Sustainability

Chartered Star 2024 winner Evan O’Donnell talks to Susan Rossney, Sustainability Advocacy Manager with Chartered Accountants Ireland, about the future of sustainability in the profession Evan O’Donnell was recently named Chartered Star 2024, an annual designation recognising outstanding work in support of the UN Sustainable Development Goals (SDGs).   Run in partnership with One Young World and Chartered Accountants Worldwide, the aim of the annual Chartered Star competition is to celebrate the difference-makers in the profession who are helping to combat the climate crisis by bringing real, positive change to their workplaces and communities. As Chartered Star 2024, O’Donnell will attend the One Young World Summit, representing Chartered Accountants Ireland and Chartered Accountants Worldwide, in Montreal, Canada, in September. Here, he talks to Susan Rossney about his interest in sustainability and social responsibility. Tell us about your decision to become a Chartered Accountant. What attracted you to the profession? I loved accounting in secondary school – that “yes” moment when you know your inputs are the same as your outputs! My mother was a mathematics teacher, and my father was a banker, so figures are certainly in my DNA.  I studied accounting at University College Cork, but it wasn’t until I attended a careers fair that I understood the versatility of a career in accounting and the many doors Chartered Accountancy can open.  Have you always been interested in sustainability?  I’ve been interested in social responsibility from the time I was 16 when I travelled to India and worked with street and slum children in Calcutta.  Since then, I’ve volunteered for a range of charities, including Trócaire, Mary’s Meals, HOPE, Cork Penny Dinners, Pieta, Irish Guide Dogs for the Blind, the Irish Cancer Society and Breakthrough Cancer Research.  My interest in sustainability started when I led a sustainable gardening project at college. Volunteers completed training certificates and visited local nursing homes to assist the elderly residents in planting flowers and growing vegetables. It showed me what was possible. Since then, I’ve looked for opportunities to do more and was delighted when I got the chance to host a sustainability networking event at the Apple headquarters in Cork when I was Co-Chairperson of Chartered Accountants Student Society Cork. What initially sparked your interest in becoming a Chartered Star? I heard about the Chartered Star competition during the first year of my training contract with PwC.  In 2020, I was fortunate to be part of a fantastic network, the Irish FinBiz Task Force, with 30 finance and business professionals across Ireland. It had been founded by two previous Chartered Stars and, as the years went on, more Chartered Stars emerged from the network. I was on the network’s SDG Awareness Team where Patrycja Jurkowska (2019 winner) provided us with great insight and knowledge on the topic.  I saw how the competition opened many doors for my colleagues, and I felt it was an opportunity to meet amazing ambassadors of sustainability, be part of a knowledge platform and share key learnings with my network.  I am very proud to be part of the Chartered Accountants Ireland Chartered Star family! What do you see as the greatest sustainability-related impacts, risks and opportunities for Ireland?  Ireland faces significant sustainability challenges, but also has many opportunities. Climate change is causing more extreme weather, threatening infrastructure and agriculture. Biodiversity loss, due to urbanisation and intensive farming, is reducing ecosystem services like pollination and water purification. Resource depletion, including water scarcity and soil degradation, is harming agriculture and water supplies. Economic risks include the vulnerability of agriculture to climate variability and potential negative impacts on tourism from environmental degradation.  Dependence on fossil fuels poses a risk as global policies shift towards renewables.  Social risks involve health issues from heatwaves and pollution, as well as displacement due to coastal erosion.  Regulatory risks stem from the high costs of complying with EU environmental regulations. However, through all this, there are significant opportunities.  Renewable energy development, particularly wind and marine energy, can reduce fossil fuel dependence and create jobs.  Sustainable agriculture, including organic farming and agroforestry, can boost biodiversity and resilience.  Green technology and innovation, such as circular economy practices and smart grids, can enhance sustainability and efficiency.  By implementing robust policies through the Climate Action Plan and participating in the EU Green Deal, Ireland can lead in global sustainability efforts, attract investment and build a resilient future. Where do you see opportunities for young professional Chartered Accountants in sustainability? Chartered Accountants have many opportunities to help meet sustainability challenges. We can leverage our skills in financial analysis and reporting to enhance transparency in sustainability metrics, ensuring that companies’ environmental and social impacts are accurately reported and assessed.  We can specialise in sustainability assurance, auditing environmental, social and governance (ESG) reports to provide stakeholders with credible information. We can advise businesses on integrating sustainable practices into their operations and strategies and identify cost-saving measures through energy efficiency, waste reduction and sustainable supply chain management.  We can also influence policy by working with regulatory bodies to shape sustainability standards and frameworks.  Additionally, we can drive innovation by supporting the development of green finance products, such as green bonds and sustainable investment funds.  By combining our financial expertise with a commitment to sustainability, young professional Chartered Accountants can play a crucial role in fostering sustainable economic growth and addressing global environmental challenges. Can you tell us about your sustainability role with PwC? I always had a passion for sustainability, and I wanted to incorporate this into my day-to-day life at PwC.  During my time with PwC Cork, I worked in the Assurance Department specialising in high-technology and pharmaceutical company audits along with pensions and grant engagements.  In 2019, while on placement, I was on the Corporate Social Responsibility Committee, and worked under the food pillar of PwC Ireland’s Sustainability Council, focusing on food waste reduction initiatives primarily in PwC offices around Ireland.  I also became an SDG Champion with PwC by completing ‘The Sustainable Life School’ course. This course inspired me to apply for, and later become, a Climate Ambassador earlier this year, where I have equipped myself with education about climate. What does being named Chartered Star 2024 mean to you?  Being the Chartered Star, an ambassador of Chartered Accountants, means representing my profession and country on a global stage.  Having been selected to attend the One Young World Summit in Montreal this September, I am deeply honoured and grateful to have this opportunity.  The Summit brings together young leaders from around the world to discuss and address critical global issues, including sustainability, innovation and social impact. I am committed to making both my profession and my country proud by actively participating in the Summit, sharing insights and learning from global peers. This unique experience will enable me to bring valuable knowledge and innovative ideas back to my colleagues, fostering growth and development within our community.  I look forward to leveraging this platform to highlight the pivotal role of Chartered Accountants in driving sustainable and ethical business practices, ultimately contributing to a better future for all.

