1、 1Seizing the Corporate Sustainability Reporting Directive(CSRD)OpportunityHarness its complexity and make the European Sustainability Reporting Standards(ESRS)a catalyst for your sustainability transformation journey.2“Everything should be made as simple as possible,but not simpler.”-attributed to

2、Albert Einstein 3TABLE OF CONTENTSIntroduction.4Whats this about,and why its happening.4The context of the EUs Sustainable Finance Action Plan.4The Corporate Sustainability Reporting Directive(CSRD).4The CSRDs European Sustainability Reporting Standards(ESRS).5More standards are coming.6Whats so com

3、plicated.7Defining materiality.7The expanded scope of double materiality.7Due diligence and stakeholder engagement.7The expanded scope of value chains and time horizons.8The opportunity within.8Properly addressing context and stakeholders.8How to tame the beast.11Identify CSRD compliance gaps and bu

4、ild a roadmap to fill them.11Embrace the transformation,one step at a time.12Take control of your CSRD journey to achieve lasting sustainability leadership.13Practical recommendations to get going.13Conclusion.15Marc Escande President,Sustain It RightMarie-Jose Privyk ESG Advisor,FinComm ServicesSei

5、zing the Corporate Sustainability Reporting Directive(CSRD)opportunity 4INTRODUCTIONWith the passing in the European Union of the Corporate Sustainability Reporting Directive(CSRD)and its mandatory application of the European Sustainability Reporting Standards(ESRS),the scale and scope of transforma

6、tion in corporate sustainability reporting practices is reaching unprecedented levels.More than 45,000 companies,including many non-European companies that do business in the EU,will be affected.There is much work to be done,requiring a paradigmatic shift in how companies manage and report their sus

7、tainability-related issues.And while very many companies will need to embrace this change,each one must cut its own path.Companies need to take control of their CSRD journey,owning the process of transforming their practices from the inside to truly embed sustainability into their business model.WHA

8、TS THIS ABOUT,AND WHY ITS HAPPENINGThe context of the EUs Sustainable Finance Action PlanAs part of its European Green Deal sustainable economic growth strategy,the European Union(EU)has developed a comprehensive policy agenda on sustainable finance called the EU Sustainable Finance Action Plan.This

9、 action plan articulates a series of regulatory measures designed to reorient capital allocation towards more sustainable economic activities,recognizing the power of finance to change corporate behaviour,outcomes,and ultimately impacts.These measures include the Sustainable Finance Disclosure Regul

10、ation(SFDR),the EU Taxonomy,the Low Carbon Benchmark Regulation and of course,the Corporate Sustainability Reporting Directive.The Corporate Sustainability Reporting Directive(CSRD)The CSRD is a policy directive adopted by the European Union to strengthen sustainability disclosure and accounting rul

11、e making,in order to foster greater transparency and long-termism.It amends existing requirements under the Non-Financial Reporting Directive(NFRD)in order to address deficiencies in current corporate sustainability disclosures to make them widely available,comparable,and reliable and therefore bett

12、er meet the needs of investors and other users of this information.It makes disclosures widely available:by applying to more than 45,000 companies both public and private,large and small,including roughly 10,000 non-EU companies that have operations or revenues in the European Union;all these compan

13、ies will be legally obligated to publicly disclose sustainability information.Are you in scopeof the CSRD?Find out hereSeizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 5It makes disclosures comparable:by making it compulsory for all these companies to use the same specific s

14、et of reporting standards.It makes disclosures reliable:by making it compulsory for all these companies to have their standardized disclosures externally assured.It makes disclosures discoverable and shareable:by making it compulsory for disclosures to be delivered in a digitized and XBRL-tagged for

15、mat,making them readable by both humans and machines.One of the key objectives of the CSRD is to bring sustainability-related reporting to the same level of detail,rigour,and reliability as financial reporting.It creates a whole new set of obligations for in-scope companies,one that we expect will f

16、orce a major overhaul of their existing sustainability reporting practices that includes identifying a broader scope of material issues,building new processes,collecting more and new data,and producing new sustainability disclosures all of which require creating new roles and developing new skill se

17、ts.The CSRDs European Sustainability Reporting Standards(ESRS)The centerpiece of the CSRD is undoubtedly the European Sustainability Reporting Standards,which specify the new reporting requirements that in-scope companies must satisfy.The first batch of standards approved by the European Union conta

18、ins 12 individual standards,two concerning general disclosures and 10 concerning specific topics in the environmental(5),social(4),or governance(1)categories.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 6ESRS 1-General Requirements defines the core principles that apply

