Simply Sustainable’s Amsterdam office kicked off 2023 with our first sustainability leaders’ roundtable meeting. The lively discussion addressed the sustainability issues that will affect businesses in Europe in 2023. We saw extensive exchange of views and experiences between peers, looking forward to a year of empowerment and change. 

Sustainability Manager is a 360-degree role

The enormous momentum behind sustainability is only expected to build further in 2023. There is an increasing demand on sustainability managers to provide practical solutions. Participants told us that many colleagues – especially those from the younger generation – come to the sustainability manager proactively with ideas (big or small) and then wish to be part of the transition, as well as board members fighting to have a piece of sustainability in their remit. 

This is great news. However, in many organisations, the interest and urgency of sustainability surpasses maturity and capacity. 

This imbalance is most acutely felt by sustainability managers. Theirs is becoming a 360-degree role, in which they are expected to communicate and manage to colleagues upwards, sideways and downwards, and manage stakeholders all around the business. They must work strategically as well as operationally to realise their agenda. All while the scope of their work is broadening, beyond the traditional focus on environmental issues to include social and governance topics.  

Why the CSRD is sexy

The EU Corporate Sustainability Reporting Directive (CSRD) has made it much easier for sustainability managers to engage people in the organisation on sustainability. Timelines for compliance are short, and the bar is high, so many in the company recognise that preparation must start today. 

Participants see that colleagues are looking to them, as the sustainability manager, to translate the complexity of the CSRD into a clear, step-by-step plan for the business.  

We talked about the challenges of involving and empowering internal stakeholders in the short time span for CSRD compliance. Companies run the risk of going down a narrow route to compliance, missing the value that CSRD preparation can have for future-proofing the sustainability strategy. If full focus is on gathering the data for reporting, opportunities to engage in dialogue about the strategic implications of sustainability topics and how they are best addressed may fall by the wayside.  

Sustainability data is management information

Preparation for CSRD accelerates the need for comprehensive and robust measurement. While new regulatory guidelines clarify what should be measured – previously companies had to find this out for themselves – it does not make data collection and validation any easier.  

Many companies have been looking for the best system for capturing and managing sustainability data. Should they choose a new Environmental, Social and Governance (ESG) tool – of which there are increasingly many available? Can the financial reporting system be extended to include sustainability data? Or are there tried and tested Environment, Health and Safety (EHS) systems that are expanding into this space? There are many solutions out there, but companies find it very hard to judge which are robust and trustworthy. 

As a widely experienced sustainability consultancy, it is our view that sustainability data should be management information and not only be used for reporting. This points to an integrated solution, that brings together financial and non-financial data for informed and balanced decision making. There is a huge need, and we are actively watching this fast-moving space to best advise our clients.

Author: Sytze Dijkstra, Netherlands Country Manager, Simply Sustainable

Download Simply Sustainable’s 2023 ESG & Sustainability Trend report for an in-depth analysis of how sustainability will shape the corporate agenda this year.  

If you are interested in receiving our reports or joining a future Sustainability Leaders’ roundtable, please contact us. 

Beyond reporting: How companies can use the CSRD as an accelerator of their sustainability agenda

The future of corporate sustainability reporting is taking shape. At the end of November 2022, the European Union Council gave its final approval to the Corporate Sustainability Reporting Directive (CSRD)¹ and the European Financial Reporting Advisory Group delivered the first set of draft European Sustainability Reporting Standards (ESRS) to the European Commission.² With these measures, the EU aims to accelerate the transition to a sustainable economy.

Under the new CSRD regulation, companies will soon be required to publish detailed information on sustainability matters. This will increase a company’s accountability for its impacts on the environment and society, and provide financial institutions with comparable, verified information on sustainability performance that should facilitate allocation of finance to sustainable activities.

The measures should also equip companies for implementing their own sustainability agenda. They can only make progress if they know where they stand – relative to their ambitions as well as their peers – and where they can improve.

What does CSRD compliance entail?

CSRD extends the scope and detail of the current Non-Financial Reporting Directive (NFRD). It will apply to all large EU and non-EU companies (listed and non-listed) operating within the EU market.³ Companies subject to CSRD will need to:

• Disclose principal actual or potential impacts related to the company’s own operations and the implementation and outcome of the due diligence process of the company’s value chain
• Describe the role of management boards and supervisory boards regarding sustainability matters
• Disclose set time-bound targets on sustainability matters and report on the progress of achieving such targets (KPIs)
• Assess and report both impacts of the company’s activities on sustainability matters and on sustainability matters affecting the company (the double-materiality principle)
• Obtain limited assurance opinion by a statutory auditor of reported sustainability information.