Sustainability credentials are big business in 2024, but not all are genuine. Dee Moran looks at ongoing EU efforts to curb greenwashing through regulation Over the last number of years, investors, consumers and regulators have put companies under increasing pressure to be ‘green’.  Being green is big business. Consumers will pay a premium for sustainable products and investors are increasingly looking to invest in companies that are perceived as sustainable. Banks also want to lend to businesses showing green credentials.   This desire to be ‘green’ has, unfortunately, led to some entities not being wholly truthful about, or exaggerating, their green credentials. So-called ‘greenwashing’ has become so widespread that many stakeholders – including investors, regulators, consumers and company directors – are calling for action to curb it.  The latest PwC Investor Survey, published in January 2024, included responses from 345 investors and analysts in 30 countries – including 38 who invested in, or covered, companies in Ireland.   Ninety-seven percent of this 38-strong cohort believe that corporate reporting on sustainability performance contains unsupported claims. Globally, the corresponding figure stands at 94 percent.  The characteristics of greenwashing So, what is greenwashing? There is no global definition of ‘greenwashing’ but, in essence, it involves misleading consumers by giving a false impression of a product’s environmental impact or benefits.  It can be unintentional. One example is the use of vague and unspecific language, such as describing a product as ‘eco-friendly’ due to its use of recycled packaging while not conducting any actual research into the sustainability, or otherwise, of the raw materials used in that product.  Or, it can be intentional greenwashing, such as the Volkswagen scandal, whereby the German car manufacturer was found to have intentionally rigged its emissions testing to deliver greener results.  When this came to light in 2015, Volkswagen’s share price fell by 20 percent, wiping more than €13 billion off its capitalisation.  Greenwashing has become so prevalent that Planet Tracker, the UK-based sustainable finance think tank, has identified six distinct types: greencrowding; greenhushing; greenlabelling; greenlighting; greenrinsing; and greenshifting. Greencrowding is where an entity adopts a group initiative, such as forming an alliance, and then progresses at the pace of the slowest participant. While collaboration with other entities in a similar industry to create goals for sustainability initiatives can be beneficial, joint statements need to be clear about what will be achieved. Otherwise, tracking progress can become challenging. Greenhushing is where entities deliberately underplay, under-report or hide their environmental, social and governance (ESG) or green credentials to evade scrutiny because, for example, their sustainability practice might not be as impressive as claimed. Greenlabelling is where entities call a product or service ‘green’ or ‘sustainable’ but there is no evidence to support the assertion. Greenlighting is where an entity focuses its marketing on a particularly green feature of its operations or products, diverting attention from other damaging environmental practices. Greenrinsing is where entities modify their ESG targets before they are achieved, thereby avoiding being held accountable for, or actually achieving, their goals. Greenshifting is when entities imply that the consumer is at fault and shift the blame on to them. The potential effects of greenwashing The effects of greenwashing vary from fairly harmless to potentially very serious.  The more consumers hear about greenwashing, the less likely they are to believe any green claims made by companies and organisations as is evidenced in the PwC Investor Survey, outlined above.  Consumers purchase sustainable goods and services to play their part in protecting the environment, but greenwashing disrupts this, and consumers become cynical.  Furthermore, entities engaging in greenwashing tactics potentially harm not just themselves, but all other entities engaging with sustainable practices and particularly those companies with genuine green products or operations. Once trust is lost, it is hard to regain.   EU actions to mitigate greenwashing Regulation to prevent greenwashing has, until recently, been limited. Much of the enforcement has been performed by advertising regulators who have moved to ban misleading greenwashing ads, for example.  In the UK, Unilever placed an advertisement claiming that Persil laundry detergent was ‘kinder to our planet’ but didn’t explain how and, consequently, it was banned by the Advertising Standards Authority on the basis that the claim was unsubstantiated.  The Advertising Standards Authority of Ireland (ASAI) received 28 complaints about a sponsored article in which a celebrity referred to the use of the Land Rover Defender as “planting the seeds of a more sustainable life”.  This was held to be in breach of the ASAI Code on the basis that “evidence demonstrating that the vehicle justified being associated with sustainability claims, albeit qualified, has not been submitted.”   Where the article asserted that “mild hybrid tech cuts down on the amount of fuel,” the ASAI found that this was likely to mislead consumers due to the omission of a comparison with any other mode of transport. The ASAI then concluded that the claim should not be used again in its current format. The European Union (EU) is very focused on reducing greenwashing and lending transparency to corporate behaviour. Some of the regulations that have been – or are in the process of being – approved are outlined below. Sustainable Finance Disclosure Regulation The EU’s Sustainable Finance Disclosure Regulation (SFDR), introduced in 2021, requires financial market participants and financial advisors to evaluate and disclose sustainability-related data and policies at entity, service and product level.   The aim is to provide standardisation of the language used and to categorise investment products by how sustainable they are. Disclosure requirements are applied to each category.    Under the SFDR, all funds are classified into one of three categories: Article 6 Funds need not incorporate any sustainability information into the investment process (for example, oil producers). Article 8 Funds should promote environmental characteristics and have good governance practices.   Article 9 Funds should make a positive impact on society or the environment through sustainable investment and have a non-financial objective at the core of their offering.  