The new CSRD (Corporate Social Responsibility Directive) is a rare win-win for both the citizen and the enterprise
The introduction of the new CSRD, which will come into effect on January 1, 2024, is one of those rare occasions where both the consumer/citizen and the enterprise can both emerge as clear winners.
As a citizen, it is obviously to be welcomed as increasing the degree of transparency needed from big business. This ultimately and in a more general sense should lead to better outcomes in terms of lower emissions and a cleaner environment, alongside the social and governance aspects of ESG reporting targeting a fairer society and benefitting local communities.
Its introduction should however also be celebrated by the individual enterprise and should not be seen as burdensome. The benefits for the enterprise include better risk management (as the impact of operations on local communities can be transparently accounted for), cost optimisation (as wasteful practices can be identified and remedied), decision-making facilitation, and improved confidence levels and reputation among both customers and investors.
The CSRD expands the scope of reporting required from that set down in the Non-Financial Reporting Directive (NFRD) and also the size parameters defining the companies required to report.
The Directive brings a great deal of standardisation to this area and broadens the scope of matters to be covered. In addition, clear ESG targets must be set and progress upon them published annually, while due diligence must be carried out on the impact of operations and of activities on supply chain partners. Again, the gaining of efficiencies should be seen as a win-win and not as a threat.
For those businesses whose commitment to building a sustainable future for all is not just a marketing opportunity, standardisation levels the playing field as making it harder to push unsubstantiated claims i.e. greenwashing. Businesses who have realised the importance (both for themselves and for society at large) of becoming greener and more sustainable shall now be guaranteed the protection of standardised reporting.
The European Commission has in fact found that over 50% of environmental claims to market products are in fact misleading and now looks also to regulate this area. Rules on carbon offset claims shall also be introduced.
Best-in-class businesses obviously should see this as an opportunity as the potential to further differentiate themselves from their competition is clearly apparent.
As our clients tend to be market leaders in their respective sectors, performing strongly on a level playing field can only serve to strengthen the image of the brand. Society demands more accountability from businesses on the impact they have on our communities and our planet. A bar has now been set and those who clear it shall reap their just rewards. Brand image is something that will increasingly be based around the meeting of independently-set standards, such as those envisaged by the CSRD and the European Sustainability Reporting Standards.
Similarly, at a more global level the implementation of the SASB (Sustainability Accounting Standards Board) Standards will require new reporting processes and procedures, roles and responsibilities, in addition to short, medium, and long-term goals, targets and strategies and greater co-ordination on non-financial disclosure, which works alongside the financial reporting process and particularly in some aspects that are covered in both areas of disclosure, such as personnel, suppliers and governance. The International Sustainability Standards Board (ISSB) have committed plans for building upon the SASB Standards and for embedding SASB’s industry-based standards development approach into the ISSB’s standards development process. This will allow companies to provide decision-useful information about a range of sustainability-related risks and opportunities to investors and other capital market participants.
Richard O’Connor, our founder, offered the following thoughts on these regulatory developments: “Having worked in the field of financial reporting for 20 years and having come to understand the value brought by the clear, concise and standardised reporting of objectives and results, I welcome the introduction of the same degree of standardisation to the area of ESG reporting, many areas of which are either common to the Directors’ Report to the financial statements or have a significant degree of cross-over. These topics now take on an even more important role in how companies will be measured and judged both by investors and by the consumer and society at large within the scope of their sustainability reporting.
An enterprise’s ability to clearly iterate and live up to their values becomes even more key – not just as an exercise in marketing, but as part of a process by which businesses are forced to decide what is truly important to them and upon which they must then deliver in a clear, transparent and measurable way.
We look forward to working even more closely with our clients to ensure that they make the most of the opportunities arising from this additional layer of disclosure.”