However, CSRD is about much more than just reporting

Preparing for CSRD compliance will force companies to revisit their strategic focus and bring a greater systematic approach to corporate sustainability, using common standards and frameworks. The required double-materiality assessment, for instance, can identify important topics that have previously been overlooked in corporate strategy and risk management. Target setting, as prescribed by the regulation, often kicks-off a process of redesigning performance management, defining new KPIs and setting up new systems and processes for measuring and monitoring progress.

CSRD compliance is a multi-year journey

Companies need to start planning their journey to becoming fully compliant by the time the Directive is mandatory to them, ranging from between 2024 to 2026. That may appear like a lot of time, however getting all the required elements in place will be a significant exercise for many companies.

Fortunately, many elements of the CSRD build on existing standards, including the GRI framework and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and there is an increasing body of experience of how to apply these robustly.

Even with existing guidance, much of the detail is still to be defined. Experience suggests that general, cross-industry standards need industry-specific guidance to account for sectoral differences.

Assessing the impacts of business activity will be very different in sectors where assets are mostly intangible, in comparison to in an industry that has substantial tangible assets. Appropriate governance structures in highly competitive industries may not be suitable for regulated industries. There is also a steep learning curve in creating standards for linking sustainability performance metrics to accounting metrics like CAPEX, OPEX and turnover, as prescribed by the EU Taxonomy.

Figuring all of this out will take time and close collaboration between companies and regulators, value-chain partners and industry bodies. It will get easier as practice builds, with companies benefiting from the learning experience of early adopters.

An historic opportunity

CSRD will be challenging to implement at pace within corporations and across value chains. It is also an historic opportunity to lean-in and tool-up for a more sustainable future.

Importantly, companies should look beyond regulatory compliance when preparing for CSRD. Next to gathering information for providing accountability externally, companies must create decision-ready data that guides a shift in corporate practices, and in turn delivers real-world impact.

What does this mean in practice?

• The assessment of material sustainability issues, risks and opportunities is fully integrated into business strategy and risk management processes, and is not a paper exercise for reporting purposes only
• Targets come with execution plans that lay out the journey of meeting them, in realistic, practical steps
• Communication internally to employees is as important as communication to external stakeholders. Employees are the primary agents that will deliver sustainable business in practice, and many are eager to do so.

Approached with this mindset, preparation for CSRD can be an accelerator for delivering corporate sustainability goals, rather than a time-consuming distraction. Done correctly, it will help large companies secure the long-term resilience of their business and of the environment that it depends on.

How Simply Sustainable can help

Our growing team of expert sustainability and ESG consultants are here to enable your company to adapt at pace to the changing landscape of sustainability legislation and transformational plans towards our shared goal of net-zero.

Book a call back to discuss your strategy here

1. www.consilium.europa.eu/council-gives-final-green-light-to-corporate-sustainability-reporting-directive
2. www.onetrust.com/efrag-eu-sustainability-reporting-standards
3. A company is considered ‘large’ and subject to the CSRD if it meets two out of three criteria: (1) revenue over EUR 40 million; (2) total assets over EUR 20 million; (3) more than 250 employees.

The 15th Conference of the Parties (COP15) to the Convention on Biological Diversity (CBD) aims to agree on a post-2020 Global Biodiversity Framework with targets for nature over the next decade. The first session took place virtually in October 2021, resulting in the Kunming Declaration, which lays down a commitment to reverse biodiversity loss by 2030. The concluding session kicked off on 7 December 2022 in Montreal and has the potential to be the Paris Agreement for Nature, setting the agenda for change.

Convention on Biological Diversity

The CBD is a landmark treaty established at the 1992 Rio Earth Summit. To date, 196 UN member states have ratified the convention and helped biological diversity gain recognition as a global asset¹. The CBD has three key objectives: conserve biological diversity, ensure sustainable use and uphold the fair and equitable sharing of the benefits.

Every two years, member states meet to discuss progress against these objectives. At the tenth conference (COP10), the Strategic Plan for Biodiversity (2011-2020) was developed, with the flagship Aichi targets. The Aichi targets had five core objectives supported by twenty targets to reduce biodiversity decline and address the underlying causes. Of those targets, none were fully achieved and only six were partially achieved².

Although the world failed to meet previous targets, there are lessons to be learnt, and a foundation for the development of a new robust Paris Agreement for Nature has been set.