In its February 2024 Regulatory and Supervisory Outlook Report, the Central Bank of Ireland (CBI) referred to “a new phenomenon of understating how green a product is, known as ‘green bleaching’”.  Green bleaching can occur where a fund management company does not want to risk non-compliance with the more onerous requirements of Article 9.  Therefore, it categorises a fund under a category with less onerous requirements, which results in inaccurate disclosures.   The CBI report also highlighted one of the priority initiatives in addressing climate change and net-zero transition as “scrutinising and mitigating the risk of greenwashing in the promotion and sale of financial products to investors”. The EU Taxonomy Regulation The EU Taxonomy Regulation is a classification system establishing a list of environmentally sustainable economic activities; essentially, a common language for everyone.  It establishes six environmental objectives: Climate change mitigation; Climate change adaptation; Sustainable use and protection of water and marine resources; Transition to a circular economy; Pollution prevention and control; and Protection and restoration of biodiversity and ecosystems.  In order to be considered aligned with the taxonomy, an entity must adhere to at least one of the environmental objectives and the related technical criteria, do no significant harm to the other objectives and meet minimum safeguards regarding human and labour rights. Disclosure obligations will apply from 1 January 2024 with respect to the 2023 financial year. In theory, this should create security for investors and help companies become more climate friendly. It should also prevent market fragmentation – something that has caused issues in the past. Corporate Sustainability Reporting Directive In terms of reporting, the Corporate Sustainability Reporting Directive (CSRD) – which commenced on 1 January 2024 for certain companies – is focused on improving transparency, particularly with the disclosures required to be made under the directive.  While it has not been stated that the CSRD will specifically prevent greenwashing, it will make greenwashing more difficult, given the significant requirements of the directive. These include the following: The framework underpinning the CSRD is the European Sustainability Reporting Standards (ESRS), which is a set of 12 standards covering ESG metrics. Entities will have to report on their ESG metrics, as will their competitors, making information more comparable and therefore more transparent and less prone to exaggeration, omission or suppression. The requirement to complete a double materiality assessment whereby a company must consider its impact, not only from a financial perspective, but also from the perspective of its impact on people and the environment. • There are a significant number of additional requirements over and above those required under the Non-Financial Reporting Directive or the voluntary frameworks, both quantitative and qualitative, which will leave less room for ambiguity and the individual interpretation of sustainability information. Mandatory independent assurance of company ESG information will be required under the CSRD. Initially, this will be limited assurance, but it is expected that reasonable assurance will be required by 2028. Therefore, companies will need to ensure that they have in place appropriate processes and controls – similar to financial reporting – so that they are in a position to comply with the new regulatory obligations. The requirement for external assurance should, above all, bring with it the trust investors have been looking for. As a single framework, the CSRD will bring increased comparability to ESG reporting, greatly assisted by the mandatory electronic XBRL tagging of the report. Investors will now be able to compare information provided by companies and make investment decisions based on this information, which will be more granular in nature, thereby offering a higher level of detail.  Draft Green Claims Directive The Green Claims Directive is the latest piece of regulation introduced by the EU to tackle greenwashing and is an important step in increasing transparency and trust in relation to environmental claims.  The European Commission first proposed this directive in March 2023 following the publication of a joint report by the European Parliament’s environment and internal market committees.  The report followed a European study in 2020, which found that more than 53 percent of environmental claims in the EU were misleading, vague or unfounded. The proposals for the Green Claims Directive include: Setting out detailed rules on substantiating and communicating explicit environmental claims; Ensuring that companies carry out an assessment to substantiate environmental claims on a host of requirements – if the claim concerns the whole product or a part of it, for example, reporting greenhouse gases offsets in a transparent way and looking at all significant environmental aspects and impacts; Potential penalties, such as a temporary exclusion from public procurement tenders or fines of at least four percent of annual turnover. The directive is due to come into force on a gradual basis, depending on company size, from 1 January 2026. Proactive approach All of these developments are very positive and demonstrate the EU’s proactive approach to regulating against greenwashing. The European Parliament’s rapporteur for the Environment Committee, Cyrus Engerer, has said, “it is time to put an end to greenwashing. Our agreement on this (Green Claims) text ends the proliferation of deceitful green claims which have tricked consumers for far too long.”   Regulation will work only if there is enforcement, however. Individual countries need to ensure that they have the processes in place to punish those who do not adhere to the regulations. Dee Moran is Professional Accountancy Lead with Chartered Accountants Ireland

