EFRAG is calling, what Board Directors face if non-compliant with CSRD - And is there a McKinsey Gate rising?

The first editions of this newsletter was previously written in Swedish for a Swedish audience, but now and ahead it will be written in English. Many of the companies covered by CSRD use English as their corporate language, and the regulation and market is, in fact, European. So here comes news, insights, and comments in English and hopefully the reading is relevant for all who in some way are responsible for the implementation of the EU-regulation CSRD.

The content is gathered from my work as a sustainability manager, lecturer, and facilitator for CSRD Implementation Taskforce (P2P Sweden). I am driven by the simple principle that sharing is caring, and I am convinced that this is a must if we are to manage the great transition.

So please feel free to contribute with tips, comments, analyses, and experiences.

I hope you find the reading in this edition to be of value.

Best regards

Mikael Salo

EFRAG announces and invites to high level event on 28th of November

Christmas comes early for sustainability nerds when the founders of CSRD and ESRS - EFRAG in cooperation?with the European Commission the 28th of November is hosting a high level conference on ”European corporate reporting: two pillars for success”.

Key topics are:

”State of play in sustainability reporting & financial reporting”, ”Progress on implementation support for ESRS and standards for SMEs”, ”Opportunities of digital reporting from the start” and ”Connectivity: building bridges”.

The key note speakers are very, very high level. On the podium you will for example meet:

Mairead McGuinness, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, EC

Pascal?Durand, Rapporteur CSRD, MEP

Patrick de Cambourg, EFRAG SRB Chair

Emmanuel Faber, ISSB Chair

Jean-Paul Servais, IOSCO Chair

Wolf Klinz, EFRAG FRB Chair

Linda Mezon-Hutter,?IASB Vice Chair

Verena Ross, ESMA Chair

Christine?Lagarde, ECB President, will also deliver a message.

It is possible to participate both in-person and digitally. Register here.

Comment: When the founders of the new Regulation with a capital 'R' invite you to a summit, you should place it high on your priority list. It will probably be well invested hours and give valuable insights to participants, since it still is pretty much "fog" surrounding the new transparency and transition paradigm.

EFRAG and CDP starts cooperation on ESRS

In a press comment CDP is stating that the cooperation with EFRAG will maximise alignment of CDP’s global environmental disclosure platform with the EU's environmental reporting standards. CDP and EFRAG will also collaborate on capacity building to support companies globally to prepare for the regulatory requirements.

Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board:

"The standards elaborated by EFRAG in its role as technical advisor to the European Commission will support capital markets to compare companies, reduce greenwashing and redirect capital. And our collaboration with CDP will help to accelerate these standards’ market uptake, building capacity among EU and non-EU businesses alike to use them as regulation comes in."

Maxfield Weiss, Executive Director CDP Europe:

"With the bar now being raised globally in respect to environmental disclosure, our collaboration with EFRAG will ensure companies preparing to report can do so through CDP. As the only independent global environmental disclosure system, CDP is proud to continue and scale up our role in making best-practice corporate reporting a norm."

Comment: Logical! Fantastic! Disclosing ESG performance is today a significant cost and administrative burden for many companies and poor sustainability managers drowning in surveys and questionnaires. There is a great variety from tailored investors surveys to a variety of complex disclosure systems such as CDP, Ecovadis or UN Global Compact) Perhaps and hopefully this collaboration will pave way and ease the burden for companies to disclose ESG-information in more efficient ways.

The precious ESRS Data Point File from EFRAG (if you have missed it)

Probably you already know and have the EFRAG published (very appreciated) draft list of ESRS data points in xls.-format. If not, you can find it here.

Comment: This tool gives a very good oversight over the over 1000 data points and what sort of information should be disclosed in the ESRS.

Hungarian MEP: "Create an European Environment Authority"

A new, stronger European environmental authority that shall have power to make legally binding administrative decisions, monitor environmental conditions, and issue fines and injunctions for environmental pollution.

This is the core in a new citizen initiatives announced by European Commission last week.? Behind the the proposal is the Renew Party group, and Anna Julia Donath, a Member of European parlament and a politician in the Hungarian centrist political party Momentum Movement.

The proposal contrasts in with the current European Environment Agency (EEA), which primarily collects statistics and conducts investigations and analyses. This body would work alongside national environment authorities to make binding administrative decisions on Member States and businesses, addressing environmental impacts that transcend national borders. Its role is integral in implementing the European Green Deal's objectives, including achieving no net emissions of greenhouse gases by 2050 and promoting sustainable economic growth.

The new authority is proposed to authorize and supervise environmentally impactful activities and act against pollution at the EU level, adhering to the 'polluter pays' principle, and manage various environmental challenges like transboundary air and water pollution, marine pollution, soil contamination, noise pollution, and climate change effects.?