What does COP15 mean for businesses?

Wildlife populations have plummeted by 69% on average since 1970³. Biodiversity is a fundamental component to long-term business survival. Nearly all sectors are affected by and rely upon ecosystem services for critical inputs and depend on healthy ecosystems to maintain soil and water quality. Over half of the global GDP, $44 trillion, is estimated to be threatened by nature loss.

The first draft of the post-2020 biodiversity framework includes 22 targets⁴. Target 15 expects all businesses and financial institutions to assess and report their dependencies and impacts on biodiversity, reduce negative impacts by at least half, and increase positive impacts⁵. This is to reduce risk and move towards more sustainable business models and practices.

It is anticipated that the forthcoming Task Force on Nature-related Financial Disclosures (TNFD) will facilitate the implementation of this target. Like the Task Force on Climate-related Financial Disclosures (TCFD), there is potential for governments to make nature disclosure mandatory and there is a building case⁶.

The #MakeItMandatory campaign brings together more than 300 companies calling on governments to make the disclosure of nature impacts and dependencies mandatory for large businesses and financial institutions⁷. The motivation for this is the increasing financial risk resulting from the dependency on nature for operations, changing consumer demands and legal action from regulatory change. But beyond risk management also lies vast opportunities for businesses and the finance sector. Mandatory nature reporting has the potential to engage investors, empower consumers and, most importantly, accelerate action. Evidence has shown that disclosure generates business action and is the bedrock of environmental action.

COP15 and beyond

COP15 is a significant moment for global environmental protection and will mark the start of a decade of action. It is crucial that key decision-makers use the failures of the Aichi targets to ensure history does not repeat itself and that the new framework is inclusive of all stakeholders. If we fail to stop the decline of biodiversity, it will have severe consequences for our global systems. The challenge of halting loss can feel insurmountable, but our fate is not yet sealed.

Author: Lauren Hyatt, Consultant at Simply Sustainable.

1. https://www.cbd.int/information/parties.shtml
2. https://www.cbd.int/gbo/gbo5/publication/gbo-5-en.pdf
3. https://livingplanet.panda.org/en-GB/
4. https://www.cbd.int/doc/c/abb5/591f/2e46096d3f0330b08ce87a45/wg2020-03-03-en.pdf
5. https://www.cbd.int/doc/c/abb5/591f/2e46096d3f0330b08ce87a45/wg2020-03-03-en.pdf
6. https://framework.tnfd.global/
7. https://www.businessfornature.org/make-it-mandatory-campaign

Today, it is now widely acknowledged that companies cannot tackle the climate and nature crises without bold action. The arrival and ongoing development of corporate science-based targets (those in line with the ambition to keep global temperature increase below 2°C and ideally to 1.5°C above pre-industrial temperatures) has crucially set the minimum standard for climate action. Despite this, a significant quantity of greenhouse gas emissions still remain outside of companies value chains, presenting the need for companies to drive net-zero beyond the company boundary.

At Simply Sustainable, we help companies to deliver socially inclusive decarbonisation actions, mitigation measures and investments to avoid, reduce and then remove greenhouse gases that fall outside of the company’s direct value chain. This is referred to as ‘beyond value chain mitigation’. Importantly, such actions play a key role in reducing the emissions gap between today and our global net-zero target date of 2050.

At present however, there is an absence of clear industry guidance on beyond value chain mitigation. The SBTi (Science Based Targets initiative) for instance, is anticipated to release further guidance in 2023 whilst sector specific methodologies are underway. In the meantime, companies must pursue credible mitigation efforts to ensure a chance of achieving global net-zero in-line with the Paris Agreement.

To deliver credible beyond value chain mitigation, companies must consider near-term and long-term targets, align to the wider company strategy and values, and consider innovation and knowledge gaps in the achievement of net-zero. Additionally, such measures should be monitored and reported at least annually with minimum expectations to disclose the nature and scale of involvement, monetary contribution and value realised.

Here’s just a few examples of how we can support beyond value chain mitigation for your company:

• Delivering credible, socially inclusive net-zero strategies (with beyond value chain mitigation)
• Conducting just transition assessments to understand opportunity areas for socially inclusive partnerships to deliver net-zero
• Advisory on carbon offsetting and the purchase of high-quality, jurisdictional carbon credits (including nature-based solutions)
• Driving climate finance by setting an internal price of carbon and calculating the social cost of carbon of your business
• Developing research and development plans and opportunity metrics and targets for new climate solutions
• Assessing and improving climate skills, training and education to deliver decent and green jobs, education, skills, training and re-training for all.

