The CSRD: challenges in strategic ‘from ticking boxes to blazing the way’

“We always encourage companies to think bigger”

In our last blog, we discussed the impact of the Corporate Sustainability Reporting Directive /CSRD on business strategies. While some companies take a compliance-driven approach, others adopt a strategic approach. Today, with Romeo Kaptijn, we explore how companies can move from a focus on compliance to concrete, action-oriented sustainable practices. How can they not only comply with regulations, but also create value for sustainable growth and long-term success? What challenges and issues are at stake here, and how can these be turned into opportunities? 

Have you noticed any changes recently in the way in which companies are dealing with CSR and what is your vision in this regard? 

There is now an abundance of tools and new consultancy firms that specialise in the CSRD. This is understandable, given the obvious market demand. What we still see when it comes to compliance, however, that many of these parties tend to focus mainly on checklists. We call this ‘compliance-driven’. But as one of our clients aptly put it recently, ‘We must not just tick boxes, but blaze the way.’ That is precisely what our vision is. Although the CSRD does not prescribe minimum standards and you technically meet the regulations by merely reporting, we always encourage companies to think bigger.  

What drives companies to go above and beyond minimum compliance? 

The scope and specific content of the reporting varies considerably from sector to sector. Sectors such as energy and food are being scrutinised and the minimum benchmark for transparency are being tightened. For companies that rely on external funding, we recommend comprehensive reporting. Financial institutions are placing increasing emphasis on sustainability performance and information, as evidenced by initiatives such as green loans with discounts for companies that invest in sustainability. 

Imagine you, as a company, want to take a strategic approach… What does this entail and how comprehensive should your analysis be? 

It starts with a materiality analysis, which identifies the most important sustainability issues for your company. A common question is how deep you should ‘dive’ into your supply chain. You have to factor in the perspective of a value chain, but does that really go all the way back to the raw materials? Our answer is that you should always be aware of the hotspots. Know which high-risk countries and products you are working with, along with what the opportunities and risks are. You do not need to trace everything back to your first supplier, but focus on the most important ones. Often this is just a matter of common sense; i.e., think about expenditure, high-risk areas or known sustainability risks in your sector. Sketch out your value chain and realise that you can turn any risk into an opportunity. Imagine, for example, that there is a risk of underpaid workers in your chain, you can set up programmes to pay farmers a good living wage. 

Also realise that the CSRD is ‘only’ a preliminary exploration of what can be done. The forthcoming CSDDD (Corporate Sustainability Due Diligence Directive) goes further than the CSRD and requires you to be much more specific and detailed. For now, you do not need to delve so deeply with the CSRD, but you do need to identify the key risks and opportunities.  

“Sketch out your value chain and realise that you can turn any risk into an opportunity.”

How do you then ‘put a price tag’ on the key sustainability risks and opportunities? 

Double materiality requires you to assess the financial impact of risks and opportunities: low, medium or high. This includes questions such as: what does it cost to reduce CO₂ by 20%? What is the total cost of training and development? You then scale the financial ramifications.   

Although we still rarely see this kind of detailed financial breakdown in companies. While financial risk management is often better invested in the organisation, this is often not the case when it comes to sustainability risks. As a result, consultants rely more on estimates and assumptions. A key takeaway for companies is that their risk teams need to think more broadly about sustainability risks and opportunities in areas such as finance, markets, innovation, insurance and commodities. It is vital that companies learn to put a price tag on these risks and opportunities. This is how you gain real insight and prepare for future demands. 

How do you know how to report once you have identified hotspots? As I understand it, the CSRD does not necessarily provide guidelines on this? 

That’s right, some reporting requirements are not entirely clear and open to interpretation. For example, for material and product flows, you have to report on your most important flows, but it doesn’t say how you should decide which ones these are. Is it down to factor A, B or C? And how do you know when to draw the line? This is why companies often come to us with questions like, ‘Do I have to report everything? Pens, bricks, you name it?’

The challenge is to gather enough information for the accountant and the stakeholders. This calls for critical thinking, but also leaves room for interpretation. Above all, the CSRD is asking for a clear account of your methodology. We help companies draft and formulate such methodologies. In the end, you might report certain quantities in tonnes or kilos in a basic table, but the preliminary work is in the analysis and framing. This is the only way to create clear and accountable reporting that can also be approved by an accountant.  

 

I think a lot of companies are concerned that it’s getting to be so much, all these reports. That they have to report on every little detail. Do you recognise these concerns? 

Yes, these are common concerns. Companies often fear that they have to report on everything, but this is not the case. By focusing on the themes that come to the fore from the materiality analysis as significant, you can make sure that your reporting is effective and efficient, without getting bogged down in unnecessary details. In fact, themes are also broken down further. For example, reporting on the employee base includes sub-themes such as safety, training and development. The materiality analysis identifies which sub-themes are relevant to you and which are not. For instance, you do not need to report on the number of incidents if safety is not a material theme for your organisation. This breakdown helps alleviate the burden of reporting and to focus on what really matters.  

“Make sure that your reporting is effective and efficient, without getting bogged down in unnecessary details.”

In conclusion 

The shift from a compliance-driven approach to a strategic and action-oriented approach to sustainability under the CSRD brings both challenges and opportunities. Companies that go beyond minimum compliance and embed sustainability into their core strategies will not only be compliant, but will also create value for their stakeholders and society at large. Through rigorous materiality analysis, identification of risks and opportunities, and targeted reporting, companies can build a solid foundation for sustainable growth and long-term success. 

Want to know about the CSRD? Romeo is on hand to help you!