As businesses navigate a new landscape, the CSRD challenges them to comply, but also to seize the opportunity for growth through sustainability, writes Dave O’Shaughnessy
Embarking on a new era of transparency and accountability, the European Corporate Sustainability Reporting Directive (CSRD) is set to revolutionise the way large and publicly listed companies disclose their environmental, social, and governance (ESG) practices.
Phase 1 of the CSRD targets large companies meeting at least two of these criteria: over €50 million in net turnover, more than €25 million in balance sheet totals, or an average of 250 employees annually.
This directive unfolds progressively through to 2029, with the goal for entities to measure, understand, and communicate their ESG impacts in a transparent, consistent, and comparable way.
The scope of the directive, in terms of the amount of data needed and the specific requirements, including presentation, digital tagging, comparative data analysis, and digital submission, is broad and detailed. There are more than 800 individual data points within CSRD, of which almost 200 are mandatory.
CSRD incorporates quantitative and qualitative metrics, to measure the impacts, risks, and opportunities of upstream, own-operations and downstream activities, based on a thorough double materiality assessment.
Moving beyond compliance
Companies now have the chance to extend their vision beyond mere compliance requirements by leveraging the wealth of data and analytics at their disposal to unlock a multitude of untapped opportunities.
Preparation and presentation of comprehensive ESG reports provide organisations with actionable insights about their business that they did not previously have.
Organisations are increasingly recognising that a well-defined sustainability strategy is essential for long-term success. As they develop and refine these strategies, the need for technology that not only supports but also enhances their sustainability goals becomes clear. These strategies should be adaptable and scalable, evolving in tandem with the organisation’s growth and sustainability ambitions.
By integrating advanced data management systems, organisations not only meet their ESG reporting needs but also provide a platform for performance monitoring and management, as well as scenario modelling to shape future initiatives.
The right technology is a catalyst, propelling organisations towards their sustainability objectives and unlocking new opportunities for responsible growth.
For assurance, it’s essential to have systems in place that can accurately track and document ESG initiatives, allowing for third-party verification. This helps to confirm that the reported data is complete, accurate, and consistent with relevant standards and frameworks.
Assurance processes also provide stakeholders with confidence that the organisation’s ESG disclosures are trustworthy and that it is committed to transparency and accountability.
Delivering value through technology
Scalable, adaptable, and flexible technology should provide the backbone of every organisation’s ESG strategy.
Organisations require a technology solution that will streamline the data integration process and automate the collection, collation, analysis, and reporting of ESG data for relevant reporting frameworks. Implementation of a comprehensive data management system will not only help companies streamline data integration and automate ESG data handling for reporting frameworks but also meet their ESG reporting and assurance requirements.
A 2023 NASDAQ research report that interviewed 150 global sustainability, finance, and legal executives found that investment in ESG software is helping to improve organisational collaboration, mitigate risks, and meet ambitious ESG and sustainability goals.
One of the predominant challenges that we are seeing for many organisations relates to value chain reporting. The need to share detailed, potentially sensitive, data between value chain partners, from raw material extraction to end-of-life disposal and recycling certainly brings an added level of complexity.
Value chain reporting requirements for scope 3 emissions and on social areas, such as child labour and modern slavery, challenge the traditional definition of an organisation’s boundaries. As well as the processes and systems needed to capture accurate and reliable data, the related governance and cultural implications of this fundamental shift are complex and challenging.
To meet these challenges, companies need to leverage technology that is adaptable to different frameworks including all the necessary integration capabilities with internal systems. A future-proof solution that meets today’s reporting and ESG management needs, while also incorporating additional evolving regulatory requirements and others that may follow, is needed.
Looking beyond reporting
CSRD is in force and although the new sustainability reporting requirements may seem vast and onerous, the opportunity it provides to look beyond reporting and to explore new and innovative options is compelling. The need for an ESG reporting solution that is adaptable, scalable, and integrated is clear.
Dave O’Shaughnessy is Sustainability Reporting Partner at EY
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