13.02 2025

Companies subject to the CSRD are required to conduct comprehensive materiality assessments using the Double Materiality process. Ultimately, firms must assess how the company and its activities impact people and the environment and how social and environmental factors create financial risks for the company.

These assessments extend beyond jurisdictional and organisational borders, covering an organisation’s entire value chain. Impacts, risks and opportunities concerning your partners, suppliers and consumers outside the EU are all in scope. If the company identifies a topic to be “material” through the double materiality assessment process, the disclosure rules apply.

With assessments and external assurance extending as far as company strategy, board membership, risks and opportunities, the CSRD is clearly making staunch efforts to avoid another wave of confidence-shattering greenwashing scandals.

Biodiversity in the Construction Industry Value Chain

Certain sectors are identified as high-impact under the CSRD/ESRS and will be subject to sector-specific reporting requirements. Although the construction sector is not listed as a high-impact sector within the framework, the industry is inextricably linked with the natural environment and will be required to disclose as per the reporting standards outlined above.

On site, in Europe alone, over 1,000km2 of forest and land are cleared annually. Local biodiversity impacts can be devastating, ranging from soil impermeability, habitat destruction, wetland conversion, and pollution of land, water, air and noise. As Samy Kazemy highlighted in our article on The Circularity Challenge, the construction sector is the greatest resource contributor and waste producer in Denmark.

Look upstream, and the footprint balloons to Bigfoot proportions. Resource extraction consumes significant amounts of water and land, devastating the natural environment and related ecosystem services and potentially harming the local communities that depend upon them. Add to this the full value chain’s worth of carbon emissions (extraction, distribution, manufacturing, construction, etc), and the magnitude of content for disclosure becomes apparent.

Some practical examples of CSRD considerations for the sector:

1.     Supplier Engagement:

Ensure raw material suppliers, particularly those outside the EU, satisfy ESG criteria including carbon footprint tracking, biodiversity and deforestation impact, labor rights and fair wages, and waste management and recycling efforts.

2.     Supply chains:

Mandate sustainability certifications, establish ESG criteria for procurement contracts and digital tracking systems for real-time ESG data collection. Non-EU suppliers who fail to meet these standards risk losing contracts with EU firms, potentially reshaping global material supply chains.

3.     Legal and Financial Risks:

Non-compliance with CSRD can result in fines, reputational damage, and loss of investor confidence. Separately, ESG-related litigation is on the rise, with companies facing lawsuits for misleading sustainability claims or failing to mitigate environmental harm.

By asking industry to assess and quantify its broader environmental impact, the CSRD encourages companies to rethink established practices and align business activities with conservation efforts. The anticipated changes are expected to contribute to the EU’s larger ESG aspirations as outlined in the European Green Deal and the EU’s 2050 net-zero objective.

Opportunities: Competitive Advantage for Sustainable Leaders

While compliance presents challenges, companies that proactively integrate CSRD requirements into their operations stand to benefit in the following ways:

1. Access to Green Finance: Banks and investors increasingly favor companies with strong ESG credentials, leading to better financing terms.

2. Competitive Differentiation: Demonstrating sustainability leadership can improve brand reputation and customer trust, particularly for clients seeking LEED, BREEAM, or DGNB-certified buildings.

3. Innovation & Efficiency Gains: Moving towards circular construction, EPDs, digital tracking (e.g., blockchain for materials traceability), and energy-efficient designs can reduce costs and help to prepare business operations for the future.

Conclusion

The CSRD is provoking EU companies and their global suppliers to assess and disclose their sustainability impact. It also demands companies to consider and evaluate the impact of the natural environment on their business. By demanding this enquiry into double materiality, the EU is shining a light on the symbiotic and critical link between people, planet and profit.