CSRD impact on financial institutions

In this blog, we look at the impact of the CSRD directive on financial institutions and how smart ESG implementation and tech for client lifecycle management help leading players in the banking and insurance industry to move forward.

Csdr finance

What is the CSRD?

The European CSRD (Corporate Sustainability Reporting Directive) legislation mandates EU-based companies to publicly disclose information on the way they operate and manage social and environmental challenges in their corporate activities. As of January 2023, the CSRD applies to large organisations that meet specific headcount and turnover criteria. Smaller financial institutions and brokers are mandated to be fully CSRD-compliant by 2026.

CSRD and sustainability goals in finance

The main aim of the CSRD is to improve transparency in the sustainability information provided by companies, in a bid to make it easier for investors and clients to make more sustainable decisions. The legislation is part of the European Green Deal and fits in the wider ESG (Environmental, Social and Governance) framework and legislation. In the finance industry, evaluating the impact of investments and operations on ESG practices entails a few additional focal points:

  • Sustainable investing: information and focus on environmentally sustainable investment products and other financial solutions.
  • Data protection and privacy: measures to protect customer and employee data from breaches and cyber attacks.
  • Ethics policy and compliance: reporting on existing codes of conduct, anti-corruption practices, and compliance with relevant laws and regulations, beyond classic AML and regulatory compliance.

Future impact of CSRD on financial institutions

Most large financial institutions already have a solid framework in place, tied into their digital tools. However, the CSRD roadmap will soon cover more organisations, meaning that smaller brokers, too, will have to be more diligent in their sustainability practices and subsequent reporting. This involves developing new tools and strategies for evaluating their ESG performance, in a cost-efficient and scalable way.

Regulatory requirements still pose significant challenges for financial institutions, however. For now, a lack of standardisation and understanding of ESG data are slowing down adoption of the EU’s CSRD sustainability standards at financial institutions. At the same time, there have been both bottom-up and top-down pushes from the general public and governments, respectively, to transition society and corporations towards sustainability. True sustainability in the financial sector, however, requires more than a classic ‘do no harm’ approach of avoiding investment in certain markets – instead, banks are increasingly expected to focus on sustainable investment assets and active engagement in green high-risk/high-reward projects with positive environmental impact.

How Harmoney helps FIs to prepare for the CSRD

The Harmoney platform fits in perfectly with financial institutions’ CSRD compliance and sustainability initiatives. Our Harmoney compliance orchestration platform empowers market-leading banks, brokers and leasing companies to move beyond tick-box culture compliance. In its space, Harmoney addresses the challenge of ESG-specific profiling – a critical challenge that permeates different aspects of CSRD-related efforts in the financial industry. Through Harmoney’s custom questionnaires, financial institutions can effortlessly integrate the sustainability preferences of their end clients in their investment profiles and suggestions, linking them with suitable investment products that have matching sustainability scores. This profiling helps organisations cover their regulatory obligations as a direct result of the MiFiD directive.

Harmoney offers a cutting-edge digital platform that streamlines intricate onboarding and compliance procedures, featuring automated screening functionalities. Interested in discovering more about our innovative solution? Reach out to us for further details!