The implementation of the Corporate Sustainability Reporting Directive will introduce new challenges in business reporting, not least the tricky concept of double materiality, writes Mike O’Halloran In 2024, a new era of corporate reporting has kicked off. The Corporate Sustainability Reporting Directive (CSRD) began to apply to some of the largest entities in Ireland for financial periods commencing on or after 1 January 2024.   The cohort of entities applying the CSRD will increase significantly in the years ahead as the numbers in scope rise in 2025, 2026 and 2028.  Under the European Green Deal, the European Commission aims to transform the EU into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050, economic growth decoupled from resource use and no person or place left behind.  In seeking to achieve this goal as part of the deal, the CSRD will not be without its implementation challenges. One of the challenges that preparers will have to navigate is double materiality. The CSRD requires the assessment of the materiality of impacts, risks and opportunities relating to sustainability matters via a double materiality assessment. This will be new to most preparers of sustainability statements and those providing assurance on the information.  Double materiality is a unique concept of reporting under the European Sustainability Reporting Standards (ESRS).  It is the most notable difference between these standards and the International Sustainability Standards Board’s standards (IFRS S1 and IFRS S2), which will be adopted in other jurisdictions outside Europe. This will most likely include the UK where the Department for Business and Trade has indicated that it may be endorsed in 2024 as part of its Sustainability Disclosure Standards. Materiality – two perspectives As the name might suggest, a double materiality assessment is performed from two perspectives – financial and impact. The result forms the basis for what should be disclosed in a sustainability statement.  The use of two perspectives differs significantly from the “traditional” materiality assessments accountants will be familiar with. This is because a double materiality assessment focuses not just on matters that are financially relevant, but also on those that impact stakeholders, both internal and external, and the environment.  Without a double materiality assessment, an entity could simply focus on sustainability matters that are financially relevant to itself and ignore what is important to the wider society it affects. A double materiality assessment involves consideration of the entity’s direct and indirect impact. This means that it covers the entity’s own operations as well as its upstream (e.g. suppliers and pre-production activities) and downstream (e.g. post-production activities and end customers) value chain, when considering its material impacts, risks and opportunities.  The output from a double materiality assessment identifies impacts, risks and opportunities related to sustainability matters that are considered to be material for the entity, its stakeholders and the environment, and therefore must be reported on in its sustainability statement. Financial materiality For a sustainability matter to be material from a financial perspective, it must trigger (or must reasonably be expected to trigger) material financial effects on the undertaking. In assessing this, an entity must consider whether sustainability matters generate risks or opportunities that materially influence its development, financial position, financial performance, cash flows, access to finance or cost of capital over the short-, medium- or long-term. The materiality of risks and opportunities should be assessed based on a combination of the likelihood of occurrence and the magnitude of financial effects. Impact materiality Impact materiality looks at how an entity may have an impact on its stakeholders from an environmental, social and governance (ESG) point of view. For a matter to be material from an impact perspective, it must generate (or have the potential to generate) positive or negative impacts on people or the environment. The relevant person affected is the stakeholder and impact materiality is viewed through the eyes of the stakeholder to identify sustainability impacts. When an entity is considering impact materiality, then, it must consider actual or potential impacts, positive and negative impacts and impacts covering the short-, medium- or long-term. The assessment of the severity of its impacts, and therefore whether they are material, is based on three factors: • Scale – how grave or beneficial the impact is; • Scope – how widespread the impact is; and • Irremediability – whether or not the impact can be mitigated or resolved. Furthermore, if an entity is addressing potential impacts, it is required to consider the likelihood that the issue will occur. Engagement with stakeholders is a key consideration when reviewing impact materiality and it will help to inform the entity about its material sustainability impacts, risks and opportunities.  The ESRS do not set out how an entity should engage with its stakeholders and the engagement process should be determined by the reporting entity.  Some of the stakeholder categories an entity may consider as part of its materiality assessment include employees, suppliers, customers, consumers, end users, regulators, local communities and nature. Double materiality sets the reporting boundary When an entity determines that impacts, risks and opportunities related to a sustainability matter are material because of a double materiality assessment, then it is required to disclose information required by the disclosure requirements related to that sustainability matter in the corresponding topical and sector-specific ESRS.  In addition, it is required to disclose any additional entity-specific information when an ESRS does not sufficiently cover this matter. As a result, a double materiality assessment sets the entity’s sustainability reporting boundary. If a matter is material from a financial perspective, an impact perspective or both, then it must be disclosed in a sustainability statement.  The challenges There are several challenges that entities performing a double materiality assessment may struggle with, particularly in the initial years of implementation. These include: Understanding and applying the concept While preparers will already be familiar with materiality, double materiality introduces some new parameters they will need time to become comfortable with. The ESRS do not specify a process to follow when carrying out a double materiality assessment. The reason for this is that no one process would meet the requirements of all the entities reporting under the standards. Therefore, an entity that performs a materiality assessment must design and apply a process tailored to its circumstances, while remaining within the requirements set out in ESRS 1. While such an approach allows entities to tailor their processes accordingly, the lack of a rules-based system may prove difficult for some entities to adapt to, particularly in the earlier years as practices and precedent are being established. In the absence of a strict rules-based approach, entities will need supplementary material to guide their methodologies. Currently the European Financial Reporting Advisory Group is drafting implementation guidelines to assist with this. The assurance requirement A key requirement of the CSRD is external assurance on an entity’s sustainability statement. This will initially require limited assurance before being upgraded to reasonable assurance at some point in the future. While assurance will help to ensure that the integrity and reliability of sustainability information reported on will be enhanced, it will also bring with it a level of complexity whereby the judgements made by preparers will be assessed by assurance providers. This may introduce differing opinions on what should be deemed as material from an impact or financial perspective. All eyes on the first reporters The number of reporters in the first wave of CSRD adopters in Ireland will be low in number but high in terms of market capitalisation.  