ESG Market Turmoil and Sustainability Pros Bashing Low-Quality Practices

Hi, welcome to the third issue of CSRD Insights. I am so glad and grateful you are now over 1500 subscribers - and I hope you will have an insightful read and update on the world of sustainability - news and trends relevant for us with our fingers in the jam jar. Do not hesitate to contact me with tips or feedback.

EFRAG TEG Approves Updated Materiality Assessment Guidance

EFRAG's TEG has updated the Materiality Assessment Implementation Guidance (MAIG ). The main revision focuses on addressing considerations for groups and subsidiaries, introducing a new section and FAQ. The guidance suggests using diverse methodologies for group materiality assessments due to input from subsidiaries. It emphasizes that aggregation may not be suitable for all sustainability matters, such as social issues, and clarifies ESRS Delegated Act requirements. Additionally, it provides clarity on evidence and the approach to environmental impacts in materiality assessment. A governance paragraph was added, aligning with ESRS 2's disclosure requirements.

The draft will proceed to EFRAG's sustainability reporting board for final review and approval.

Read more in a article from Corporate Disclosures.

Read the updated MAIG draft here.

”Bullshit Bingo” - Samsung and PWC Advisory Bashed for Low-Quality Practices?by Sustainability Professionals

In the wake of CSRD and ESRS many eyes are turning towards the methodologies and practices being established in large corporations. It is natural for scrutiny to fall on major corporations that are among the first to implement reporting according to the ESRS, but it also means that experts of various kinds are closely examining both double materiality analyses and their outcomes.

A few weeks ago, a highly engaging and informative thread surfaced on LinkedIn when Philippe Diaz, Special Advisor at Kuyua , and formerly a Member of the Sustainability Reporting Technical Expert Group at EFRAG and the Technical Reference Group for the International Sustainability Standards Board (ISSB), highlighted anomalies in Samsung's stakeholder dialogue, facilitated by PWC.

According to Philippe, PWC, on behalf of Samsung, had distributed a survey open for anyone to respond to.

”Not sure how PwC and Samsung are going to control the quality of the input that way, but well, input is input, right? Who cares about quality.”

”To ensure quality of input those answering would have to know a thing or two about Samsung's business model (operations AND value chain) before they answer "How grave do you think the negative environmental and social impacts of the topics are?" on "Climate Change Adaptation, Climate Change Mitigation, Energy".

Philippe continues writing:

”A question I would like to ask PwC , who seems to consult Samsung on this: How will such questionable input qualify for the assurance stamp that is required under the hashtag #CSRD? How will it get Samsung closer to identifying its material impacts, risks and opportunities? I doubt this approach can be judged ESRS-compliant.”

In the same discussion, criticism is also raised against the sustainability report from Banco Santander S/A, which has not identified ESRS S1, its own employees, as material despite having 200,000 employees. Attention is also drawn to the fact that the bank has not identified any climate-related risks.

The post has nearly 100 comments, many of which are critical and sometimes sarcastic. Here is another example of a brutal comment by a sustainability professional with long experience:

"Funny thing - if it was not done by an organisation that certainly - by education! AND professional codex - MUST know it better. The exercise we see here is just bullshit bingo. Formally it serves its purpose which is: certainly delivering NOTHING substantial."

Comment: Probably this is just the beginning of examinations and discussions regarding the concrete implementation of CSRD and ESRS by companies. Over time, these types of discussions and dialogues will contribute to a healthy level of hygiene and, hopefully, ensure consistent application of the standard among companies, industries, and countries. So, dive in, read, reflect, and learn, and keep an eye out here on LinkedIn for more insightful nuggets. And please share so we all learn and gain insights together.

What is the cost of non-compliance with CS3D?

"Penalties must be effective, proportionate, and dissuasive, and must at least include pecuniary penalties and 'naming and shaming' measures. Pecuniary sanctions must be based on the company's global net turnover, and the maximum sanction must be at least 5% of the net worldwide turnover of the company in the financial year preceding the fining decision../../.. Damage must be fully compensated."