Comment: The realization of such a proposal is a concrete example on how European democracy can manifest new policy, even though it is a complex process involving legal and political challenges, requiring consensus and cooperation among various EU institutions and member states.

As a start the initiative must gather at least one million signatures from EU citizens within a one-year timeframe. The signatures must not only be numerous but also geographically distributed across a significant number of EU Member States and pass specific thresholds for the minimum number of signatures required from each country. Following step would be for the draft to go through the standard EU legislative process, which involves approval from both the European Parliament and the Council of the European Union.

As a sustainability advocate I find this as a pretty interesting proposal against the backdrop of the great environmental challenges we face. I realize this proposal will be seen as controversial from other European Party Groups. I still reckon it would be possible to find citizen support, but it will require commitment and a substantial effort to do so. Who would manage coordinate the task? Environmental organizations in member countries perhaps??

Two other recent initiatives relevant with aim on sustainable development

Taxing great wealth to finance the ecological and social transition

”This initiative calls on the European Commission to establish a European tax on great wealth. This would contribute to the Union’s own resources, and the revenue would make it possible to amplify and perpetuate European ecological and social transition and development cooperation policies, cofunded by the Member States. The contribution would be used to combat climate change and inequality and would help to ensure that European citizens pay their fair share towards achieving these objectives.”

EU Live Bus Stop Info

”By integrating QR codes at every bus stop, passengers can access real-time data about schedules, routes, delays, and updates;?this initiative aims to revolutionize public transportation information accessibility across EU member states.”

Comment: IMO this proposal actually can drive change and transition in mobility sector, since more accessible local transport probably creates a change in behavior where people opt out of the car as a means of transport.

McKinsey climate gate rising? AFP expose plans to undermine COP28 climate talks

According to an AFP investigation, McKinsey & Company, one of the worlds most prestigious management consultancy, is reportedly using its advisory role in the UN's COP28 climate talks to further the interests of its major oil and gas clients.? This could undermine efforts to curb fossil fuel use, crucial for addressing global warming. Leaked documents reveal McKinsey's proposed energy scenarios, which contradict its public climate stance, suggesting only a 50% reduction in oil use by 2050 and continued investment in high-emission assets. McKinsey's clients include ExxonMobil and Saudi Aramco. The firm is providing free advice to the United Arab Emirates for the negotiations starting November 30. Read the full story here.

Comment:?The story just showed up in my feed on LinkedIn. Strange that this has not received more media attention even though it was published a few days ago.

The story is commented by for example by sustainability expert Scarlett Roa Brynildsen:? ”This is the reason why I have chosen to be an independent consultant. I don't believe in these big companies like McKinsey when it comes to sustainability. They profit from keeping the status quo and continuing with business as usual.”

On it’s webpage McKinsey discloses they ”will reach net-zero climate impact by 2030?through decarbonizing our operations, investing in natural climate solutions, and accelerating progress through partnerships”.

I guess this would be the definition of?”forked tongue” if true, and if so ”Gobsmackingly Bananas” (too).

The company has also recently settled more opioid suits in USA, for advising opioid manufacturers.

I am thinking there must be a problem with the McKinseys Code of Conduct and moral compass? Or what do you reckon? And should we talk more about what responsibility consultants actually do have?

Marie Baumgarts top tip on CSRD implementation: "Work cross-functionally and collaborate as much as possible"

CSRD Insights asked a few questions to Marie Baumgarts, partner at KPMG and a member of EU Platform on Sustainable Finance which provides advice to the Commission on the completion of the EU's Sustainable Finance framework.

What are you and your team currently working on?

- The EU Commission has announced that no new regulations are on the horizon; instead, time and support are needed to implement the existing ones and get them in place. Our current focus is on usability and interoperability, guiding and clarifying ambiguities in regulations, interpretations, and harmonization with various frameworks.

How do you view the current developments?

- CSRD is pushing for the integration of sustainability into significant business processes, something we've talked about for decades, and it impacts all functions that need to contribute from their respective areas of responsibility. I want to exclaim "Finally!".

What message do you have for those of us involved in implementing the CSRD, taxonomy, etc? Any advice, or recommendations?

- Certainly, there is quite a bit of work to be done in all companies affected, and I believe the implementation process will take 2-3 years, possibly longer for some, depending on what is already in place.

- My top tip is to work cross-functionally and collaborate as much as possible with other parts of the organization. Functions like Group Finance and Group Reporting, Group Risk, IT, Internal Control and Compliance, Investor Relations, Legal, are especially important.

- My second tip is not to wait to engage the board but to give them a brief heads-up and introduction to what's happening and when it needs to be disclosed to the market.

Perspectives on Green Industrialization in Northern Sweden

Camilla Mattsson, Sustainability Manager at Tyréns, one of Sweden's larger and well-reputed community builders, has written an intriguing reflection on how Northern Sweden can, and likely will, become a hub in the green industrialization and enabler of global transition.