All eyes will be on the sustainability statements prepared by these entities in early 2025 as users, preparers and other interested parties will be keen to see how they have approached double materiality.  Despite the low number of reporters for 2024 year-ends, many entities will be indirectly impacted as they will be part of the supply chain of reporters. They will therefore be providing information to entities preparing their sustainability statement.  Furthermore, many entities that will be subject to the requirements of the CSRD in future years will be keen to learn from the challenges encountered by the first adopters. Despite the onerous requirements of the new suite of standards and in particular double materiality, it is important for entities and their stakeholders to remember the reasons for their introduction and the underlying cause they seek to remedy.  The EU’s goals under the European Green Deal are ambitious, but they need the full support and backing of businesses to be successful. Mike O’Halloran is Technical Manager in the Advocacy and Voice Department of Chartered Accountants Ireland Double materiality: brewery example Consider an entity operating a brewery in Ireland. In carrying out a double materiality assessment it may, among other things, consider the following matters to be material, from one or both perspectives: Energy (financial perspective) – due to the energy intensiveness of the production process and the financial risk of increased energy prices; Pollution of water (impact perspective) – due to the large amount of water discharged during the production process and the impact that this may have on water quality locally; Water consumption (financial perspective) – due to the cost involved and the availability of sufficiently clean water; Land-use change as a direct impact driver of biodiversity loss (impact perspective) – due to the large amount of malt, barley and other crops used in the production process; Sustainability matters under the heading of “own workforce” including health and safety of employees (impact perspective) – due to the large workforce an entity has employed in its factory; Resource inflows and outflows (impact and financial perspectives) – given the amount and cost of packaging and storage materials used, particularly in an entity’s downstream activities; Personal safety of consumers and end users (impact and financial perspectives) – given the health implications of a breach of food safety regulations on consumers as well as the financial implications that it would bring; and Responsible marketing practices (impact perspective) – given the addictive and age-restricted nature of the product being produced by the brewery. This example is for illustrative purposes only and is not intended to be a complete list, nor a list of the matters that are mandatorily material for a similar entity. Individual judgment must be applied in each instance.

Mike Hanrahan, FCA and Chair of Sustain.Life, tells Accountancy Ireland why carbon accounting capability is becoming a must-have for suppliers to big corporations  Wexford-born Chartered Accountant Mike Hanrahan is Chair and co-founder of Sustain.Life, the innovative tech start-up behind a software-as-a-service platform that helps companies decarbonise their operations. Sustain.Life combines environmental, sustainable and governance (ESG) and carbon accounting tools so companies of all sizes can better manage and mitigate carbon emissions while also cutting costs. Based in New Jersey in the US, Hanrahan launched Sustain.Life in 2021 with co-founders Annalee Bloomfield and Patrick Campagnano, and is now gearing up to scale the company globally. Here, he talks to Accountancy Ireland about the professional path that has taken him from Ireland to London and the US, and from a career in accounting to banking and finance, e-commerce and, now, sustainable entrepreneurship. Tell us about Sustain.Life. How did the company come about?  Before I established Sustain.Life, I co-founded the e-commerce company Jet.com in the US with two guys, Marc Lore and Nate Faust.  By that stage, I had moved to the US, but before that I worked in London having trained as a Chartered Accountant with PwC in Ireland.  I started working in The City in the mid-nineties when I was in my early twenties and moved from risk management into technology, building risk and trading systems for banks. Marc Lore was my boss while I was working at Credit Suisse. He became a great mentor and, when he moved to the US to set up his first e-commerce start-up, I agreed to move over as well to work with him. We subsequently set up Jet.com together. I was the company’s Chief Technology Officer and when we sold Jet.com to Walmart in 2013, I became Chief Executive of Walmart’s Intelligent Retail Lab. That’s where I met Annalee Bloomfield and Patrick Campagnano. Annalee was Head of Product and Customer Experience and Patrick was Head of Engineering. We had all this expertise in building scalable, accessible technologies that could meet market needs and we could see the challenges Walmart’s suppliers were facing trying to adhere to its ESG standards and requirements.  We wanted to make sustainability more accessible – to democratise it – for smaller companies in the supply chain. Climate change is humanity’s greatest threat and, together, SMEs account for a significant amount of the greenhouse gas emissions contributing to climate change. We need the tools to enable more organisations to take meaningful climate action – and we need them quickly. That’s what Sustain.Life is all about. How does Sustain.Life work? How does the platform make it easier for SMEs to be more sustainable?  