October 03, 2023 | Risk Management
The importance of environmental, social and governance (ESG) factors has grown exponentially.
Investors, customers and various stakeholders are actively seeking transparency in ESG achievements.
With the European Union (EU) introducing the Corporate Social Responsibility Disclosure (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), the shift towards responsible business practices is evident.
The CSRD expands upon the 2014 Non-Financial Reporting Disclosure (NFRD) legislation, addressing a broader spectrum of sustainability areas from net zero target strategies to management's role in sustainability.
On the other hand, CSDDD imposes the onus of due diligence on companies, ensuring they identify and mitigate adverse environmental and societal impacts arising from their operations.
Non-compliance risks substantial financial penalties, up to 5% of global revenue in the case of CSDDD.
Despite the impending mandatory regulations, the present voluntary ESG reporting landscape is intricate, characterized by multiple disclosure frameworks. Recognizing this complexity, organizations like the International Financial Reporting Standards (IFRS) Foundation are working on creating comprehensive reporting frameworks.
In collaboration with entities like the Climate Disclosure Standards Board (CDSB) and the Sustainability Accounting Standards Board (SASB), IFRS recently unveiled its sustainability disclosure standards, a notable move towards uniformity in ESG reporting.
This article focuses on effective strategies companies can employ to adeptly manage their ESG reporting obligations and challenges.
Before commencing data collection, companies must outline what they need to report based on their industry and geographic location. This involves setting core metrics, KPIs and choosing the appropriate ESG standard.
Employ a centralized data platform that integrates internal and external data sources. Ensure that this platform can synchronize and update systems while maintaining data privacy standards.
Third-party collaborations can provide an objective perspective, valuable feedback and independent data to complement a company’s ESG reports. This encompasses benchmarking, certifications, data augmentation and stakeholder engagement.
The integration of advanced technologies can greatly simplify the ESG reporting process. By investing in supply chain management software, ESG-specific tools and supplier management platforms, companies can automate processes, track progress, collect supplier data and visualize outcomes. This helps in improving data accuracy and creating insightful reports.
A fragmented approach with different departments working in silos can be detrimental to ESG reporting. It's crucial to foster cross-functional collaboration. Ensure that ESG strategies and metrics are embedded in the decision-making processes across all relevant departments. This holistic, enterprise-wide strategy ensures that ESG efforts are targeted and not just an afterthought.
The growing importance of ESG reporting, combined with the evolving European standards, necessitates that companies have a strategic approach to tackle the challenges head-on. By emphasizing data management, leveraging technology and fostering cross-functional collaboration, businesses can not only meet but exceed their reporting obligations.
A proactive stance on ESG reporting can help organizations anticipate upcoming regulations, thereby solidifying their commitment to a more sustainable future.
Go deeper into the topic by downloading our white paper How Enterprises in Europe Can Set Up an Effective ESG Reporting Structure