As the EU prepares to implement the Corporate Sustainability Reporting Directive (CSRD), organizations around the world must lay the groundwork for these new regulatory standards. CSRD aims to standardize ESG reporting, improving consistency and comparability. With every new regulation that comes out, certain pre-requisites and work will be needed to ensure proper preparation and compliance. For CSRD, companies must conduct double materiality assessments in addition to ensuring financial-grade data collection across the organization. They also need to secure access to an XBRL-tagging solution. But before starting on the other elements, one of the most important steps to prepare for CSRD compliance is conducting a gap analysis.
What is gap analysis?
A gap analysis is a tool that helps organizations identify discrepancies between their current performance and desired goals, uncovering areas of risk and opportunity. From a regulatory perspective, it clarifies the differences between current practices and the regulatory requirements that must be met. This includes highlighting key areas where their existing processes and tools align with the requirements from CSRD. As well as what are the existing gaps that needed to be addressed. Conducting a gap analysis benefits most organizations. It provides increased visibility and clarity on their problem areas beyond just regulatory needs.
What are the steps to conducting a gap analysis?
Conducting a gap analysis can seem complicated, especially for larger organizations that have global teams with multiple projects and priorities on the go. However, by following a structured approach, the process can be streamlined and made more effective.
1. Define the Scope
To streamline the process and maximize the analysis, it’s crucial to define its scope. Determine what would be included within this analysis. This includes data quality, reporting processes, and available software and IT tools. Depending on your current reporting process, this analysis may require you to work with key contacts within your organization. These may include finance, HR, risk management, procurement, legal, and operations teams.
2. Review Current Processes
With this defined scope, you can begin to conduct a comprehensive review of your current ESG reporting processes. This includes understanding the data sources, current collection processes, existing audit checks in place, and any previous regulatory frameworks or standards that have been leveraged. This is often the most time-consuming step, as organizations may likely have existing siloes or practices that they have not been aware of.
3. Understand CSRD Requirements
Next, familiarize yourself with the CSRD’s specific regulatory requirements in addition to guidelines set by governing bodies. For CSRD, companies should look to familiarize themselves with the European Sustainability Reporting Standards (ESRS) requirements, as this can support the actual gap analysis and understanding what the areas of focus should be.
4. Conduct A Double Materiality Assessment
The CSRD also requires companies to conduct a double materiality assessment. The aim is to understand how sustainability issues impact them (outside-in) and how they affect sustainability (inside-out). This will help uncover what topics are considered ‘material’, and therefore, become the areas of focus for an organization.
Conducting the Gap Analysis
Once you have analyzed your current reporting processes and completed the double materiality assessment, you can proceed with the gap analysis. This phase helps organizations to prioritize efforts and allocate resources by identifying the most critical gaps. Addressing key areas of non-compliance promptly is essential to ensure readiness for CSRD.
For a CSRD-specific gap analysis, organizations can refer to the ESRS requirements and their previously completed double materiality assessments. Doing a mapping exercise can be helpful to ensure that the gaps identified are relevant and categorized based on key requirements and dates. Examples of gaps could include missing data, inconsistencies in the collection processes, a lack of robust verification methods, or the absence of necessary reporting processes or structures.
A Software and Advisory Services Partner to Support
Conducting a gap analysis can be complex and time-consuming, requiring deep internal knowledge and careful coordination. This is where partnering with experts can make a significant difference.
At Cority, our award-winning team of 70+ ESG and Sustainability experts work with our customers to support them in the areas of impact strategy, compliance and data collection. We work with you throughout the CSRD journey to ensure you are confident and compliant with these changing regulations. We conduct comprehensive materiality assessments, along with a thorough gap analysis. Additionally, we provide training, enablement and support based on the results.
Our Sustainability Cloud software solutions further streamline the regulatory processes with features like improved data collection, collaborative and secure input options, validation, pre-built reporting frameworks, automated gap analyses, and performance management capabilities.
CSRD compliance is not a one-time effort but an ongoing requirement that will evolve over time. As regulations shift and evolve, it is important to have a trusted sustainability partner along for the journey to help build your confidence in the changing landscape. Explore Cority’s Sustainability Cloud solution and connect with our ESG and sustainability experts today.
