Leveraging CSRD beyond reporting: Part 2

With the legally binding Corporate Sustainability Reporting Directive (CSRD), the European Union will require almost 50,000 companies to disclose comparable and reliable ESG data, starting in 2024. This new directive, which aims to bring parity between financial and sustainability reporting, provides ambitious organisations with an opportunity to differentiate themselves and achieve long-term success. In the previous article, we discussed the first three steps to leverage CSRD beyond reporting, namely raising awareness with top management, creating a CSRD task force and performing a gap analysis and conducting a double materiality assessment and value chain analysis.

The accompanying download provides a comprehensive checklist of the recommended six steps to make sure organisations are on track on all fronts: complying with the CSRD while accelerating a company’s sustainability strategy and gaining a long-lasting competitive advantage.

Step 4: Aligning reporting, formalising policies and setting ESG targets

This step focuses on aligning companies’ reporting framework with the recommendations of the CSRD, implementing missing policies and setting company-wide ESG targets.

Organisations are advised to pursue the following guidelines:

• To fully capture the value of the double materiality assessment, integrate the freshly uncovered ESG risks into the company’s Enterprise Risk Management.
• Implement short-, medium- and long-term time intervals within the corporate risk framework as well as in the group’s overall strategy and objectives.
• On top of that, close the gaps on general disclosures (ESRS 1 & ESRS 2) and engage with topic owners to develop and disclose missing policies, such as the ones regarding the impact on local communities and biodiversity.
• Once these steps are completed, define ambitious targets and strategic KPIs which are in line with the material topics identified as well as the corporate strategy and stakeholder expectations.
• Finally, implement an ESG data collection and consolidation system across operations as well as a tool to monitor and report these data at group level.

Step 5: Strengthening climate approach

The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) provide guidelines to assess and report the risks and opportunities organisations encounter in the face of climate change.

As a first step, companies are advised to conduct a TCFD-aligned climate risk assessment, including a scenario analysis to identify and assess climate-related impacts, risks and opportunities under different climate- related scenarios, including a 2°C or lower scenario.

Organisations should then define the impact of such risks and opportunities on the organisation’s businesses, strategy, and financial planning and describe the resilience of the organisation’s strategy. As a next step, organisations are recommended to implement a detailed transition plan for climate change mitigation and adaptation and allocate funding to support the implementation of this plan.

Furthermore, organisations should quantify the potential financial effects from physical and transition risks and opportunities. Lastly, companies are advised to sharpen their climate targets by setting science-based Net Zero targets and having them approved by the Science Based Targets initiative (SBTi).

Step 6: Rolling out sustainability due diligence processes

The last step to leverage CSRD beyond reporting is to establish sustainability due diligence processes to assess social and environmental risks in the value chain and evaluate if the company’s approach to the management of impact is effective. Organisations are recommended to continuously engage with affected stakeholders to identify and evaluate the negative impacts on people and the environment.

Moreover, companies should ensure that steps are being taken to address and mitigate those negative impacts while tracking the effectiveness of these actions. Furthermore, it should be noted that the sustainability due diligence should be embedded within the organisation’s governance, strategy and business model. As a final step, organisations should prepare the reporting structure FY2024 in line with CSRD requirements.

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.