19、to all sustainability reported content,such as drafting conventions,precise definitions of key concepts that define reporting scope(e.g.,sustainability matters,stakeholders,double materiality,value chains,communities,etc.),the obligation of due diligence,reporting time horizons,and disclosure format

20、.ESRS 2-General Disclosures provides the overarching structure applicable to all sustainability disclosures,very much aligned with the four pillars of the Task Force on Climate-related Financial Disclosures(TCFD),i.e.,Governance,Strategy(and business model),Impact,risk and opportunity management,and

21、 Metrics and targets.In total,the first batch of ESRS contains 1001 Disclosure Requirements(DR)comprising 1,172 unique data points,i.e.,specific quantitative or qualitative information that needs to be distinctly and digitally identified.You can access these ESRS and navigate through them by DR here

22、.Of course,companies do not need to comply with all Disclosure Requirements and disclose all data points.They are required to disclose only on the topics,the DRs,and the data points that they have determined are material to them.(See the flowchart for determining disclosures under ESRS in Appendix 1

23、.)First batch of ESRS standards adopted by the EU:More standards are comingThe CSRD calls for a very comprehensive set of standards to be developed over the next three+years,including a light version of the standards for publicly traded small and medium enterprises(SMEs),voluntary standards for priv

24、ate SMEs,standards for non-EU parents of in-scope EU companies,sector-specific standards,and several additional topic-specific standards.1 82 stated Disclosure Requirements and 18 topic-specific DR to be applied in conjunction with ESRS 2;see ESRS 2,Appendix CSeizing the Corporate Sustainability Rep

25、orting Directive(CSRD)opportunity 7WHATS SO COMPLICATEDDefining materialityMateriality essentially means significance or importance.It is arguably the most important piece of the CSRD/ESRS puzzle in fact,its the starting point.2 Simply stated,companies shall only report on sustainability matters tha

26、t are deemed material in the context of their business.The expanded scope of double materialityUnder the CSRD,a sustainability matter is material if it meets the definition of impact materiality,financial materiality,or both.3 Impact materiality:a sustainability matter is material from an impact per

27、spective when it pertains to the companys material actual or potential,positive or negative impacts on people or the environment over the short-,medium-and long-term.4 This is commonly referred to as an“inside-out”materiality perspective.An example is the pollution of waterways for a chemical manufa

28、cturer.Financial materiality:a sustainability matter is material from a financial perspective if it generates risks or opportunities that affect or could reasonably be expected to affect the companys financial position,financial performance,cash flows,access to finance or cost of capital over the sh

29、ort,medium or long term.5 This is commonly referred to as an“outside-in”materiality perspective.An example is the access to potable water for a beverage producer.As per the directive,the ESRS require companies to report sustainability matters“based on the double materiality principle”.6 Of course,th

30、e key question is how to determine whether a particular topic or data point is material or not.To help companies in this process,the European Financial Reporting Advisory Group(EFRAG),which created the ESRS,has recently published non-authoritative Guidance for the Materiality Assessment and Implemen

31、tation Guidance on Value Chain(in final draft form at publication of this paper)Due diligence and stakeholder engagementThe ESRS do not spell out in great detail how to conduct a materiality assessment;they refer instead to the ongoing process of due diligence defined in the UN Guiding Principles on

32、 Business and Human Rights and the OECD Guidelines for Multinational Enterprises,the outcomes of which inform a companys assessment of its material impacts,risks,and opportunities.2“Materiality assessment is the starting point for sustainability reporting under ESRS.”;see ESRS 1,art.263See Annex II

33、of the ESRS Delegated Act 4,5Ibid6See ESRS 1,art.21Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 8However,the standards do identify engagement with stakeholders as a core element of the ongoing due diligence process and subsequent determination of material sustainability

34、matters.ESRS 1 defines stakeholders as either(i)those whose interests are affected or could be affected by the companys activities across its value chain or(ii)users of sustainability statements,including investors,creditors,insurers,but also business partners,trade unions,governments,or analysts.Th

35、e expanded scope of value chains and time horizonsUnder the CSRD,the materiality assessment exercise becomes exponentially more significant because companies must take a whole-of-value-chain approach.When conducting an impact materiality assessment,companies are required to consider those impacts co

36、nnected with their own operations and upstream and downstream value chain,including through their products and services,as well as through their direct and indirect business relationships.For example,a computer chip manufacturer that outsources its manufacturing may not consider access to water to b

37、e a material issue for its own operations,but it becomes material when taking into account its upstream supply chain.Furthermore,companies are required to consider impacts,throughout their value chain,over the short term(i.e.,their reporting period),medium term(up to five years out),and long term(mo