By considering beyond value chain mitigation with foundational principles of social inclusion, fairness and equity, we can support companies to ensure no one is left behind as we strive towards net-zero. Ultimately, we can and must work together to collaborate and partner to deliver co-benefits for nature and people.

Fair tax systems are vital to enhancing public trust and to achieve a modern, sustainable and inclusive economy. Currently, the world is focused on the environmental and social consequences of what businesses do and are calling organisations to respond in a way that demonstrates positive impact. Tax reporting is an area that brings elements of environmental, social and governance (ESG) performance to life, with leaders preparing for a more transparent tax world. Tax transparency is a topic that has seen rapid change in recent years and recent scandals have highlighted the need to retain public and stakeholder trust. Simply Sustainable have a strong focus on addressing the most complex issues and opportunities our clients face. By combining our expertise and commercial mindset, we work to achieve your business goals.

Simply put, to stay competitive in the market, businesses must respond to the increased focused on tax strategies, policies, reporting and risk management in connection with responsible investment. Our approach is underpinned by these four principles:

Good governance

It is important to know that tax lies within both ‘S’ and ‘G’ of ESG. So, what is the most effective way the tax function of a company be managed and governed that upholds social and moral values?

Corporate tax is becoming a reputational risk that companies must consider and is a means for stakeholders to evaluate if companies are paying their ‘fair share.’ This impact is seen on a local and international scale, with “unfair tax” depriving the low and medium Human Development Index countries of an estimated $100 billion per year.³ To follow through with good governance, a company must follow the general business and human rights logic and hold social and economic rights as a key obligation to operations. This means putting in place the right policies and processes to assess the impact of a company’s behaviours and minimise the potential harm done by irresponsible tax behaviour. These should all be measured for effective due diligence and robust impact assessments.

Transparency

Taking a responsible approach to tax means that a company is open, progressive and considers all stakeholder interests – including taxpayers, communities, governments, lenders and the financial community.¹ So, understanding tax from a social perspective means questioning how much tax is being paid and where, and what are the global tax strategies being undertaken by companies?

While pressure in different geographical regions varies, the consensus from the global stakeholder community is for companies to reflect on their contribution to society. Voluntary approaches included engaging with disclosures in Global Reporting Initiative (GRI)⁴, Fair Tax Mark accreditation, B Corp certification and the work done by Principles for Responsible Investment (PRI) such as the Engagement Guidance on Corporate Tax Responsibility and Investors’ Recommendations on Corporate Income Tax Disclosure.⁵

Companies will already be aware of mandatory requirements in certain regions and sectors. These include country by country reporting (CBCR) in the EU Accounting Directive, public country-by-country reporting (pCBCR) Directive, UK Tax Strategy Disclosures and Base Erosion and Profit Shifting Project (BEPS) for certain OECD countries.

Engagement with Tax Authorities

Even if a certain regions tax regulations are unchanging, a company may still be subject to stringent regulation by tax authorities. Tax authorities are taking a more proactive enforcement to reduce the exploitation of international tax frameworks. Need for transparency and better disclosure has been the focus for global bodies such as the World Federation of Exchanges – include tax transparency as ‘material ESG metric for reporting’; International Accounting Standards Board (IASB), International Financial Reporting Standards (IFRS) Foundation – work on independent standard-setting on tax disclosures; and the International Federation of Accountants (IFAC).⁵

 Tax risk management

Tax-related risks extend beyond short-term earnings, so companies should be proactive to changes in their business environments to tax rules. This may include being aware of incentives the company may take advantage of, reputational and brand risk, societal risk from aggressive tax strategies and challenging complex strategies. In addition, a company should understand the potential impact on key stakeholders to understand any long-term risks.

How Simply Sustainable can assist

Many recommendations from all actor groups share the same difficulty: how to distinguish between acceptable and unacceptable tax practices. To address this, Simply Sustainable follow the above four principles to develop an approach for our clients that embraces responsible tax. Our goal is to arrive at the correct tax metrics to support the overall ESG goals to achieve commercial success and wider stakeholder buy-in.

¹ B Team. Why responsible tax belongs on the ESG agenda.

² Fair Tax. About us.

³ Oxfam. Endless corporate tax scandals.

⁴ GRI 207. Tax 2019.

⁵ PRI. Advancing tax transparency: outcomes from the PRI collaborative engagement.

