Corporate sustainability is evolving and getting more complex. In the EU, UK and US, a wave of new regulations are being implemented and businesses around the world are being tasked with increasingly intricate disclosures (which are quickly becoming mandatory).
The Corporate Sustainability Reporting Directive (CSRD) is one of the first to begin impacting companies worldwide, starting this year. The CSRD builds on the Non-Financial Reporting Directive (NFRD) and mandates detailed sustainability disclosures across environmental, social and governance issues for companies. These requirements will include mandatory, sector agnostic disclosures as well as materiality-based disclosures.
The CSRD will impact businesses across the world
Those already reporting under the NFRD are already captured (as of 1st Jan 2024), with large EU companies up next from 1st Jan 2025 and SMEs the following year.
Non-EU companies will also be impacted. Directly, from 1st Jan 2028, if you have a net turnover of >€150m generated in the EU in the prior two consecutive years and an EU subsidiary or branch. Or indirectly through the knock-on effects as suppliers and customers ask for information to complete their own CSRD disclosures, or as your investors increase their expectations to be in line with the transparency driven by the CSRD.
Whether directly or indirectly, the CSRD is forcing companies to start completing a pretty complex sustainability puzzle.
For most companies, a business-as-usual approach to CSRD simply won’t do. The detailed level of reporting combined with the transparency and data quality required will push typical ESG processes out of the comfort zone.
The CSRD requirements are forcing a step-change in sustainability reporting
There are five key components to the CSRD:
Define the topics that matter
A “double materiality assessment” looks at both impact materiality – how your business impacts topics like climate or biodiversity – and financial materiality – how those topics impact your business financially. The result of this assessment determines the standards and topics you need to report on.
Get clear on the data challenge
The CSRD suggests up to 1,100 data points to report on. Consider what data you will need to collect, manage and report on, and the processes you will need to meet the mandatory and materiality-based requirements.
Align on the strategic approaches
The CSRD not only requires quantitative data but qualitative data on the processes and structures you have in place to drive action and management of the metrics and targets relevant to your business.
Engage your leaders
Executives need to be involved in all stages of the process – from analysing the impacts, to , agreeing the financial risks and opportunities, and overseeing the strategies implemented.
Be assurance-ready
CSRD reporting will be subject to mandatory limited assurance (with reasonable assurance likely to follow). This level of rigour covers all sustainability information, and will require a step change in the way companies collect, manage and report on data.
Thinking through these steps will get you towards the tick-box threshold, but stopping there means missing out on the opportunity to create long-term value in your business.
How can companies make a success of CSRD?
For most, these new regulations will be viewed as a regulatory ‘stick’ trying to beat business into compliance, but for those that wish to take it, there is an even bigger ‘carrot’ to create competitive and meaningful change.
We see five areas that are crucial to making your CSRD journey a success and deliver long-term value for the business.
1. Data transformation
Accurate and comprehensive data collection is paramount, with thousands of data points required by the CSRD. Businesses must enhance their data management systems to capture relevant environmental, social and governance metrics, ensuring transparency and compliance (multiple excel sheets housed in various hard drives won’t fit the bill here). This means investing in tech, methodologies and people to accurately measure sustainability performance and maintain data systems long term. This will not only help meet regulatory requirements but also gain valuable insights into your operations, identify improvements and commercial opportunities, and enhance stakeholder trust.
2. Governance structures
Establishing a robust governance framework is crucial to navigate the regulation. Companies should integrate sustainability into their corporate governance, ensuring oversight and accountability at the highest level. This involves defining clear roles, responsibilities, and processes for sustainability decision-making and reporting. Effective governance will translate to a more coherent sustainability strategy, better risk management, and stronger alignment with regulatory and stakeholder expectations.
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Corporate sustainability is evolving, and the new wave of regulation that is quickly coming into force provides an opportunity to accelerate organisational change.
3. Operating model tweaks
CSRD responsibilities go beyond sustainability teams and need to involve the whole business, creating a world of opportunity where sustainability is meaningfully integrated into the future of the business. Collecting, monitoring and managing the data required by CSRD will require reworking existing operating models to enable teams to work together more effectively and drive value back into the business.
4. Leadership alignment
Leadership plays a pivotal role in driving sustainability initiatives within businesses. Many have a ‘sponsor’, but few have true leadership alignment that demonstrate commitment through strategic decisions with sustainability at the forefront. Being clear on what sustainability means for your business now, not in 2030, is a must. Strong leadership is the catalyst for organisation-wide commitment and achieving long-term sustainability goals, and leaders must work to embed sustainability into corporate strategies and employee empowerment.
5. Cultural transformation
Building a culture that embraces sustainability is key to enduring change. This means integrating sustainability into the core values, processes and everyday activities of your business. Companies need to invest in training, effective communication methods, and incentive structures that foster sustainable decision-making at all levels of the business. Creating a strong sustainability culture can enhance employee engagement and retention, while also positioning the business as a leader in the space, attracting customers and investment.
START SMALL
1. Discover
Understand what you need to do, what you want to do, and where the big gaps are. Also explore where the overlaps are with other strategic imperatives in the business and where you can piggyback on and align with other programmes in place. This will help you prioritise what needs to be done.
2. Mobilise
Get your stakeholders involved from the start. There will be teams requiring different incentives and communications to get them on board. Make sure you understand all stakeholders and build out your approach from there.
Interested in getting the best value from your CSRD journey? Get in touch to begin your journey towards meaningful change.