"I have become fascinated by the scale of the green transition in northern Norrland. In this blog post, I try to provide an overview of the mega-investment that is taking shape in the wake of the climate crisis. Forests, ore, and hydropower will be complemented with battery manufacturing, fossil-free steel/iron sponge, and wind power.”

Comment: Of course, there are challenges in the transition, not least conflicts of interest with nature, reindeer herding, tourism, and others, but Camilla promises to address these in upcoming blog posts. It will be interesting to follow this.

The blog is written in Swedish but can be translated in modern web browsers.

Strategic Management of Double Materiality: Paving the Way to Sustainable Profits

Key findings and notes from a seminar on implementation of CSRD.

In a recent seminar hosted by think-tank and advisor Forever Sustainable, Shared Value Champion Marc Pfitzer and Sanna Norman, Head of ESG at Asker Healthcare Group, delved into the concept of dual materiality management. They highlighted the significance of strategy over reporting, an ecosystem-based approach to trade-offs, and integrating CSRD into corporate strategies for sustainable and impactful profits.

Pfitzer stresses a shift from traditional double materiality, emphasizing strategy over mere reporting. This approach actively manages societal and environmental impact, propelling businesses into the green economy. Understanding how environmental and social goals drive financial performance connects targets to financial outcomes, bridging sustainability and financial success.

Pfitzer also emphasizes an ecosystem perspective to resolve trade-offs, while regulations drive businesses to focus on what matters. Reporting alone falls short; a strategic discussion is essential to identify data gaps and chart a vision for double materiality management.

Norman illustrates how to seamlessly integrate CSRD into a company's strategy, citing Asker's progress as a case study. She highlights the adoption of risk management systems for evaluating financial risks and opportunities related to double materiality. This contributes to a centralized, strategic business model.

Norman underscores linking CSRD topics to the company's pillars and aligning KPIs with the framework. CSRD should be seen as an opportunity for strategic discussions, beyond regulatory compliance. Financial materiality serves as both a management tool and internal communication within the organization.

Pfitzer and Norman emphasize that managing double materiality is a strategic imperative, integrating sustainability into a company's core strategy, fostering innovation, and achieving impactful profits with a holistic approach.

Contribution by Faye Sweet

The lawyer: What the Board of Directors faces if the company is non-compliant with CSRD

With CSRD (Corporate Sustainability Reporting Directive), a company's board of directors is bestowed with an enhanced responsibility for sustainability reporting, which shall continue to be an integrated part of the annual reports.

David Frydlinger, an attorney at Cirio Law Firm in Stockholm, Sweden and author of the new book "Spelregler f?r h?llbar aff?rsverksamhet" (Rules of the Game for Sustainable Business), has penned an analysis of what is likely to apply to Swedish companies in the Swedish sustainability publication Aktuell H?llbarhet (In Swedish). He draws the following conclusions:

"When the new reporting directive CSRD takes effect in 2024, companies' sustainability responsibilities will be put to the test. Attempts to conceal deficiencies and the adoption of a passive policy may lead to serious consequences. Individual board members could be liable for damages and, in the worst-case scenario, face fines or imprisonment."

David also writes that this could be the case if the information in the sustainability report is incomplete or misleading due to intent or negligence. He also suggests that this could be the case if a board does not ensure that the organization has sufficient resources and adequate processes to timely provide an unvarnished? description of how the company meets EU’s ideal depiction for a sustainable business.

David also suggests that the implementation, on a more fundamental level, should prompt a review of the company's purpose, business model, strategy, organisation, contracts etc., addressing the root causes of why the company is not sustainable and does not meet the ideal depiction.?

Comment: Over the past year, I have met quite a significant board professionals on CSRD and sustainability when facilitating seminars and lecturing. Most of then people I've spoken to recognize and confirm that CSRD is a game changer, and practically everyone have realized that they have a new responsibility on their plate.

CSRD, combined with other legislation and tightened policy measures within the Green New Deal, is radically altering the business landscape. The board, which holds overarching strategic responsibility for a company, will now be accountable. Hold on to the hat board of directors...the storm of sustainability is here.

Tip of the edition: Podcast about the board's role in CSRD and the great transition (In Swedish)

When talking about board of directors. I recently participated in a episode of the Swedish podcast "Styrelsesnack" (Boardroom Talk), which is a podcast for those interested in corporate governance, board work, and corporate responsibility hosted by very professional and forward leaned board professional Petra Palmgren Lindwall. We had a very inspiring and energetic talk on how the "alphabetical soup" will change reality for board professionals, both on a strategic and governance level. Thank you for inviting me, Petra!

You can find links to the podcast here. (In Swedish).

I am glad and grateful that you have come to the end of this edition. That hopefully means is was worth reading. I am always happy to receive any feedback and also contributions on content, as I mentioned.

Have a lovely Monday and week!