The landscape of corporate sustainability reporting is undergoing a profound shift with the introduction of the European Union's Corporate Sustainability Reporting Directive (CSRD). With the CSRD extending its reach to encompass a significant number of entities previously exempt from such obligations, including those with substantial operations within EU jurisdictions, over 50,000 companies are expected to adhere to its rigorous reporting requirements. This directive, accompanied by the European Sustainability Reporting Standards (ESRS), mandates detailed reporting on a broad spectrum of sustainability topics, necessitating a 'double materiality' approach that considers both financial and societal impacts.
Yet, amidst the challenges lie unprecedented opportunities for value creation and long-term resilience. By leveraging trusted expertise and technology, organizations can maximize the benefits of compliance efforts, transforming CSRD into an opportunity for sustainable business growth and long-term value creation.
In a recent webinar, experts in sustainability and compliance from Persefoni, ERM, and Workiva gathered to provide insights on what this regulation means for companies. Vice Chair of EFRAG’s Sustainability Reporting Board and Persefoni SAB Member Kerstin Lopatta provided a high-level overview of the CSRD, outlining practical steps businesses can take to get ready for the new requirements. The discussion that followed, led by Paul Dickinson, Founding Chair of CDP and Persefoni SAB Member, focused on how strategic reporting can unlock value and prepare organizations for regulatory scrutiny.
Here are five key takeaways from their conversation.
1. CSRD compliance is an evolving journey.
Lopatta noted that each company will have to determine the best path forward for reporting under the CSRD. You can go all in right away or tackle disclosure in bite-size chunks.
Lopatta explained that the CSRD was set up this way intentionally so that businesses can approach compliance according to their needs. Companies have a choice to meet the minimum requirements for compliance, or go above and beyond the guidelines and set themselves apart from their competitors. Ambitious businesses can use CSRD compliance as a starting point but then dive deeper into value creation.
For companies grappling with where to put their time and energy as a result of the new reporting obligations, Pierce recommended going back to the basics. ‘What have we reported on in the past?’ And ‘What matters to our business?’ are the kinds of questions to ask before tackling bigger questions, like ‘What haven’t we reported on in the past but will need to in the future?’ Once those questions are answered, companies may begin moving through more advanced steps of execution — adding rigor and controls to the reporting process.
2. Each company’s approach to disclosure will vary, but the core journey and success factors are the same.
While CSRD reporting will vary from industry to industry and company to company, there are some common principles and best practices. As Dickinson noted, an organization’s evolution in sustainability disclosure practices is a journey. The five stages of this journey are:
Stage 1: Understanding and Awareness
In the initial stage, companies want to answer questions such as, “If I’m not headquartered in the EU, will the CSRD affect me?”, “What’s my consolidation scope?”, and “Which of my legal entities do I have to cover with the reporting?”
To map out a plan, it’s helpful to first understand the key elements of the CSRD.
Stage 2: Double Materiality Assessment and Gap Analysis
The second stage of CSRD execution involves the double materiality assessment, an evaluation to determine whether data has financial materiality, impact materiality, or both. This “inside out” approach considers the influence that climate change has on a company, as well as how that company impacts the world.
Weicht described the second milestone as the point at which a company creates a “response plan” that includes a target operating model, or a blueprint for how best to engage all of the different elements of a business to meet the organization’s goals.
Stage 3: Data Collection, Management, and Transformation
A company enters the third milestone and implementation stage of CSRD execution when it has begun collecting data, and is digitizing the information. This stage is crucial. Data, including emissions calculations, must be reliable, and, to meet assurance requirements, you need to be able to show your work. This milestone also includes change management and internal controls, Weicht added.
Stage 4: Assurance and Disclosure
This is the stage at which a company would prepare and submit its inaugural CSRD report. By this stage, you will ideally have already collected data in a traceable, transparent manner that creates confidence and facilitates the assurance process.
Stage 5: Continuous Improvement
In the final stage of CSRD execution, a company moves from engaging with mandatory climate disclosures as a first-time project to a process complete with standard operating procedures.
3. Companies that approach CSRD disclosure through a value-creation lens stand to benefit.
For Weicht, the secret sauce for disclosure success is acting in the “spirit of the law” rather than the “letter of the law. The former is what separates leaders from compliers and translates into a competitive edge in a market that rewards sustainable businesses. The level of ambition at which companies approach compliance unlocks success and value-creation opportunities. This value creation can take the form of business resilience, access to capital, operational efficiency, innovation, and talent acquisition and retention.
Weicht warned about the importance of complying early, since CSRD disclosures will affect a company’s ESG rating as well as its financial rating, as the two will inevitably become intertwined in the future.
Wood emphasized the importance of disclosure in access to capital. A company that can demonstrate it has a solid climate transition plan will likely be more appealing to lenders and investors. Finally, Wood underscored that CSRD reporting is not only a compliance exercise, but an opportunity to drive real business value — and companies should not wait too long to start preparing. “Do get started when you are able, as soon as you are able,” Wood advised.
4. Companies should understand how the CSRD aligns with other regulations they’re subject to.
The CSRD provides context for legislation that is taking effect elsewhere, including California's SB 253 and the US Securities and Exchange Commission (SEC) Climate Disclosure Rule. Pierce explained that the focus of the SEC Climate Disclosure Rule is "identifying climate-related financial risks for the purposes of use by investors to inform their decision-making” and affirmed that there is “a tremendous amount of overlap” between the SEC Climate Disclosure Rule and the CSRD.
She also named the differences between the two: primarily, that the policy-driven approach in Europe and California serves a broader audience. The other significant difference is that the SEC isn’t requiring companies to report scope 3 emissions. For companies reporting in the EU and California, scope 3 reporting from supply chains adds an extra layer of challenge, and reliable carbon accounting tools become even more essential.
“Calculating on spend-based data will only get you so far. Truly accounting based on activity data and primary data and allocating it across your corporate structure requires an accounting platform. And that’s going to be necessary to manage these complexities, particularly across borders,” Pierce said.
5. Find the right trusted expertise and technology to effectively navigate your journey and build repeatable, embedded solutions alongside increased internal capacity.
In a poll taken during the webinar, the majority of participants (52%) reported that gathering sustainability data was their biggest challenge.
Weicht added that insufficient resources create another obstacle for companies subject to climate disclosure.
Fortunately, technology exists to automate carbon accounting and make the disclosure process more efficient and effective.
Pierce identified two main buckets of value creation afforded by using a carbon accounting tool like Persefoni: Operational expense reduction and new revenue opportunities. In today’s markets, broad consumer demand for lower-carbon products creates an opening for businesses that can demonstrate they are reducing their carbon footprints.
Using software to automate data tracking frees up human personnel to tackle other important work, Pierce pointed out – including implementing decarbonization strategies.
Navigating CSRD: A Path to Value Creation
CSRD compliance presents a unique journey for each company, yet the fundamental success factors remain consistent. By adopting a value creation lens, companies can leverage CSRD as an opportunity to maximize long-term value through sustainable business practices. To effectively navigate this journey, it's crucial to partner with trusted experts and leverage innovative technologies like Persefoni, ERM, and Workiva. Together, these partnerships offer robust data, unparalleled expertise, and transformative ESG technology solutions, empowering companies to build repeatable, embedded solutions and drive meaningful impact.
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