Well-regarded law firm Baker McKenzie has published a concrete and thorough overview of what CS3D entails in practice for companies.

Comment: Excellent reading for those who want to understand or help colleagues understand the new regulation in just 15-20 minutes. The read contains valuable insights into the importance of establishing compliant processes that meet the new EU directive.

"Storming Phase for ESG Data Market"

It might seem like stating the obvious, but it's still quite intriguing to delve into a study and analysis of the market for ESG platforms released earlier this year by Ubirch , a German company delivering ESG data solutions.

The study, based on 202 respondent companies, consisting of a mix of firms subject to CSRD and suppliers to these, asserts that very few of the respondent companies have similar ESG solutions in place.

"The TOP 3 ESG SOLUTIONS are KPMG, SAP, and Arvato - but in total, 74 different solutions were named!" the report states.

The study also shows the diversity of frameworks and standards used.

Some of the key conclusions drawn include:

• The ESG market is in a "storming phase", with a fragmented field of providers and reporting standards making cooperation difficult.
• Working on shared ESG data, as required by the CSRD in Scope 3, is very difficult with this extremely heterogeneous tool landscape.
• Standardization and consolidation are urgently needed to enable the collaboration and comparability that are essential to managing and reducing Scope 3 emissions.

Comment: When surveying the market, it's indeed turbulent with over 100 providers of ESG platforms and solutions of various kinds. At the same time, a robust multifunctional platform is a central tool in CSRD implementation. So, how effective are the various ESG platforms and solutions? Which one should a sustainability manager invest in?

In the CSRD Implementation Network , we conducted a P2P-survey almost a year ago where sustainability managers rated their solutions and the platforms they use. It's time to do it again - perhaps this can guide us sustainability professionals in our choices ahead. I'll share a new survey in the next newsletter.

Enhancing Change Execution: Insights from Harvard Business Review

Harvard Business Review highlights the importance of effective change execution in a recent article. This is a theme very relevant for any sustainability officer and worth a good read. Here is though a brief summary of the key findings.

In "How to Actually Execute Change at a Company," the author Tom Hunsaker delves into why only 60% of planned value is realized in change initiatives across 257 firms. They identify four critical factors: effective initial communication, resource accessibility and autonomy, alignment mechanisms, and strategic measurement.?

The article highlights the importance of the "ACE the Memo" approach for clear communication, the necessity for teams to have adequate resources and freedom, the role of alignment mechanisms like incentives, and the significance of strategic measurement in adapting and improving execution. Through examples from companies like Costco and Google, it illustrates how amplifying mechanisms and strategic measurement can enhance execution effectiveness.?

Ultimately, the article stresses that execution is key to realizing the potential of ideas, with effective communication, resource provision, alignment mechanisms, and measurement strategies playing pivotal roles in successful change implementation.

Comment: This is very applicable to many sustainability initiatives and projects, whose success in many cases depends on the factors identified in the article.

Empowering Boards: Meeting the Challenges of CSRD Compliance

CSRD entails increased responsibility for corporate boards, and will impact business in different ways. We asked the board professional Charlotte Gustavsson how boards should best approach and manage the new EU requirements.

"The increased responsibility on the boards means that the board of directors must familiarize themselves with the standard enough to validate, ask relevant questions, and feel confident with the material that the business team has developed. By understanding the driving forces, data, and what the outcome in the sustainability report means for the company, it becomes easier to work strategically with the issues."

This is according to Charlotte Gustavsson who has been the CEO at The Swedish Academy of Board Directors in Stockholm, Sweden for five years. Charlotte also has a background as CEO within the MTG Group and as CEO of both MoDO Hockey and Karlskrona Hockey Club. In 2023, she founded Global Heart Leaders .

What does CSRD mean for corporate boards?