38、re than five years out).For example,most physical and transition risks related to climate change are not discernable in the near term,but become critically material when looking farther into the future.The opportunity withinProperly framed and executed,a double materiality assessment that takes into

39、 consideration a companys entire value chain over the short-,medium-,and long-term horizons will not only provide a company-specific lean and clean CSRD reporting scope that will ensure compliance with the regulation while encompassing only pertinent information for users of the report;it will also

40、lay the foundation for a roadmap to sustainability excellence,with clearly mapped and prioritized sustainability-related impacts,risks,and opportunities.Therein lies the opportunity for companies to truly embed sustainability into their business model and strategy.Properly addressing context and sta

41、keholdersThe challenge for any company is that properly framing and executing a double materiality assessment is far from being a slam dunk,and the risk of getting it wrong is actually very high.Its all too easy to either oversimplify or overcomplicate this critical exercise,leading in both cases to

42、 a poor outcome,a missed opportunity to create value,and potentially significant legal and reputational risks.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 9Oversimplifying a double materiality assessment occurs when a company fails to recognize that materiality is determ

43、ined by context,which may vary within the scope of its operations from one location to another or from one business unit to another.Such variations originate from three main sources:Geographic location:materiality depends on the physical location of each site-e.g.,cost and access to natural and huma

44、n resources,exposure to physical risks of climate change,etc.Nature of operations:different business activities give rise to different material sustainability matters,especially when considering not only the companys own operations but its value chain-e.g.,a diversified conglomerate offering enginee

45、ring services and manufacturing defense equipment.Jurisdiction:laws,regulations,and market forces influence the materiality of sustainability matters-e.g.anti-corruption measures in countries ranking low on the Corruption Perception Index.Failing to acknowledge these materiality variations by conduc

46、ting a one-size-fits-all double materiality assessment inevitably leads to negative consequences,with parts of the business forced to report on data points that are not material to them,while other parts get a pass on sustainability issues that are actually material to them.Avoiding this oversimplif

47、ication pitfall requires building a double materiality assessment framework structured around differentiated materiality profiles by organizational unit.Conversely,overcomplicating a double materiality assessment can arise when poorly configuring and executing the stakeholder engagement process,the

48、consequences of which can undermine the remainder of the companys CSRD reporting journey.Choosing stakeholders is tricky,especially when it comes to impact materiality,not only because the very notion of impact is subject to interpretation(and it is not obvious to set thresholds),but also because th

49、e right stakeholders may differ considerably from one sustainability matter to another.Indeed,properly assessing the materiality of sustainability matters such as climate change mitigation,soil pollution,water consumption,biodiversity loss,collective bargaining for ones own workforce,adequate wages

50、for workers in the value chain,protection of children for end users,or protection of whistleblowers,each require engaging with a different set of stakeholders(experts,affected communities,consumer groups,NGOs,users of sustainability reporting,etc.).Engaging with all stakeholders on all issues introd

51、uces a lot of noise into the materiality assessment and risks skewing the results.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 10Avoiding this overcomplication pitfall requires building a double materiality assessment framework structured around a segmentation of stakeho

52、lders by sustainability matter.In fact,to achieve a company-specific lean and clean CSRD reporting scope,we believe the double materiality assessment must be structured around a three-dimensional framework,through which specific sustainability matters are connected to specific organizational units,a

53、nd stakeholders are requested to assess the materiality of specific sustainability matters in specific organizational units see below.The three-dimensional CSRD double materiality assessment management framework:Source of image:Sustain It RightIt then becomes possible to establish a materiality filt

54、er by geographic area,activity type,and jurisdiction,and to segregate stakeholders by sustainability matter and organizational unit.The result is an efficient materiality assessment,properly segmented and documented,upon which the right materiality analyses are completed at the right places,by the r

55、ight stakeholders.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 11HOW TO TAME THE BEASTIdentify CSRD compliance gaps and build a roadmap to fill themOnce the material sustainability matters have been identified for each of the companys organizational units,the next step i

56、s figuring out whether its possible to comply with the reporting requirements associated with these sustainability matters.This step can prove just as challenging,both because of the breadth and depth of the ESRS disclosure requirements described above and because the breadth of sustainability matte

57、rs increases with the number and diversity of organizational units.To complicate matters further,compliance with the reporting requirements also depends on the ability of each organizational unit to produce the required information and data points,in such a way that this data can be consolidated at

58、the company level.For example,a company may have implemented a system capable of breaking down energy consumption by energy source(e.g.,coal,thermal,nuclear,renewables)as required by DR E1-67 in some of its operational sites but not all.Similarly,some subsidiaries may have implemented an HR system t