Big corporations like Walmart tend to have the resources they need to invest in sustainability programmes whereas SMEs don’t.  It’s much more difficult to introduce carbon accounting and climate action programmes in a small company where you have less money and fewer people. That was our starting point for Sustain.Life and the sizable market need we are addressing with the platform. Sustain.Life gives SMEs who don’t have in-house expertise the tools they need to start measuring the environmental impact of their internal operations and supply chains.  It helps them understand how to manage and reduce their emissions by introducing operational changes in areas like energy, water and waste. The platform is also designed to help them comply with reporting frameworks, even as they are evolving in different jurisdictions, and allows them to report their sustainability progress to customers, investors and employees using verifiable data.  Tell us about your interest in sustainable business, and in using technology to help combat climate change.  I have been passionate about sustainability for a long time, really since I first moved to the US in 2010. Prior to that, I hadn’t really understood some of the psychology around climate change and the power of the fossil fuel industry on people’s thinking here in the US. It was so different to what I had experienced in Europe. I found that quite a lot of people here didn’t take climate change seriously and didn’t see it as a critical threat. That was very worrying. Climate change is barrelling at us really quickly and we need to act now.  Back then, I think there was still wider optimism that climate change was a problem we could solve relatively easily. It’s not. Energy is at the heart of our entire global economy and fossil fuels power a large percentage of our energy. The threat is enormous and it is complex. We need to find solutions to electrify the global economy and that is going to take many years.  We have to invest money now and start to move very quickly if we are going to get ourselves into a position where we can stop the rot and figure out how to reduce greenhouse gas emissions through carbon capture and other means. What is the state-of-play now in the US regarding efforts to curb climate change and where does Sustain.Life fit in?  When we were starting Sustain.Life, we saw two big potential drivers in the US for a carbon accounting platform: sustainability in the supply chain and regulation, either at state or federal level. Both predictions are starting to materialise. In October, a new law was approved in California requiring big corporations with annual revenues of over $1 billion to report greenhouse gas emissions. We have also recently started to see some of the biggest Fortune 500 companies introduce new policies requiring companies in their supply chain to be able to report on, and set goals for, their own carbon emissions. Amazon, Microsoft and Costco have all now introduced these policies. We already had experience of this at Walmart, which introduced Project Gigaton back in 2017 with the aim of reducing or avoiding one billion metric tonnes of greenhouse gasses from its global value chain by 2030. When we were out raising money for Sustain.Life, we were telling the venture capitalists that smaller companies supplying the Big Fortune 500 corporations like Walmart, Amazon and Costco would be out of business within a few years if they were unable to report on their carbon emissions.  It’s wonderful to see that sea change starting to happen in reality. You launched Sustain.Life in November 2021. Tell us about the development of the business so far. The version of the platform that went live in late 2021 was our MVP. Our revenue function kicked in early in the second quarter of 2022 and that’s really when we were ready to start selling into enterprises. For most of 2022, if you were to ask me what was keeping me up at night – it was wondering if we had timed the company right. We knew companies would need this technology, but you still have those questions: Are we too early? Is this demand going to materialise as we had anticipated? Now, I feel really good about both how our product and our market is developing. We’re able to go toe-to-toe with our competitors and that’s really important because our market is extremely competitive. There are new entrants nearly every week and we’re up against big enterprise players offering solutions in this space like Microsoft and Salesforce. We come up against these guys all the time and we seem to be able to beat them out. The market opportunity is massive and we’re ready to scale. We already have US customers in sectors like food and beverage, electric vehicles and fintech. We also work a lot in the US with accounting firms. We have some great accounting partners. What is the plan now for Sustain.Life? What is your strategy for the company over the next 12 months?  Our biggest focus right now is on internationalisation and tailoring the platform for the needs of different markets. It’s a complex process because you need to be able to support different currencies and units of measurement. Calculating carbon emissions requires a lot of different data sets – but we’re ready.  Our product is mature, as is our team, so our main focus now is on sales and building strong partner channels in different markets. Our first test market will be Australia, where we already have salespeople. Once our model is bedded down there, the plan is to copy it very quickly in other markets. In Europe, a big focus for us will be the Corporate Sustainability Reporting Directive and Ireland – in particular, Ireland’s accounting sector – is very much in our sights. *Interview by Elaine O’Regan

