Introduction
In 2024 the first businesses will generate their integrated annual reports aligned to CSRD. The expansive nature of the directive means there is a lot that every company has to do to comply. From engaging stakeholders to perform a double materiality assessment, to identifying and documenting the policies, processes and information available across the business. For even the most advanced businesses it is already proving to be a challenge and a robust CSRD approach is required. This is the third article in our series looking at CSRD and in this article we describe our approach.
From the work we’ve been doing with our clients combined with our experience of integrating sustainability into large global businesses, we have developed an approach to adopting CSRD which we believe is pragmatic, achievable and is designed to integrate as much as possible into the day-to-day flow of the business. Reducing the effort required by already stretched sustainability teams, and allowing resources to be focused on making progress, rather than reporting.
What is CSRD?
We provided an introduction to CSRD in our first article in this series. It’s also worth taking a look at our CSRD FAQ’s. These provide a walk through of the directive, it’s purpose, it’s structure and what it means for businesses.
Our CSRD Program
One of the things we realised right from the start, was that CSRD needs to be approached programmatically. There are far too many elements to CSRD for it to be approached any other way. Establishing a programmatic approach helps to ensure consistency, completeness and accuracy across the business. That’s important, because CSRD spans across every area of the business, so significant coordination is required. Importantly, a program helps to align everyone to common objectives.
Clear Objectives
In designing a program, we took a step back and considered what the objectives need to be. We started with the policy and practical objectives behind CSRD. You can read more about these in the first article in this series, “Introduction to CSRD”. As a reminder, the policy objectives are to:
Provide investors and other stakeholders sufficient information about the risks and opportunities associated with an organisation’s business model.
This is consistent with most sustainability policy objectives related to corporate disclosures. By providing better transparency into the impacts, risks and opportunities of a business, stakeholders, in particular investors, can make informed choices about risks to capital, but also where capital needs to be allocated to transition to more sustainable business models. CSRD also has a series of practical objectives:
Mature sustainability reporting to similar maturity of financial reporting
Establish peer reporting standards
Provide audit assurance of information
Digital reporting
Ensure information is properly governed
When you take all these CSRD objectives into account, there’s a lot to understand. We’ve factored all of these, and many consequences of these objectives, into the design of our program so our clients are assured that they are approaching CSRD aligned to the spirit of the directive, but also that they are addressing the relevant actions across their business to adopt and integrate it across their business.
Jordisk CSRD Program Objectives
We established that there were several objectives our program needed to align to given all of the above.
Executive Sponsorship: To be successful, the first thing which needs to be addressed when adopting CSRD is to have absolute support from across the senior leadership team of the business, including an owner to be empowered to lead. The expansive nature of CSRD means every part of the business needs to engage, meaning cooperation and collaboration are also key.
Autonomy: We believe that to be successful, we need to empower clients to be capable of executing CSRD annually without additional assistance. That might sounds strange coming from a consultancy firm, but like our clients, we believe the best use of resources is on taking action, rather than reporting. We also know that for most businesses, sustainability teams are lean and spare capacity is limited. Subsequently, we felt it was right to design a program that enable a company to automate as much as possible across their reporting needs and reserve the human interactions to a minimum.
Pragmatism: Given how broad CSRD extends, it would be easy to think businesses are being tasked with solving every challenge in the first year of reporting. We recognise that even with the best will in the world, most companies will take years to transition to full integration of sustainability into their business model. What’s important is clear and ambitious progress, prioritised to the material topics in the business.
Assured: Audit assurance is no small task, but it is something which can be made easier by having clear and accurate records of activities, assumptions and methods. We’ve designed our program to give clients the foundations for building audit capacity into their operating model, so audit partners have a clear structure to work with.
Inclusive: CSRD is not something which can be ‘done’ to a business, it is effectively a team sport. By establishing a collaborative and supportive culture in the program from day one, we feel it’s important to start everyone from the same foundational knowledge, and then bring all stakeholders along through the program.
You might pause at this point and ask the question “Isn’t CSRD about creating an annual report?”. In many ways, it is, but as we described in the policy objectives, this is really the EU using the instruments at its disposal to get businesses to integrate sustainability into their management practices. The report is an output, and an important one, but more importantly in our interpretation is the integration of environmental and social matters into the management and governance of the business.
Program Structure
Our program is designed over three distinct phases of activity. This enables a business to progress over time from wherever they are starting from to a position where sustainability, if not completely, is increasingly integrated across their business. We will post more over the coming weeks about each of these three phases of work, but we also provide an overview of each phase below.
