On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. For the past 15 months, we’ve been working with clients, based in and outside the European Union, on identifying what CSRD means for them and preparing for implementation.
But first, let’s go back to 2019 when the European Green Deal was unveiled. “Our goal is to reconcile the economy with our planet, to reconcile the way we produce, the way we consume, with our planet and to make it work for our people … this is Europe’s man on the moon moment,” said Ursula von der Leyen, president of the European Commission.
Sustainable finance plays a key role in delivering the European Green Deal and corporate sustainability reporting under CSRD is part of this. CSRD modernised and strengthened the rules concerning the social and environmental information that companies have to report (read my colleague Sara Marcus’s review of what CSRD means for you here).
From helping our clients prepare for this brave new world, we’ve learnt that CSRD is setting new standards across a range of areas and issues. So, what are they?
The Rise of Value Chain Mapping
The key to unlocking the full potential of CSRD is the “value chain map.” For many, “value chain” may have just been a fun business jargon phrase to throw around in a meeting to impress colleagues and clients up until now. Well, the CSRD is now here to find you out. The main question it asks is, “where does your value chain begin and end?” It is unlikely that many businesses have done a full mapping of their value chain and identify the boundaries around the different “chains” in their value chain. However, the CSRD practically mandates it if you want to perform well against the standards.
Mapping your influence across these parts of the business can be more than a compliance exercise, providing strategic insight from engagement with key internal and external stakeholders, encouraging valuable collaboration and ultimately delivering increased resilience.
It’s All About Thresholds
There has been a lot of attention to date about the introduction of a double materiality assessment as part of the compliance requirements of CSRD. But, one aspect that is often forgotten is the role of thresholds. The CSRD forces companies to set and disclose the threshold they use for the materiality of an impact, risk or opportunity. This may seem insignificant, but it is in fact a key change that will enable you to more firmly define business priorities.
Giving adequate thought to thresholds will help build the business case for investment as both short- and long-term business priorities come into sharper focus through a robust risk and opportunities assessment.
Don’t Hide the Negative Impacts
The CSRD expands the concept of “negative impacts” beyond usual suspects such as carbon emissions, pollution and discrimination to also include employee stress, consumers’ lack of information or absence of stakeholder engagement. What is groundbreaking is that business are now required to map these negative impacts and disclose them. This will be a significant change in thinking about groups such as clients, consumers, suppliers and local communities.
The time of solely disclosing actions with positive impacts is over. Businesses will have to face up to all their impacts, good or bad.
In the era of “greenwashing” and “greenhushing,” every sustainability claim is scrutinised. The CSRD will result in a lot of additional information for investors and other stakeholders to take in. It’s easy to imagine that this may lead to a corporate withdrawal on sustainability communications. We think the opposite will happen. The rigor of the CSRD actually provides business with the tools to be confident that they are addressing the most important and impactful issues and taking the necessary action to build a more resilient business. This could herald a brave new world of sustainability communications.
