CSRD: High hopes and significant challenges

In February, we stated that 2023 is the year that sustainability reporting takes centre stage. On 20 April, Simply Sustainable Amsterdam brought together a group of sustainability leaders to discuss how robust sustainability reporting can strengthen and accelerate sustainability strategy development and execution.

Sustainability reporting takes centre stage

Reporting can be involved, take time and can require significant input from businesses. Done well, however, it can help companies decide where to focus their efforts and select the most impactful measures.

This year, sustainability reporting across the UK and Europe has captured the limelight because of the European Corporate Sustainability Reporting Directive (CSRD). Under the CSRD, more companies will need to report on a broader range of non-financial issues, in a more quantitative and standardised way. Moreover, its impacts will be felt well beyond the companies directly subject to the regulation. Smaller companies will receive requests from business clients to provide data and we already see that companies outside the EU are aligning their approach to sustainability strategy to CSRD guidelines, for instance by adopting the Double Materiality methodology.

In our roundtable discussion, participants discussed the advantages of the standardisation of reporting methodology and scope that the CSRD will bring. Participants felt it will make it easier to collect consistent and comparable data across companies, benefiting investors that need to demonstrate how sustainable their investments are, as well as governments that want to stimulate and monitor the uptake of sustainable practices.

As non-financial reporting becomes increasingly quantitative and standardised, companies may need to find other ways to communicate their unique sustainability story and company purpose. It was agreed by participants that this was important – as context is key when it comes to ESG and sustainability performance.

How can sustainability reporting data become management information?

As companies start to measure and report sustainability performance more systematically, they gain data that can be highly valuable for decision making as well as reporting. For example, one participant described how mapping resource use helped them prioritise sustainability measures. Another talked about the relevance of life-cycle assessment for sustainable product design.

Participants also recognised that the quality and reliability of sustainability data is often not as high as that of financial data. We saw a lively debate about the level of accuracy and reliability required to make good decisions and the risks of misinformed choices when reported data are based on assumptions or industry averages.

In the medium term, centralised systems for sustainability data exchange may reduce complexity of data collection and reporting and increase the scalability of solutions like life-cycle assessment.

Supplier engagement

Participants highlighted the availability of reliable sustainability data was their main challenge. It can be difficult to obtain accurate sustainability data from suppliers, and getting the data to perform a reliable life-cycle analysis requires significant efforts. For many suppliers, requests for sustainability data are new, and they may not yet be measuring what their clients request.

Participants discussed how the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) will drive more supplier engagement, especially on social issues. In addition, some expressed that the CSDDD presents an opportunity for European businesses to move whole value chains to more sustainable practices.

But this is not a quick fix. Engaging suppliers on sustainability is a multi-year process. It starts with developing and communicating a code of business ethics and a programme of responsible sourcing that includes data collection, audits and where needed, improvement plans. Only when all that is not successful, companies may decide to disengage with suppliers.

Making reporting work

As a widely experienced sustainability consultancy, it is our view that reporting is a critical element of a robust approach to sustainability. Having worked with major brands on sustainability reporting for more than a decade, we have seen how it can strengthen the credibility of an organisation and accelerate progress of its sustainability strategy.

Read Simply Sustainable’s ‘2023: The year ESG and sustainability reporting takes centre stage’ for an in-depth analysis of what is expected of sustainability reporting in 2023.

Author: Sytze Dijkstra, Netherlands Country Manager, Simply Sustainable

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