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How to prepare for the CSRD?
The CSRD: a big revolution or a big fail? It's in our hands!
In less than a decade, sustainability warnings will become a reality. Companies failing to meet their carbon, water, or resource budget targets will have to admit their shortcomings to investors. This will lead to turbulent board meetings, reorganizations, and urgent recovery measures, much like today’s profit warnings.
This is the very essence of the CSRD (Corporate Sustainability Reporting Directive), as well as other related regulations like SFDR for financial institutions, taxonomy, and MACF to prevent “carbon leaks.”Just like the 20th century witnessed the development of financial accounting, the 21st century is the era of integrated financial, environmental, and social accounting.
A Revolution with tangible daily effects
The impact of the CSRD is not limited to financial and sustainability departments. It will quickly affect the daily lives of all Europeans in several ways:
- Data collection and verification: everyone in the organization will have to provide data to complete sustainability reports. Operational departments will play a significant role in providing environmental data, as carbon footprints rely on operational data. HR and procurement teams will be heavily involved in social and supplier data collection. Multiple automation platforms are emerging, but human involvement is still essential in gathering data, such as scanning energy consumption invoices for multi-site companies.
- Supplier selection: companies with over 250 employees or more than €40 million in revenue will be required to report their environmental and social impact by 2028. This will impact the entire value chain and business ecosystem because large companies will turn to their suppliers to collect data and improve performance. It’s comparable to the quality processes that affected all companies in the 1990s, becoming a requirement for awarding contracts.
- Changing practices: once a company’s activities are identified as having a material negative or positive impact on the environment or society, they will be carefully scurtinized. Just as underperforming business units are evaluated financially today, activities with negative environmental and social impacts will be questioned by 2030, potentially leading to changes or even cessation of such activities.
- Career evolution: as practices evolve, so will career trajectories. Just as top talents in companies are currently directed towards business units with significant financial stakes, tomorrow’s top talents will be directed towards activities with high environmental and social stakes. Compensation packages will also follow suit. Today, only a few company leaders have a small portion of their bonuses linked to the company’s ESG performance, but this is expected to change.
Who is affected within the organization? Everyone
Non-financial reporting used to be the playground of specialists in sustainability departments.
But this has changed in the recent years. Finance, Compliance, Risk, Audit, Procurement, Supply Chain, and IT departments are now involved in preparing for the new non-financial reporting standard.
In the future, everyone will have to deal with the CSRD, just like all employees currently contribute to a company’s financial performance. Everybody will contribute to reducing the company’s impact on climate, biodiversity, water, and pollution, and will be held accountable for it.
Risks of the CSRD revolution. The risks for a “Big Fail”
Like any revolution, the CSRD carries risks:
- First risk: a technical revolution that fails to engage anyone beyond technophiles. Today the CSRD is still a topic for specialists – experts in European institutional law, non-financial reporting, and environmental sciences. The appendix II of the Director of CSRD’s delegated act is riddled with acronyms (ESRS, DR…). As recently stated by the Chief Sustainability Officer of a major French company, to get off on the right foot, one should definitely avoid discussing the CSRD!
- Second risk: a revolution that results in sophisticated reporting and data points without any connection with the real economy. The numbers involved can be staggering. Calculating over 1000 data points will be necessary, and each one must undergo rigorous validation. As one of my clients, the Secretary General of a CAC 40 group, put it, “We risk going green but ending up lifeless.” Indeed, if the CSRD turns companies into massive “ESG data factories”, many might crumble under the weight of their reporting, even before they undergo transformation.
- Third risk: rejection, misunderstanding, or quiet disengagement. If the implementation of the CSRD turns into an extensive data collection campaign, it may generate a level of rejection as big as with its noble aspirations. This is already the case. One of my clients, responsible for various reporting tasks within an RSE department, noted that operational staff anticipated the arrival of the CSRD with concerns, wondering what new figures it would require.
To succeed in the CSRD revolution. Turn integrated performance into an actual company project
The next two years are crucial for the success of the CSRD revolution in Europe. The European institutions have set ambitious goals, including the concept of double materiality. Now, it’s up to companies to implement these changes with the same ambition.
Those responsible for CSRD programs within companies play a crucial role. To start implementation successfully, the first step is to communicate the very essence of the CSRD to employees and emphasize the connection between regulatory compliance and actions aimed at addressing climate and biodiversity challenges.
Communication on the CSRD should demonstrate how this regulation can be a powerful lever for redirecting a business in a sustainable direction. It’s all about aligning internal climate activism with the CSRD rather than opposing them.
Why this guide by Needl?
To contribute to this critical communication phase, Needl has published this guide, a digest of the CSRD. It’s designed to be accessible to everyone, especially non-specialists.
Needl is the first platform connecting experts and freelancers dedicated to the environmental transition. Needl connects you with the expertise and skills needed for this revolution, including project management, communication, change management, and expertise in regulations and environmental issues.
With Needl, you can mobilize expertise with agility and flexibility, selecting experienced freelancers and independent consultants. Needl has been a mission-driven company since May 2021. This guide is intended for all employees who aren’t experts in non-financial reporting but want to contribute to making their professional activities more sustainable as European citizens.