59、o collect diversity metrics as required by DR S1-98 but others do not collect this data,or collect it differently.And because sustainability matters live in many different departments throughout the company,many different departments beyond Finance and Sustainability/ESG will need to be involved in

60、the readiness assessment and preparation to produce CSRD-compliant disclosures including HR,Legal,Manufacturing,Procurement,R&D,Internal Audit,and Information Technology,to name a few.For these reasons,we believe that performing a CSRD compliance gap assessment also requires a three-dimensional fram

61、ework,this one connecting specific Disclosure Requirements on specific sustainability matters to specific organizational units,and designating individuals assigned to evaluate any compliance gaps and eventually address them.The three-dimensional CSRD compliance assessment management framework:Source

62、 of image:Sustain It Right7Disclosure Requirement E1-6 of ESRS E1-Climate change8Disclosure Requirement S1-9 of ESRS S1-Own workforceSeizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 12Embrace the transformation,one step at a timeCompleting a double materiality assessment and

63、 a CSRD compliance gap assessment through the three-dimensional management frameworks mentioned above will probably result in a worrisome number and variety of compliance gaps,scattered across the organization.But theres no need to panic.Such a gap-heavy outcome is likely inevitable,some might say b

64、ecause the ESRS have set a very high bar for everyone,even for seasoned sustainability reporters.Given the tight deadlines imposed by the CSRD,few companies,if any,are expected to be fully compliant when publishing their first ESRS sustainability statements.In fact,its pretty clear that the CSRD and

65、 its ESRS are ushering in an inevitable transformation of corporate sustainability reporting practices.The European Commission has acknowledged this reality and has made provisions giving companies some latitude to achieve full compliance,not only through a series of phase-ins,but also by stipulatin

66、g that the ESRS disclosures will be subject to limited assurance during the first two years.In essence,with limited assurance the auditor will focus on verifying that the company has followed a robust process to complete its sustainability materiality assessment,has identified the compliance gaps on

67、 each material matter in each part of the organization,and has properly documented its efforts to achieve full compliance with a time-phased,adequately resourced action plan and clear accountability.The robust three-dimensional management frameworks described above make this possible,reducing assura

68、nce costs and the risk of fines for non-compliance.Of course,all of this will take time and much effort.Companies should resist the temptation to cut corners and consider compliance with the CSRD not as a sprint,but as a transformational journey that is likely to comprise:Educating all employees abo

69、ut the CSRD stakes and how they can contribute Collecting or acquiring new sustainability-related data(e.g.,third-party estimates when value chain data is unavailable)Improving the quality of existing sustainability-related data(data definition,traceability,validation,etc.)Extending internal control

70、 measures to sustainability-related information,to ensure their quality,accuracy,and exhaustiveness“15 years of sustainability reporting experience buys you.30%ESRS compliance”Corporate Disclosure articleSeizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 13 Progressively autom

71、ating the generation of quantitative data points Using data to better identify and manage sustainability-related risks Acquiring new sustainability-related skills(and deciding whether to outsource these new skills or bring them in-house)Implementing sustainability-related incentive schemes at all le

72、vels of the organization Sharing or transferring responsibilities for preparing regulatory disclosures with/to the Finance department.TAKE CONTROL OF YOUR CSRD JOURNEY TO ACHIEVE LASTING SUSTAINABILITY LEADERSHIPThe magnitude and complexity of the CSRD compliance effort will feel overwhelming to man

73、y companies and their first reflex may be to outsource the management of the entire program to a third-party service provider.This would be a terrible mistake.The very purpose of the CSRD is to embed sustainability into the companys business model.This cannot happen if the compliance program is outs

74、ourced.Instead,it risks transforming CSRD compliance into a costly bureaucratic exercise,with limited effect on how the company conducts its business and even worse,little or no positive outcomes on its operating performance,risk management and long-term resilience,or the management of its impacts o

75、n people and the environment.This is why companies need to truly step up to the challenge by taking full control of their CSRD journey.Practical recommendations to get going1.Appoint your best program manager to lead the CSRD journeyFor the many reasons described in this paper,achieving CSRD complia

76、nce is intrinsically a very complex program to manage.It is therefore quintessential to pick your best program manager to lead this transformational effort.The selected individual does not need to be a certified sustainability expert(hardly anyone has detailed expertise across the entire CSRD scope

77、anyway),but should instead possess a deep knowledge of the companys operations,including its value chain.This CSRD Program Manager should be dedicated to the task on a full-time basis until the compliance program has reached sufficient maturity and stability.They should be granted the necessary auth

