From ‘ticking the box’ to value creation: takeaways from our CSRD seminar
Unfortunately, the context of our seminar is very urgent: climate change is happening at lightning speed. In the words of researcher Sybren Drijfhout, affiliated with KNMI, “It’s as if the Olympic record for the 100-metre run is suddenly set at 7 seconds.” From 9.63 seconds to 7 seconds in an instant: the rate of climate change is literally breaking all records.
The consequences are staggering. Over the past 40 years, extreme weather and climate events have caused losses of €487 billion in the 27 countries of the European Union alone. That is more than the total sum the EU spends on all its policies and programmes in two years. And of course, individual companies are also starting to feel the impact.
However, it appears that our companies are barely even basically prepared for climate risks. That’s what a survey by IMA® (Institute of Management Accountants) of company boards worldwide has shown:
It’s time to take action, then. Especially when you add growing stakeholder expectations to the economic risks and losses: attention to sustainability is increasing everywhere. Europe too wants to push companies in the right direction, which is why it introduced the Corporate Sustainability Reporting Directive, or CSRD.
With the CSRD, corporate sustainability will soon become obligatory in Europe. But the CSRD is more than just administration and box-ticking: it is also a powerful tool to transform your business. The CSRD not only requires companies to report on the past year, but also to look ahead and come up with a clear ESG roadmap, a transition plan, targets and policies. If you do this well, you can actually create value. Here, we’ll give you some indispensable tips.
A clear ESG governance structure is needed to oversee and strategically manage all impacts, risks and opportunities that are important to your company. Involve the highest levels of your company, ask them for a clear commitment, hold them accountable, and keep them involved along the way.
Then set up a steering committee, possibly working groups, and designate a person responsible for each focus area and an owner for each KPI. That will ensure that sustainability becomes an integral part of the entire organization.
At the same time, appoint one coordinator who oversees the whole ESG story. That person should be well aware of what requirements apply to your organization, in addition to the CSRD. After all, the CSRD does not stand alone. Europe deliberately embedded it in a broader set of policy frameworks and internationally recognized instruments.
The most important ones:
Consider the CSRD as a kind of additional layer on top of existing (European) legislation, such as various thematic laws and regulations in the environmental domain. You should consider those if those topics are deemed material based on your analysis. For instance, the biodiversity standard is linked to the EU Biodiversity Strategy and the Kunming-Montreal Global Biodiversity Framework, among others.
An analysis of your company’s double materiality – determining impacts, risks and opportunities related to ESG – is the starting point of your CSRD trajectory. Double materiality provides the focal points for your future strategy, taking into account the interests of your company, its stakeholders and the planet. And it determines which topics, information and data points you will later have to include in your sustainability report.
The reporting standards provide an overview of common topics (overarching themes such as your stakeholder group ‘own workforce’), which you will subsequently break down in your materiality analysis into subtopics and sub-sub-topics (such as ‘working conditions’, which you can further subdivide into even more categories such as ‘health and safety’). For each of those topics, plus topics that you or your stakeholders bring up themselves, you examine whether they are material to your company or not. What turns out to be material is included in your strategy and reporting.
Keep in mind: it’s an art, not a science. There is no single right approach to the materiality analysis, although EFRAG is working on guidelines (called guidance documents) to this end. You can find more information on this in this article. At the same time, your materiality is dynamic: new developments in the market or changes in your organization affect your material impacts, risks and opportunities (IROs). It is therefore important to update them regularly.
The result of your materiality analysis – your material topics – forms the backbone of your sustainability report. But transparency about your processes and approach is also key. The CSRD and your stakeholders attach great importance to this. For instance, for various disclosure requirements, the CSRD imposes a meticulous description of how you set to work: your target-setting, determination of KPIs, etc.
This insight into your processes is also necessary for the mandatory audit of your report.
With targets, you indicate which topics from the materiality assessment you want to focus on as a company, and how you will deal with them. Targets define your way forward and are the guiding principle of your ESG roadmap. Determining, delineating and defining them correctly is therefore crucial.
We strongly recommend drawing up a draft list of targets first. To do so, consider various criteria, such as: What targets did we set in our previous strategy? What targets do our competitors set? Which path is taken in sectoral reports? What does the CSRD expect from us and our stakeholders?
Couple at least one target to each material topic. The targets can be short-, medium- and long-term. Preferably, opt for absolute targets instead of relative ones. And also dare to extend your efforts to your value chain: targets can apply not only to your own activities, but also those of your suppliers.
As soon as you have your first draft of the targets, it is crucial to gather the right people: people with the right authority, people with different types of expertise, and people from the working group in question. Together you discuss the feasibility and desirability of the proposed targets. For which target can you aim higher?Which proposal turns out not to be feasible after all?
When all the discussions and bilateral conversations are behind you, make sure to have the final list of targets validated. Do this at different levels: the working groups must be able to link realistic action plans to the targets, and experts must have their say. The final validation is given by the CEO and the board.
Finally, couple clear KPIs to your targets. Document who will be the data owner, and how each KPI will be calculated. Also make this clear for your internal processes; these will also be important elements for the mandatory audit.
Informing your stakeholders is at least as important as documenting your journey. Because not communicating is basically saying you don’t care about sustainability. By communicating internally and externally about your trajectory – via the intranet, blogs, the newsletter, awareness campaigns, etc. – you include everyone in your story and increase your impact.
Some tips to make your sustainability communication a success:
The CSRD’s obligations can be overwhelming. Due to its size, it is not possible to become compliant in a single year. It is wiser to tackle it thoroughly and step by step.
For some of our projects from last year, we set the following timeline. Do you still have to get started? We are happy to help you map out a feasible trajectory with a realistic lead time.
2025 is tomorrow. So start preparing your report today: with thorough analysis and a strategic exercise. Our advice: prepare a first sustainability report as soon as possible, even if it is not yet 100 percent CSRD-proof. That way, you can see where you stand, which gaps still need to be filled, and so on.
Ready to put your money where your mouth is? We will help you along every step of your sustainability journey. Contact us at mail@pantarein.be.
