Unpacking the Corporate Sustainability Reporting Directive (CSRD) for airports
2024 is the year CSRD reporting is coming down the line for the first wave of companies, including larger or listed airport operators and networks based in the EU. What hides behind those four enigmatic letters? We have sat down with Christoph Nanke, the Senior Vice President and Head of Finance & Investor Relations at Fraport AG to raise awareness of the new requirements and what they will mean for airports falling within their scope.
What new requirements do airports need to fulfil with the advent of CSRD?
The CSRD will expand the scope of reporting to include additional sustainability-related disclosures, such as climate-related information, and the entity’s impact on UN Sustainable Development Goals. Especially the concept of double materiality will bring a new perspective to the ESG-Reporting. Double materiality emphasises the importance of reporting not only on how sustainability issues affect a company’s financial performance (financial materiality) but also on how the company’s activities impact the environment, society, and the economy (non-financial materiality). What is new on top: The CSRD will introduce more stringent requirements related to the assurance of sustainability information, mandating external assurance for disclosed information. Overall, the CSRD broadens and standardises sustainability reporting obligations, aims to align them with global sustainability reporting standards, and places a greater emphasis on the comparability of sustainability information.
The introduction of the reporting requirement will be carried out in several stages and is depending on the size of the airport company or the group the airport is part of. In general, any company/group that fulfills two out of three criteria (>250 employees, >€50m turnover, >€25m balance sheet total) will be obliged to report under the CSRD. The obligation starts with financial year 2024, to be reported in 2025, for the larger companies/groups and will be completed in the following years with the last group comprising the smallest companies caught in this pool joining in financial year 2028, to be reported in 2029. The first ones to join are those airports who are already reporting under the existing non-financial reporting directive. This is the case for Fraport AG, but also other large airport operators such as Groupe ADP, Aena, etc.
What lies at the core of CSRD?
If we break it down to the basics, the first step every company needs to make is elaborating its sustainability strategy and then being able to explain it through their reporting. In addition to disclosing massive amounts of data points and additional information on policies and initiatives, the CSRD requires organisations to set targets, select a baseline and report progress towards these targets. Also, everybody has to explain how climate change may affect their business and what is the strategy of the company to adapt to those risks and opportunities as well. This way CSRD encompasses climate mitigation and adaptation, since airports will need to address both these challenges.
What is the impact of these changes on airport resources (staff, investment), but also monitoring and reporting standards?
The impact depends on the current size of the ESG-Reporting organisation team and size and depth of today’s reporting. Probably the larger the group, the easier. But, I’m sure, it will be heavy workload for all the companies. Because of CSRD also many companies will need to adapt their reporting processes and strengthen the responsibility and involvement of the finance or Investor Relations department. Today financial reporting and ESG-reporting are closely related.
I’ve noticed that in organisations comparable to Fraport AG the Management is actively thinking about what is the right way to organise and structure this line of work. With regard to sustainability reporting, you will always have a lot of interfaces. You simply can’t avoid them. But since the CSRD reporting requires an assurance from an auditor, it makes a lot of sense to bring in people who have the know-how on how to work together with an auditor. And since now the sustainability and ESG reporting is getting more important for investors and banks, it is better to involve financial people.
Where does green taxonomy sit in all of this? Is there a link?
The obligation to report according to the EU taxonomy is very much maintained within the scope of CSRD, as both legislative elements are part of the umbrella file, the European Sustainability Reporting Standards (ESRS). In fact, green taxonomy just started and will now be part of the CSRD report, so a chapter of the final output, if you will. So you will see all the tables, which are already today published by the larger or stock listed companies the likes of which I mentioned earlier, within the CSRD report, which will be part of the management report, which forms part of the Annual Report. Easy does it!
Where can airports learn how to comply? Are there any available resources you could point to?
There are many companies offering support, including auditing firms. At the same time, since the regulation is new to everybody, there is a lot of uncertainty, vagueness, and open questions. The EU and some other institutions like the European Financial Reporting Advisory Group (EFRAG) are also publishing further documents and Q&A’s to support the introduction.
Today you are still missing many definitions, explanations and best practices. But they will be elaborated over time, as more companies develop their use-cases. In the coming years, we will see that a certain standard will be found, which will be especially important for the smaller companies starting their compliance efforts in the next waves.
Given the overall uncertainty and the novelty factor of the requirements, will there be any grace period for the first years of implementation? Are there penalties defined in case of non-compliance?
There are no penalties, fortunately! But since it is mandatory to report under CSRD you simply need to comply, no way out.
Not everything included under the directive will be mandatory from the start, but in my view most of it is. There are some parts of the CSRD which you can either leave out, or fill in later, but in any case when push comes to shove you will need to provide data. Early compliance also offers advantages. In line with the tightening up of climate ambitions, the EU will introduce more stringent legislation on ESG over the coming years, affecting both large companies and SMEs. Early anticipation of how this affects your own activities and drawing up strategic plans to reduce any negative impact will ensure that your company is more agile and future-proof to face these challenges. Actively focussing on ESG provides you with a competitive advantage over companies that have no reporting obligation yet.
How will the data be accessed by third parties? Are there any standards for availability?
The CSRD reporting will be part of the annual report and will be published accordingly. The EU already requires financial information to be provided in a single electronic format, the so-called ESEF and this is also mandatory then for the CSRD report, because it is part of the Annual Report. This standard electronic format will make the reading or analysis of the CSRD report easier in the future.
Will CSRD change the image of airports for investors?
It is far too early to predict. One aim of the CSRD is to improve the comparability especially for investors. Personally, I think, that CSRD will not change the overall image of airports. Investors already have a well-advanced understanding. Anyway, the CSRD may bring more focus on specific ESG topics of an airport company/group, that needed to be discussed with investors.
About the interviewee
Christoph is heading Fraport’s Finance & Investor Relations department since 2018. Before that he held various management positions within the M&A department of Fraport AG, were he, among others, was responsible for the acquisition of the airport concessions won in Greece and Brazil. He held board and management positions of airport companies in Germany, Slovenia, India, China and Austria. Christoph graduated in business administration with a degree from the University of Bamberg. Before moving to Fraport AG, he started his career in the banking sector.
