Elevating Sustainability Reporting Through Technology

Introduction

Organisations face increasing pressure to meet the new reporting demands of The Corporate Sustainability Reporting Directive (CSRD) which requires greater transparency and disclosure of ESG related data.  In scope organisations will be required to source and report on significant amounts of ESG data, much of which will be external to their organisation and may not currently be captured.  Failure to meet the requirements of the CSRD will likely lead to financial penalties and/or reputational damage.

CSRD - What is it?

CSRD is a regulation adopted by the European Parliament to expand sustainability reporting as part of its move to a green and sustainable economy, bringing sustainability reporting in line with financial reporting. 

The new framework will be rolled out from 2024 with in scope public interest entities required to deliver reporting in 2025, so the countdown is on in terms of collecting data now for 2024 reporting.  Companies will be required to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and the planet – this principle is called ‘double materiality’.  Approximately 50,000 companies within the EU will be in scope of the CSRD.

Why is CSRD challenging?

Integral to CSRD, are the European Reporting Standards (ESRS).  These are detailed standards adopted by the European Commission for use by all companies subject to the CSRD and cover a broad range of ESG topics, with over 1,000 data points potentially in scope for reporting. 

Organisations will need to identify the standards that apply and define a data collection strategy and data governance model to successfully manage and report utilising this data with the appropriate robust IT infrastructure, incorporating data collection, calculations, and disclosures.  This will include identifying and sourcing data from third parties such as suppliers.

How are organisations responding to data challenges?

Organisations may look to utilise end-user computing (EUC) tools such as excel to support their CSRD reporting processes. While such tools are highly flexible providing strong functionality, there are downsides, namely:

• Increased operational risks around misreporting due to lack of controls and higher costs due to manual nature of the reporting process.
• Inability to support data lineage and support audit requirements (a requirement under CSRD).
• Not being databases, performance issues can be encountered over time due to data volumes being manually added.

What should they consider in terms of leading practice?

Organisations should look to develop an enterprise-wide CSRD data and technology strategy, architecture and supporting road map.  This should balance the need for both tactical, and short-term solutions with a strategic, long-term vision that considers likely use cases required in the next 3 years, thereby future-proofing the organisation from expected future changes to the standards and likely to further increase the reporting burden.  Ideally, this should be defined before organisations decide on investing in any CSRD tool. 

Organisations should also consider implementing a robust data governance model for CSRD with a dedicated CSRD / ESG reporting lead with overall accountability for data governance and ideally supported with an appropriate cross-functional steering group. 

Ultimately, the goal should be for CSRD reporting to be embedded within BAU and ideally subject to continuous review to identify improvement opportunities.   Getting the right processes, solutions and data in place is critical to de-risking, whilst also delivering efficiencies.

Summary

Whilst the flexibility, cost and ease of access of EUC solutions may be appealing to support CSRD reporting, the reality is that organisations should really look to invest in solutions appropriate to deal with end-to-end regulatory reporting requirements underpinned by robust data and technology strategy and architecture.

One of the lessons learned from regulatory reporting in other sectors, such as financial services is that regulatory demands will only increase, with more reporting requirements, to be delivered faster, more often and with an increased level of granularity.