Phase 1: Prepare & Assess
Phase 2: Execute
- Have a consistent understanding of CSRD across their business
- Have full support from the executive and an owner identified
- Have a documented business model and value chain which they will ultimately report on
- Have identified the sustainability topics relevant to their business
- Have stakeholders mapped across their value chain and points of contact established
- Have clarity on which required information they have in their business and the gaps to close
The other significant pieces of work in this phase are the double materiality assessment (DMA) and the ESRS gap analysis. The gap analysis is largely an internal activity, but requires stakeholders from across the business to share and catalogue the information stipulated by ESRS. The relevant topics of information is dictated by the DMA, which is designed to identify the material topics a business reports on, which are arrived at through stakeholder engagement. We’ll cover the DMA more thoroughly in a later article.
This phase of work typically takes around 3 months for large enterprises who are already reporting annually on sustainability within their business. The first challenge for many is to document their business model and value chain. These are aspects of the business which typically are understood, but poorly documented. CSRD requires a company to describe their business model including their value chain and their position within it. This in itself can be quite an undertaking, but with this documented, it makes aspects such as a transition plan and the mapping of impacts, risks and opportunities across the business much easier.
Objective: This phase of work is designed to get an organisation to a position where they:
- Have climate related risks identified and documented
- Have a business transition plan
- Have closed all the policy and information gaps required for disclosure
- Have a complete and accurate catalogue of information for input into the annual report
- Have systems implemented to automate policies, processes and information management related to ESRS data points
Overview
In this period of activity, we work with clients to build a complete picture of information to enable the production of a CSRD compliant annual report. Depending on the existing levels of sustainability related management, this phase of work can take up to a year, but for most enterprises, we find a 6 to 8 month period is typical. The effort is distributed across closing the gaps related to policies, processes and data. A common situation is that many businesses are currently managing their emissions data to some extent, but the breadth of information required for CSRD compliance is wide, and we find clients usually have some work to do.
In many cases, the organisation has established targets for common objectives such as net-zero, have actions underway to assist in meeting those targets, but don’t have consistent systems, policies and process across the whole business to manage these. There is potentially a lot of work to do to standardise and integrate these across the business, and a pragmatic approach to prioritisation helps to focus resources. The other major deliverable in this phase is a Paris agreement aligned business transition plan; a mandatory requirement for both CSRD and CSDDD when it comes into force. This requires a climate risk assessment to be completed if it isn’t in place already and a plan documented to mitigate or transition away from the identified risks. We will write about our approach to climate risk assessments in a later article.
Phase 3: Disclose & Act
Objective: This phase of work is designed to get an organisation to a position where they:
- Have a CSRD compliant integrated annual report prepared for audit
- Have capacity to resolve management actions identified by audit
- Have a program of work underway to implement transition actions
- Have a well formed management and governance framework for sustainability
- Have ongoing and meaningful engagement with their stakeholders on progress
Overview
The delivery of the annual report is a significant milestone and the work in this phase has focus on this. The report generation will add some effort to the existing annual report and, dependent on the levels of automation in the business, may take several months to complete. However, as we’ve discussed earlier, the report is not the end goal. Further work now needs to shift towards executing the transition plan for the business, addressing some of the deep rooted challenges the business faces to build resilience to climate change, to improve its social and environmental impacts. These actions span across the business and value chain, from sourcing of materials to the disposition of goods at the end of life. This requires significant stakeholder engagement and dialogue to prevent unintended consequences of actions and to partner across the value chain to achieve change.
How can we help?
We’ve been working with some of the first businesses in scope for CSRD and have already experienced some of the highs and lows of this directive. Our CSRD program is constantly evolving taking into account the lessons we and our clients learn, to ensure we deliver the best possible service to all clients. Many businesses already have a lot of the information required to meet CSRD compliance, so the gaps to close are not as wide as you might expect. Where the challenges come are in the consistency of information across the business and how integrated objectives are in policies, processes and data across the whole business.
Our CSRD approach is used by our experts with every client with the same intent, to help them to adopt and integrate CSRD across their business. With other regulations such as CSDDD and further changes to ESPR expected in the next year, CSRD is a foundational element to the contribution businesses are making to building a more sustainable economy for Europe. If you’d like to speak with one of our experts or want to learn more about how we can help your business, send us a mail or contact us and we’ll arrange a consultation.