The introduction of the Corporate Sustainability Reporting Directive marks a pivotal moment in the evolution of corporate reporting in the EU, but it will bring challenges for all involved, writes Daniel O’Donovan In an era where businesses are increasingly being scrutinised for their impact on the environment, society and their governance practices, the European Union (EU) has taken a leading role internationally by introducing the Corporate Sustainability Reporting Directive (CSRD).  The CSRD is due to be transposed into Irish law before mid-2024. Following its transposition, mandatory reporting requirements will become effective for, among others, financial years commencing on or after: 1 January 2024 for public interest entities in scope of EU non-financial reporting rules (with more than 500 employees); 1 January 2025 for other larger companies and public interest entities (with more than 250 employees); and 1 January 2026 for listed public interest SMEs, with ‘opt out’ possible until 2028. This is a pivotal moment in the evolution of corporate reporting across the EU, bringing with it significant challenges for all involved, not least for reporting entities, their audit committees and assurance providers. What are the key challenges?  While the CSRD is a welcome framework for enhancing transparency and accountability in corporate sustainability reporting – reflecting the EU’s commitment to fostering sustainable and responsible business practices – it introduces three significant challenges for business: First, the breadth of information that relevant businesses will be required to report under the 12 European Sustainability Reporting Standards (ESRS) introduced by the CSRD; Second, the need to implement the systems required to gather and record reliable sustainability data and information; and Third, the need to provide assurance over the sustainability reports required by the CSRD. Breadth of information to be reported The ESRS, developed by the European Financial Reporting Advisory Group (EFRAG), aim to enhance the consistency, comparability and reliability of sustainability reporting among European reporting entities.  The scope of the ESRS is expansive, encompassing various elements that collectively contribute to a comprehensive understanding of an organisation’s environmental, social and governance (ESG) performance.  The key components driving the breadth of information required in this reporting are the: sustainability topics;  reporting boundary; double materiality concept; and  number of datapoints for disclosure within the ESRS. Sustainability topics The ESRS require disclosures about the following topics: climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy, own workforce, workers in the value chain, affected communities, consumers and end-users, and business conduct. As can be seen from this list, these are broad topic areas. The ESRS standards for each of these topics specify further subtopics in respect of which disclosures must be given. Furthermore, in respect of each of the topics and subtopics, disclosure is required about aspects of the topics as shown in the table below.  Reporting boundary The reporting boundary required by the ESRS is in stark contrast to what reporting entities are familiar with in the context of the financial reporting boundary used to produce annual financial statements, being within the reporting entity or group. The ESRS, however, require a reporting boundary that considers the entire value chain, from suppliers to end consumers, as shown in the figure below: This inclusive perspective ensures that the environmental and social impacts of a business are accurately captured, providing stakeholders with a complete picture of the organisation’s sustainability efforts, but it places a demanding requirement on reporting entities from a data collection standpoint. Double materiality Reporting entities in scope of the CSRD will be required to report on a double materiality basis. This means that they will have to report on impacts on and risks to them from a changing climate and other ESG matters (referred to as “financial materiality” as it is consistent with what entities report in the financial statements). In addition, they will report on the impact the entity itself might have on climate and other ESG matters (referred to as “impact materiality”). When compared with reporting in the financial statements, this concept doubles the challenge for reporting entities as all ESG topics must be considered from both perspectives. Gathering and assessing information and data about the reporting entity’s impact on the breadth of ESG topics is a new frontier for corporate reporting and one that the majority in the corporate reporting ecosystem have no experience of. Datapoints for disclosure It is clear that the scope of the information to be disclosed under the ESRS is far broader than the information to be reported in the financial statements. However, to underline this, the ESRS outline specific datapoints that reporting entities should disclose to provide transparency and facilitate comparability. As recently as October, EFRAG released a draft List of ESRS datapoints – Implementation Guidance, which includes all 1,178 disclosure requirements in the sector-agnostic ESRS published to date. The datapoints are standardised metrics that allow for consistency in reporting and enable stakeholders to assess the sustainability performance of different reporting entities. For instance, in the environmental domain, entities may report on their carbon footprint, energy consumption and waste generation. Social datapoints could include diversity and inclusion metrics, employee turnover rates, and health and safety performance. This new frontier of corporate reporting will generate tangible benefits for society at large and result in greater public interest therein but will not be without data capture challenges in the near future.  Sustainability information systems Given the significance of the breadth of sustainability information to be reported, the transposition of the CSRD into Irish law will have a profound impact on the information systems of entities within its scope. Moreover, the scale of the endeavour for those entities that will be required to report in early 2025 on the calendar year ended 31 December 2024 is enormous in terms of what must be achieved within a timeframe that is less than 18 months away.  Such entities need to determine what sustainability matters are material using the double materiality concept and are therefore required to be included in their sustainability report and start gathering, collating, aggregating and sorting the data in relation to 2024, which will be reported in early 2025.  Reporting entities will need to establish or enhance integrated data systems that allow for the collection and management of sustainability data. This could involve integrating sustainability data within existing enterprise resource planning (ERP) systems to ensure data consistency and accuracy. Additionally, tools may be needed, such as a materiality assessment tool to help systematically evaluate the importance of various sustainability information.  