as a catalyst for integrating sustainability into risk management, not just a reporting burden.
• De-centralising the process: Ensure responsibility is spread across teams to embed CSRD throughout the organisation.
• Acknowledging the culture shift: Recognise that integrating sustainability with business operations requires a cultural change and decisive effort.

While initial reporting under CSRD is challenging, future compliance will become easier as more companies adopt the framework, simplifying value chain data access. FIs must leverage CSRD strategically to align their financing activities with sustainability goals.