Leveraging CSRD beyond reporting - Part 1

The European Commission adopted on July 31st, 2023, the European Sustainability Reporting Standards (ESRS) which covers the full range of environmental, social and governance issues. This means that organisations subject to the Corporate Sustainability Reporting Directive (CSRD) will need to understand the impact of their activities on people and the planet as well as the sustainability risks they are exposed to. Forward-looking companies that go beyond reporting and take this as an opportunity to accelerate their sustainability strategy will gain a long-lasting competitive edge over the organisations that decide to merely comply with the new requirements. This article aims to provide guidance to ambitious companies that want to leverage CSRD beyond reporting and position ESG at the heart of their company strategy.

Step 1: Raising awareness with top management

Involving the leadership in developing an organisation’s ESG strategy can prove to be a challenging task. However, managing this process adequately can unlock untapped value for the company and its collaborators. Successfully onboarding the Board of Directors and Executive Committee in sustainability will indeed increase engagement and make it easier in the long run to obtain the resources necessary to implement ambitious policies. In this regard, the double materiality assessment is the perfect opportunity to educate executives and top level management and to highlight the importance of proactively managing ESG topics, since the results of the assessment must be signed off by the Board of Directors. Moreover, to further increase engagement and accountability, it is recommended to align executive compensation with the achievement of ESG targets. Finally, the previous steps should enable the organisation to create an ESG governance structure in which the individuals involved have clear responsibilities and KPIs.

Step 2: CSRD task force and gap analysis

CSRD touches upon many different topics and departments within an organisation, making it hard to engage and coordinate the relevant internal stakeholders. To facilitate the management of the project and ensure efficient collaboration and implementation, companies may first consider establishing a CSRD task force. As a second step, the organisation should conduct a gap analysis to understand what the differences between the currently available data and the CSRD requirements are. This can be achieved by comparing the provision of the CSRD with the information provided in the company’s publicly available documents, such as the Annual Report and Code of Conduct. Depending on the largest gaps identified, it is then essential to prioritise the actions to be taken and to create an action plan with a clear timeline. Furthermore, to continuously improve their practices, organisations are recommended to set ambitious targets, even in the areas where they already comply. Finally, independent of the readiness level of the company, it is essential to closely monitor the advancement of the company’s performance on the different topics covered by the CSRD.

As an expert in the domain, Finch & Beak can help you, in just 5 days, find out the largest gaps and define the right priorities to both comply with the regulations and leverage CSRD for strategic planning.

Step 3: Double materiality assessment and value chain analysis

Conducting a double materiality assessment has become mandatory under the CSRD. One of the new requirements of this approach is that organisations must disclose the main features of their upstream and downstream value chain including their position in the value chain, a description of the main business actors and their relationship to the company. Therefore, organisations must disclose which material impacts, risks and opportunities arise from their direct and indirect business relationship in the value chain.

This can seem like a complex exercise, especially for the companies which have many stakeholders, such as tier 1, 2 and 3 suppliers, distributors and customers. However, from a strategic perspective, the added value of understanding where, within both the value chain and the organisation, the largest impacts arise, is invaluable. If organisations manage to combine this knowledge with an understanding of the level of influence they can have on the different stakeholders, they will be able to focus their efforts to maximize ESG performance effectively and rapidly.

On top of that, organisations might uncover ESG risks that should be monitored closely and incorporated into the companies’ corporate risk framework. At the same time, organisations might discover easy to pursue opportunities, so called low-hanging fruits. Value chain analysis is thus an important step of the double materiality assessment which can unlock untapped ESG impact.

In Part 2 of this series, we describe the next steps to leverage CSRD beyond reporting and accelerate your organisation’s ESG strategy. In particular, we will touch upon aligning the reporting structure and formalising policies, strengthening the climate approach and preparing the first CSRD-report.

SLR provides support to help you comply with the CSRD

At SLR, we provide support for organisations as they prepare for CSRD, for example through materiality assessments, including a double materiality approach. If you are looking for support with your double materiality assessment or want to know more about how to link your risk management with sustainability, get in touch.