78、ority to engage with all departments and all stakeholders,and should be accountable to the highest level of management.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 142.Infuse knowledge of the CSRD throughout your organizationNo transformational program can succeed if it

79、is not fully embraced.The CSRD Program Manager should orchestrate the design and the delivery of a CSRD curriculum throughout the organization,because its critical to ensure that every employee who will need to contribute to or be impacted by the CSRD understands the purpose of the new regulation an

80、d becomes sufficiently familiar with its requirements,to the extent of their involvement.3.Complete a“3D”double materiality assessmentThe CSRD Program Manager should implement the three-dimensional double materiality assessment framework described above to conduct a materiality assessment that is bo

81、th as comprehensive and efficient as possible.4.Complete a company-wide“3D”CSRD compliance gap assessment The CSRD Program Manager should also implement the three-dimensional compliance assessment framework described above,as an opportunity to identify and secure the necessary resources to progress

82、toward full compliance.This is achieved by pinpointing individuals within the company who can determine whether the specific organizational unit or department has the policies and programs in place and can provide the information required on specific sustainability matters,whether the gaps to addres

83、s pertain to disclosing or managing these matters,and what plans might already be in place to address these gaps.Armed with this knowledge,the Program Manager can build a CSRD compliance roadmap and its associated resource plan(people and tools).Ideally,the CSRD compliance gap assessment is conducte

84、d based on the results of the materiality assessment.However,in the interest of time its possible to conduct both exercises simultaneously by configuring the gap assessment for all CSRD components that are either obviously or probably material;sustainability matters later determined to be non-materi

85、al can simply be removed from the management framework.5.Set the stage for assuranceIn preparation for the external assurance of the companys sustainability statements,the CSRD Program Manager can run a compliance gap assessment and share the outcome with the auditors,documenting compliance status a

86、nd accountability by material Disclosure Requirement and by organizational unit.6.Pursue sustainability excellence goals beyond CSRD complianceProper management and disclosures on material sustainability matters represent a continuous improvement process.Companies should consider the CSRD compliance

87、 exercise not as an end in itself but as a catalyst to truly embed sustainability into the companys business model and achieve lasting sustainability excellence.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 15CONCLUSIONThe advent of the CSRD and its ESRS represents a step

88、 change in what companies are expected to do and disclose when it comes to sustainability matters.By embracing the spirit of the law,which is to drive companies to better identify and manage their environmental and social impacts and their related risks and opportunities,companies have a unique oppo

89、rtunity to truly embed sustainability into their business model,from strategic to operational decisions and everything in between.This is how they can become true sustainability leaders.It will take time and authentic effort.Successful companies will be those that embrace the complexity of the CSRD

90、and follow Einsteins advice of making it as simple as possible,but not simpler.Seizing the Corporate Sustainability Reporting Directive(CSRD)opportunity 16Appendix 1-flowchart for determining disclosures under ESRSSource:ESRS 1,Appendix ESeizing the Corporate Sustainability Reporting Directive(CSRD)

91、opportunity 17About Sustain It RightSustain It Right is a unique SaaS platform enabling a safe and efficient journey towards full CSRD compliance and building in-house foundations for lasting sustainability leadership.Thanks to its intuitive user interface,its maximum flexibility and scalability,and

92、 its easy setup,the SIR Platform allows you to manage seamlessly the whole CSRD process:due diligence,double materiality assessment,compliance gap assessment,people engagement,implementation plan,tracking&monitoring,and preparation for assurance.The SIR platform has been designed to suit any company

93、,whatever the number and complexity of business units and geographic spread,the range of materiality profiles and the diversity in ESG maturity.Book a About FinComm ServicesFinComm provides information and advisory services tailored to meet companies specific needs and circumstances so that they can

94、 take action with clarity and confidence,wherever they happen to be on their ESG and sustainability reporting journey.Services include sustainability reporting strategy development,ESG disclosure guidance,educational programs,and reporting quality assessment for continuous improvement.With rapidly e

95、volving ESG and sustainability practices and mounting pressure from investors and other stakeholders to act,FinComms deep expertise helps companies cut a clear path to decision-useful sustainability reporting as part of an effective management program that creates value for the company and for socie

96、ty.Get clarity.Produce fit-for-purpose reporting.Unlock About Novisto Novisto has developed an ESG management platform that goes beyond data,helping companies clarify,build,and evolve their sustainability performance for the long term.Founded in Montral in 2019,Novisto is a private company backed by Inovia,White Star Capital,Diagram Ventures,Portage,and SCOR Ventures.For more information,please visit:Request a demo here.