As stakeholder engagement is a crucial part of a materiality assessment, systems or tools that can help track and manage interactions with stakeholders, ensuring that their perspectives and concerns are considered in the reporting process, will be necessary. Developing or strengthening internal controls and policies related to sustainability reporting information systems will be essential. Reporting entities will need to create processes and controls to ensure the accuracy, completeness and reliability of sustainability data, which will be sourced from all areas of the organisation and well beyond the finance function.  Reporting entities that are successful in achieving this will be better positioned to facilitate an independent assurance provider’s examination of their sustainability report. Assurance over sustainability reports Initially, the CSRD requires an independent assurance provider to express an opinion based on a limited assurance engagement as regards the compliance of the sustainability reporting with the requirements of this Directive, including compliance with the ESRS, the process carried out by the undertaking to identify the information reported pursuant to the ESRS, and compliance with the requirement to electronically tag the sustainability report. In later years, after an initial period, reasonable assurance over the sustainability report may be required. For reporting entities, facilitating a limited assurance engagement in the year of implementation of such a significant suite of sustainability reporting standards will require additional resources and does not come without the increased possibility of qualification given the complexity of the ESRS and the potential immaturity of reporting systems. The challenge for independent assurance providers is that at present no assurance standard is in existence that governs the performance of such an engagement.  The International Audit and Assurance Standards Board (IAASB) is developing a standard and has released an exposure draft – International Standard on Sustainability Assurance 5000 – that seeks to address the performance of limited and reasonable assurance engagements over sustainability information.  The exposure daft is open for comment at present and a final standard is not expected until the second half of 2024.  While the development of the standard is welcome, the timeframe is extremely tight, and it is widely acknowledged that the exposure draft does not provide sufficient clarity in relation to the performance expectation of an independent assurance practitioner when performing a limited assurance engagement compared with a reasonable assurance engagement.  In the face of such unprecedented uncertainty, independent assurance providers may struggle to deliver high quality limited assurance engagements.  Challenges ahead The rate of recent extreme weather events in Ireland and elsewhere in Europe, and their impact on supply chains, provides a clear mandate to take better care of our environment. Most people are therefore likely to welcome the intent behind the CSRD’s introduction of sustainability reporting.  Sustainability reporting by entities will be on a basis far broader than financial statements. Additional resources will be needed to address the challenges outlined in this article, but time is running out fast; the time to act on these challenges is now.  Furthermore, the successful implementation of the CSRD regime in Ireland and across the EU requires considerable pragmatism and support from policymakers, standard-setters and regulators.  The new “gold rush” in which companies will seek to lead will be a race to capture data, integrate systems and assure sustainability reports. Undoubtedly, this marks a new frontier in corporate reporting – the ESG Rush! Daniel O’Donovan is a partner with KPMG and leads the firm’s Audit and Assurance Methodology team. He is also Chair of the Chartered Accountants Ireland Assurance and Audit Technical Committee

David W Duffy explains how companies can use ESG materiality to strengthen stakeholder communication and sharpen business strategy Environmental, social and governance (ESG) materiality is a metric showing the importance or relevance of a given issue to a company’s ESG strategy. The more relevant the issue, the higher the materiality.  Often, ESG materiality depends on money. Companies will analyse every issue’s materiality relative to its financial impact. Because ESG is too vast to pursue every principle at once, organisations often need to break down what is in the scope of their ESG strategy and what has to be left out because of its low materiality. ESG will always mean different things to every organisation. Its focus areas will vary depending on and organisation’s industry, local laws, competition and the borders it operates across.  ESG materiality is a way to prioritise what’s essential for an organisation’s success and disregard what makes little to no difference. Such priorities show that companies are thinking smartly about ESG. How to measure materiality To measure an organisation’s ESG materiality they often conduct a materiality assessment.  How companies conduct this varies from place to place, but the common trend is to assess what’s important for the company against what’s important to internal and external stakeholders. The overlap between the two is where companies will identify issues of high materiality, and these issues will be prioritised. A good ESG materiality assessment is thorough and far-reaching. It analyses every relevant issue and considers its impact on business strategy, all stakeholders and the company’s long-term viability.  The process of identifying material ESG factors involves: stakeholder engagement, including communication with investors, customers, employees and communities to understand their ESG concerns and expectations; impact assessments that will give clarity on every issue concerning ESG in the organisation; creating a materiality matrix plotting the significance of each ESG factor based on its potential impact on the organisation and its importance to stakeholders. This essentially gives materiality a numerical and graphical life, making it easier to use it for decision-making; and integrating the findings into strategy, thereby ensuring all high-materiality issues are considered in business plans, risk management and reporting. The benefits of ESG materiality A materiality assessment can, first and foremost, support strategic focus. It can inform your organisation about what matters most using logical processes, giving confidence to all involved.  Additionally, because ESG materiality work involves stakeholder engagement, it has the potential to boost communication between stakeholder groups – something that can support business success. David W Duffy is founder of the Corporate Governance Institute