Summary: This article explores the evolving nature of sustainability regulation, and how UK and EU businesses can ready themselves for major reporting requirements such as the Corporate Sustainability Reporting Directive (CSRD). It offers insights into how to grapple with sustainability reporting, turning a potential challenge into a strategic business advantage.Â
The landscape of regulations, policies and frameworks governing sustainability reporting is rapidly evolving, from CSRD compliance for European businesses to IFRS S2 climate-related disclosures (superceding the TCFD). Offering businesses unique opportunities to showcase ESG prowess, it also creates a dual-edged scenario that means visibility of any shortcomings is amplified to governing bodies, customers, partners, and investors. As a result, there is a critical need for companies to stay abreast of changing standards and to adopt strong sustainability practices and reporting tools, transforming potential vulnerabilities into competitive strengths.Â
Whichever European country or countries a business is operating in, be it the UK, Germany, The Netherlands, France, or beyond, there is a raft of global, supranational, and domestic considerations to address. This requires a rigorous approach to the management of sustainability data. From collection to management to reporting, businesses need a future proofed technology-based solution that can seamlessly evolve as regulations do, automatically integrating complex data across teams, sites, and platforms to simplify and safeguard responses. Â
In this article, we start by taking a closer look at the introduction of the Corporate Sustainability Reporting Directive (CSRD), which marks a significant shift in European sustainability reporting; before looking at what both UK and EU companies need to think about beyond this. To find out more on why CSRD matters for UK businesses specifically, visit this article.Â
So, CSRD: As companies gear up to align with these expanded requirements, understanding the intricacies is crucial. Â
Key Considerations for CSRD Compliance
1. Getting to grips with the scope and compliance
The CSRD is an EU directive that aims to improve the consistency and comparability of sustainability reporting across the European Union. It expands the scope of requirements for large companies and introduces them for listed SMEs (small and medium-sized enterprises), making sustainability reporting more widespread. This expansion requires sustainability data to be collected and managed with the same accuracy and rigour as financial reporting, which can be daunting for companies unfamiliar with these standards.Â
Additionally, non-compliance with the CSRD can have far-reaching consequences, ranging from legal repercussions based on the national laws of EU member states to significant reputational risks. It’s essential for companies to thoroughly grasp these requirements to avoid potential sanctions and maintain their credibility.
2. Integrating European Sustainability Reporting Standards (ESRS)
The ESRS are developed by the European Financial Reporting Advisory Group (EFRAG) to operationalise the requirements of the CSRD. They provide guidelines and metrics for sustainability reporting, serving as a practical framework for CSRD compliance while enhancing the comparability and reliability of sustainability information across different companies and sectors. To meet the requirements of the ESRS, businesses will need to streamline their reporting processes, ensuring that they meet the directive’s demands in the most efficient way possible. The ESRS represents a significant increase in data quality and scope that many companies will find challenging. Benchmark Gensuite has facilitated the ESRS reporting process by embedding the framework into a structured template. This helps to reduce the burden on companies, by providing clear guidance on what to report, how to report it, which metrics to use and managing the workflow across the enterprise to meet this objective.
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3. Accounting for double materiality
The CSRD integrates the concept of double materiality into its reporting framework. Companies are required to report not only on how sustainability issues affect their business (financial materiality) but also on how their operations impact society and the environment (impact materiality). Successfully navigating this aspect is essential for comprehensive compliance and effective sustainability reporting.Â
Understanding both aspects of materiality is equally essential for assessing the long-term viability and sustainability of a business. A company might be financially successful in the short term but could be creating significant environmental or social issues that could jeopardize its long-term sustainability and future earning potential.
4. Building sustainable business models
CSRD compliance presents an opportunity for European businesses to embed sustainability more deeply into their operational models. Beyond mere compliance, it’s an avenue for using collected data to drive business improvement and value. Â
Beyond compliance, CSRD reporting can help companies identify business risk and develop mitigation strategies, develop and promote best practice, measure and optimise resource efficiency, manage and reduce GHG emissions, and develop meaningful dialogue with stakeholders. All these positive business outcomes can be delivered using the same data that is required to be collected for CSRD reporting.Â
For instance, an example of this is a recent project Benchmark Gensuite undertook, assisting a global media organization in streamlining and structuring its carbon accounting process, enhancing accuracy and testing assumptions, leading to a 40% reduction in the scope 3 emissions reported. This case exemplifies how sustainability efforts, mandated or not, can yield significant operational benefits and enhance business efficiency.Â
5. Preparing for evolving European regulation
The CSRD is not static; it will evolve as European sustainability standards continue to develop, based on feedback from the business community and other stakeholders. Companies must remain adaptable and responsive to these changes.Â
Benchmark Gensuite, with its SaaS model, strong presence in Europe and deep Sustainability and ESG subject matter expertise, is well-positioned to anticipate and respond to these regulatory shifts, ensuring clients are future proofed. Â
The journey towards CSRD compliance is complex but crucial for companies committed to sustainability, and to ensuring the efficient operation of their business. By focusing on these key considerations, companies can tackle the challenges effectively, ensuring they not only comply with the directive but also leverage it to enhance their sustainability efforts and business performance.Â
Beyond CSRD: Navigating Additional Regulations
In addition to adapting to the CSRD, businesses across Europe must also navigate a landscape shaped by national regulations and global sustainability frameworks. Â
For instance, in the UK, companies subject to The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2024 – an amendment of The Companies Act 2006; and The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 – are required to incorporate TCFD aligned climate disclosures in their annual reports. Since TCFD has now been subsumed into the International Sustainability Standards Board’s (ISSB) remit, this is in the framing of IFRS 2 climate-related disclosures. There are other considerations for UK companies too, from the UK Emissions Trading Scheme (ETS) and the upcoming UK Green Taxonomy to the Streamlined Energy and Carbon Reporting (SECR) policy. Â
And it’s not just UK businesses that need to be thinking more broadly than just CSRD. TCFD, now under IFRS 2, for example, is a global framework, and while voluntary, many EU countries are moving towards mandatory disclosures. There are also national frameworks such as The German Sustainability Code (Deutscher Nachhaltigkeitskodex – DNK). Although compliance with the DNK is not compulsory, it provides a framework for transparency and accountability in corporate reporting on sustainability issues that companies can use to make their sustainability performance more transparent and comparable beyond legal requirements.Â
Regulations and frameworks are varying significantly in scope and focus, requiring companies across all industries to adopt more nuanced or specific reporting practices. Planning for and integrating these diverse requirements into a cohesive sustainability reporting strategy is essential for ensuring compliance and leveraging reporting for strategic advantage. Â
By considering both the CSRD and other relevant existing and upcoming regulations, companies can achieve a comprehensive and robust approach to sustainability reporting, positioning themselves favourably in a rapidly evolving regulatory environment.Â
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About the author: Peter Walsh is Senior Director of ESG Market Strategy & Partnerships at Benchmark Gensuite. Peter is a sustainability and EH&S professional with more than 25 years’ experience across a diverse range of geographies and roles. His expertise encompasses corporate sustainability performance, socio-economic planning, and environmental management. He has specialist expertise in the use of sustainability and EH&S technology to drive improved business performance and has implemented data and process management systems for numerous global clients in the industrial, manufacturing, pharmaceutical, resource and consumer goods sectors.