Here is what we know. More than half of global economic output, a total of US$44 trillion of value generation, is moderately or highly dependent on nature.² Every dollar invested in nature restoration creates up to US$30 in economic benefits.³ And alarmingly, £300 billion of UK pension money is invested in companies and financial institutions that are exposed to high deforestation risk.⁴ Clearly, Earth’s ecosystems have massive value. But these systems are in jeopardy due to an unprecedented onslaught of human-induced biodiversity loss.

‘The sectors that are most immediately likely to be affected by the depletion of natural capital are those that exploit it most directly.’ – Mike Scott

Nature’s warning calls are at extreme levels. Global numbers of mammals, birds, fish, amphibians and reptiles have dropped by an average of 68% since 1970.¹ Biodiversity loss and collapse of ecosystems from human-made damage has been widely recognised as an existential global threat. Despite the efforts of international economic and financial organisations to draft elements of nature into their growth models, there is still an absence of nature as an essential entity in our economic lives.

What is TFND and why should businesses engage and disclose with prior to release?

It is undeniable that a nature-positive approach to doing business is urgently required. Following the steps of the Taskforce on Climate-Related Financial Disclosures (TCFD), the Taskforce on Nature-related Financial Disclosures (TNFD) acts on behalf of nature. The Taskforce’s approach strikes a balance between science and market participants for clear, transparent, and comparable information. Decision-making can place nature-related risks front and centre, capital reallocation can be catalysed to protect and restore nature. By fostering knowledge, sharing and collaborating on nature-related risks and opportunities, the TNFD creates and delivers a risk management and disclosure framework for organisations of all sizes. The plan is to guide financial institutions and companies to act on evolving nature-related risks, as well as to identify opportunities that ultimately shift global financial flows to nature-positive outcomes. On the release of their second prototype framework, the TNFD outlined overall guidance and illustrative metrics to be consulted by global stakeholders with the inaugural framework being released towards the end of 2023.

Core concepts include:

• Metrics and targets that include a cross-sector approach
• Additional guidance materials to assist market participants
• Nature-related risk and opportunity assessment for financial institutions

Importantly, it is possible for companies of all sizes to engage in nature and biodiversity to promote innovative solutions to a global problem. To ensure success, it is vital to focus on internal drivers and recognise an organisation’s impact from the outset. Nature can be included across all aspects of ESG with the social aspects reflected in business through the conscious creation of urban biodiversity as well as nature-related employee perks.

So, what is on the horizon for businesses, financiers and nature-related risks and opportunities?

As the business community is navigating its expanding role as a key driver of sustainable growth, there is a broad range of market-led, science-based measures to take. By acknowledging that people are part of nature, businesses can engage from a range of aspects across the full spectrum of environmental, social and governance (ESG).

Since the time for action is now, there is an increasing number of leading companies recognising that a prosperous business relies heavily upon nature. However, businesses will be at different stages in their journey to nature net gain – an approach outlined by TNFD to managing an businesses impact that leave the natural environment in a measurably better state than it was beforehand.⁵ Larger companies will already be reporting nature-related metrics and targets against current ESG frameworks that include GRESB, Global Reporting Initiative (GRI), and non-GHG pollution. For smaller companies, there are many waves to move nature to be the centre of their brand. By engaging with restoration projects on a corporate level and introducing sustainability into procurement strategies leading to reduced impact on natural resources and greater engagement by working with suppliers that meet circular economy targets.

As has been done with climate in the past, these efforts can be built upon by embedding nature into governance through introducing nature into risk management. Recognising the high material financial risk that nature loss poses, it is important to integrate this exposure into decision-making to locate risks and opportunities. Transition opportunities will be high on the agenda, especially relating to evolving markets and policy. A robust understanding of the physical and financial risks and opportunities can guarantee subsequent control measures will be implemented in a timely manner. In light of the Green Claims Code, there is great potential to be transparent about diversifying portfolios into the growing market of green finance and taxation.

At Simply Sustainable, we understand that putting things right will take collaborative action to enable the natural world to flourish abundantly. Our work includes supporting international businesses from across the economy to align their reporting to current disclosure and frameworks related to nature through GRI, GRESB, and communication reviews. We welcome the market-led science-based TNFD framework to promote year-on-year improvements on a company’s journey to full disclosure.

¹ World Wildlife Fund. Living Planet Report.

² UN Environment Programme. Cutting Edge Biodiversity Module.

³ UN Environment Programme. Ecosystem Restoration for People, Nature and Climate 2021 Report.

⁴ Global Canopy Organisation. UK pensions.

⁵ UK GOV. Biodiversity Net Gain.