"The important thing is that all members understand the company's sustainability strategy and the risks and opportunities involved in the issues. All members of the board are collectively responsible for the work; it is not possible to absolve oneself from responsibility just because one is not part of the committee handling the reporting."

What is your advice to board professionals?

"That all board members acquire knowledge, understand the standard and the new requirements. Increased responsibility for, for example, climate impact will not decrease but should be a prioritized issue for virtually all companies.

Companies that clearly demonstrate responsibility will strengthen their brands, both outwardly towards customers, but also as an attractive employer. Who doesn't want the sharpest minds? Who doesn't want the most climate-smart products and services - and have a nice profitability? So, it's just a matter of rolling up your sleeves."

GRI and TNFD Forge Deeper Collaboration for Enhanced Corporate Reporting

The Global Reporting Initiative (GRI) and the Taskforce on Nature-related Financial Disclosures (TNFD) are strengthening their collaboration to improve corporate reporting worldwide, according to a recent pressrelease from TNFD.

The two organizations have over the past two years worked closely, contributing to each other's recommendations and standards. GRI aided in shaping the TNFD Recommendations, while TNFD provided input for GRI's updated Biodiversity 2024 standard.

They now plan to release an Interoperability Mapping Document in Q2 2024, outlining alignment between TNFD and GRI Standards. Additionally, they will provide joint case studies and guidelines to illustrate the links between nature-related dependencies, impacts, risks, and opportunities.

The collaboration between GRI and TNFD marks a step towards harmonizing corporate reporting practices and enhancing transparency on nature-related matters globally.

New Findings on Aligning Investments with Sustainable Development Goals (SDGs)

Stockholm Environment Institute (SEI) has published a scientific paper that present evidence-based indications of sector-level impacts on Sustainable Development Goals (SDGs). The purpose is to guide equity investors in identifying general impacts typically expected by companies who belong in the same sector.?

The authors found three key considerations of extra relevance; the necessity to capture ”impact shadows”, spillovers across SDGs, and the hierarchical nature of the SDGs.

Notes from EFRAG and other relevant EU organizations

Expert in transport, textiles, jewellery or fotwear? EFRAG wants you!

EFRAG is looking for?technical experts?with?proven experience in the sectors?who are interested and available to join the respective sector communities and provide comments on working papers. Deadline for application is?19th?April 2024. More information here.

EFRAG seeks companies to engage in the upcoming implementation guidance on transition planning

In effort to help companies disclose their transition plans in line with ESRS standards EFRAG is now seeking insights from a diverse group of European companies. Deadline for application is 23rd of April. Read more here.

Event at 16th of May: European Commission expert dialogue on how to support companied in applying the ESRS

European Commission is hosting an hybrid event that will bring together experts and practitioners from business and trade associations, companies, consultancies, auditors and other stakeholders. The goal is to showcase ongoing initiatives and discuss ideas for further mechanisms to support companies that apply the new reporting standards. Find more information and register here .?

And some advertising...

New Education: Become an ESG Controller (In Swedish)

Together with Scarlett Roa Brynhildsen, I am hosting a digital course from May 14th to May 28th (three occassions) for controllers and economics who want to take the step to become ESG Controllers. Read more here.

CSRD and ESRS Key Insights for CFOs, Management Teams, and Boards: What You Need to Know, Understand, and Act On

Welcome to a seminar with focus on CSRD Implementation, in collaboration with Agenda CFO Network, the 24th of September in Stockholm (in Swedish). Read more here.

And finally a tips on soul food: New Podcast Exploring Capitalism and Spirituality

A finally a tip for those of you who eager for new perspectives. The clean tech investor and author Carl Hall , who has successfully invested in environmental technology for many years, recently launched a podcast where he explores the intersection of capitalism and spirituality with his prominent guests. Indeed food for both thought and spirit…?you find it here on Spotify.

Thank you for reading!

/Mikael Salo