csdr

Sustainability & Diversity

Corporate sustainability reporting directive | Sustainability series part. 5

Jasmiina Toikka Apr 22, 2022

Reporting on sustainability initiatives is no longer optional for even medium-sized companies. Some level of reporting is increasingly becoming mandatory, although there are no global templates or set of rules to follow. Various sustainability standards are used. For global companies, a widely recognized standard is the Global Reporting Initiative (GRI). GRI provides a common reporting language that helps companies compare themselves with their peers.

Beyond statutory requirements, reporting on environmental, social, and governance achievements have immense benefits. One benefit of ESG reporting is the chance to showcase positive development and the ability to set milestones. Good results build brand reputation and loyalty, provide access to capital, engage employees, and attract customers. Stakeholders and investors get broader insights and can assess sustainability risks and opportunities that continue to inform their decision-making outside the financial factors alone. Longer-term strategies can be adjusted, benchmarks applied, and improvement opportunities identified for continued benefit and engagement.  

 

The European sustainability reporting landscape

European law requires certain large companies to disclose information on how they operate and manage social and environmental challenges. Sustainability reporting requirements aim to encourage organizations to develop a responsible approach to business. The current Non-Financial Reporting Directive (NFRD) applies to approximately 12.000 large public-interest organizations within the EU region with more than 500 employees. A new directive will shortly replace it with an expanded scope that will involve many smaller companies.  

 

The Corporate Sustainability Reporting Directive (CSRD)

The CSRD is being phased in over two years, starting with the companies already covered by the NFRD. From 2025 onward, companies will be required to report on their performance in specified areas. These companies will have to disclose detailed and transparent information on defined sustainability issues publicly:

  • Environmental matters

  • Social matters and treatment of employees

  • Respect for human rights

  • Anti-corruption and bribery

  • Diversity on company boards

And how they impact a) their business risks and opportunities – (the outside-in perspective) and b) people and the environment (the inside-out perspective).

The first set of standards will be released on the 31st of October 2022. The topics will be concerned with identifying all potential negative and positive impacts on people & environment connected with a company’s operations and its value chain. Standards will likely apply to:

  • Greenhouse gas emissions (GHG Protocol)

  • Energy efficiency

  • Environmental footprint results (Life Cycle Assessments) and dependencies

  • Social responsibility (e.g., working conditions, human rights, equal opportunities)

  • All sustainability/ESG issues affecting the company’s financial health and operational performance.

  • Methodology to ensure information is of high quality

A further set of standards will be released on the 31st of October 2023. This set will help companies finetune their processes to address linking financial and sustainability reporting. It will also cover standards for alignment and consistency between EU reporting standards and public policy agreements, goals, frameworks, and regulations.

 

(You can find more details here on timing and the inclusion of more organizations in CSRD).

 

When will CSRD apply to me?

From the 1st of January 2026, small to medium-sized companies with securities listed on regulated markets have to start reporting in line with CSRD. However, the listed SMEs will have simpler standards for reporting than large companies. Non-listed SMEs can choose if they want to use the CSRD’s reporting standards voluntarily for the sake of transparency and commitment to sustainable business practices.

 

How will CSRD affect your organization?

The directive on sustainability reporting indicates that there will be a need for a robust, transparent, and verifiable reporting system that is auditable. Although the standards have not yet been published, it is expected that the environmental requirement will cover up to 15 categories, including measuring and reporting on greenhouse gas emissions (GHG 1, 2 & 3 emissions). The reporting requirements are likely also to include measuring water usage and pollution, energy use, and climate change mitigation strategies. Eventually, this means tracking the entire environmental footprint of your business operations.

"Investors and stakeholders are demanding a much wider range of information about a company’s approach to governance, risk management and strategic planning. Pursuing short-term profitability at the expense of creating sustainable, long-term value is no longer an option." - Deloitte, 2021

 

How can I prepare for Corporate Sustainability Reporting Directive?

  • Start now! Secure top-level commitment as well as sufficient resources and capabilities for the challenge at hand.

  • Identify your current environmental, economic and social impact and establish a baseline for reporting.

  • Review and assess the proposed CSRD reporting standards and align them with your preparation. Identify potential gaps and gather the necessary information to be compliant.

  • Set environmental, social, and governance targets and have them approved at the senior level. Communicate targets your stakeholders.

  • Establish KPIs to monitor at your next review and milestones.

  • Welcome professional advice and support on how to get the required data, processes, and controls in place.

  • Benchmark and share best practices with your peers.

Sustainable reporting

Collating, cleansing, and categorizing sustainability data is a huge task that cannot be achieved manually. Sustainability data required to form the “big picture” lives in various locations, forms, and data sets. Cloud-based analytical solutions can identify data sources, automate the collection of raw data and turn it into usable information for reporting and insights. Having a single source of truth for your sustainability data enables diving deep into function and category level and following up the progress.

To comply with the reporting requirements, you must trust that your data is accurate, timely, and high quality. Sievo CO2 solution gives visibility into scope 3 emissions data. Our solution has been audited by a third party. Find out more on the solution and methodology here.

Header photo credit: @florianwehde (Unsplash.com) 

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