With CSRD no ESC from ESG

On invitation of Michel Scholte of Impact Institute I recently followed the CSRD 'in one day' academy. A one day physical training day with approx 10 peers, followed up by online extra material. The Corporate Sustainability Reporting Directive is giving companies reporting rules on sustainability. Applicable as of 2024 for large corporations (>750 employees) and larger SME (>250 employees) to follow. Sharing my 6 striking insights with you:

1 Welcome to the land of abbreviations. It started quite simple. Making a positive impact by harmonizing people, planet and profit. But now we are making it quite complex. From SDG’s, reducing GHG’s, ESG to reporting via CSRD, ESRD, EFRA, PCAF, SBTI. Not to mention the EU-taxonomy…Thank you regulators. This will give ‘us’ educators and consultants fruitful work.

2 CSRD is about data management! In CSRD reporting approx. 50% is qualitative and 50% quantitative: Extracting data will be a huge challenge. Not only to extract it, but share it standardized, science based in an efficient way throughout value chains. I am afraid each large company is now ‘inventing the wheel’. Eventually, all data will be uploaded in one European cloud, but this is presumably not a blockchain securing cross company, accountants and governmental validation. Innovation needed here!?

For the qualitative reporting part it will be very challenging for accountants to assess it. Leaving room for subjectivity or greenwashing? Innovation needed here!?

3 Bit by the spider (quoted Michel on this one). Information will become authoritative. A huge step forward from earlier sustainability reporting. Incompleteness with CSRD can be seen as an economic crime. Those poor accountants will have to judge the limited or reasonable assurance. What’s measured can be managed and in fact should be. Opportunity for business leaders to become spider (wo)man, as with great power comes great responsibility!??

4 CSRD is not industry specific (yet). Many standards on how to report have yet to be set yet. As the first ‘users’ are the large corporations it might not favor the larger SME’s. Taking industry wide initiatives to discuss and harmonize how to measure could help as industry standards by CSRD are not available anytime soon. Room for action here!?

5 CSRD is about transparency, you have to make it about transformation. You can report very transparently while setting very low sustainability goals.I would advise all companies to take this reporting directive as a trigger to embed sustainability in your strategy and business. Afterall, you will have to set climate change targets in line with the Paris Agreement (not more than 1.5c temperature rise in 2050 compared to pre-industrial levels). It will lead to very ambitious goals, thus need for action to be impactful and credible the years to come.

6 Develop your material 'sense'. In CSRD you have to determine what’s ‘material’,? meaning what your stakeholders would want to know when investing in you, when choosing for you as a client or employer etc.. Again, those poor accountants will have to be the judge of that. There is no standardized science based framework yet how to determine your double materiality. It will be more about sensibility. Or as Reinier de Adelhart Toorop quoted Keynes during the online training:

It is better to be approximately right, than exactly wrong.?

In conclusion, after two CSRD days my spidy senses are on.?It put the work I am doing for the companies with Mennovation in sharper perspective.

To deliver on commitments, shared by more companies the coming years, there will be a greater need for innovation like climate solutions and data management solutions to report the output. An interesting area for climate tech and fintech impact startups and scale-ups.?

I see a big risk that many companies will (have to) invest highly on sustainability accounting and take less time to talk about sustainability actions and provide room within their company to deliver on that. Nonetheless, CSRD is game changing because of the authoritative element.?

For business leaders who want to distinguish themselves in these times: It requires power and responsibility to take these reporting rules as a trigger to create more positive impact. Don’t confuse ESG with ESC. There is no escaping.?Sustainability part of strategy, reporting and business is here to stay.