CSRD – IT’S TIME FOR BUSINESSES TO DECIDE WHETHER THEY ARE SERIOUS ABOUT ESG

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The Corporate Sustainability Reporting Directive (CSRD), which came into force at the beginning of last year, will impact more companies than any other piece of sustainability regulation to date, raising the bar on disclosures across the ‘E’, the ‘S’ and the ‘G’ of environmental, social and governance (ESG) reporting. The new EU regulation updates and strengthens the rules concerning how companies have to disclose and report on their environmental and social impacts, and how their ESG actions affect their business.

Approximately 50,000 companies worldwide will be required to disclose, track and measure their sustainability performance once the staggered rollout is completed in 2028. While the UK may be outside the EU, significant numbers of UK companies will still be impacted by CSRD, given that non-EU companies that generate over EUR 150 million in the EU market will have to report. Even then, if your organisation is part of the value chain for an impacted company, it’s highly likely that you will be required to contribute to their CSRD reporting.

Unsurprisingly, the big consultancies are swarming, promoting their services to help companies, from large global enterprises through to listed SMEs (which will be in scope from 2026, with their first annual CSRD-compliant report published in 2027) comply with the new rules.

But before organisations dive into tactical compliance initiatives, they should be taking a step back and asking themselves a bigger question. Are they approaching CSRD compliance as an end in itself, or as a stepping stone on the journey to becoming a more ethical, sustainable company with a positive impact on people and local communities?

Any company can take the necessary steps to meet their CSRD requirements; they can do the bare minimum to tick the compliance box. But in doing so they will be missing a major opportunity to build customer trust, drive transformational change and set themselves up for success for decades to come.

CSRD is a fork in the road for businesses on their ESG journey

To date, so many organisations have approached ESG reporting solely as a compliance exercise. A new set of rules is introduced, they spend a heap of money with a consultancy to identify requirements, and they implement a new tool to measure and report on these requirements. Job done, move on. But few organisations really consider the wider picture when it comes to environmental or social impact.

As an example, a business might lease an EPC A-rated office, procure its energy from renewable sources, employ local tradespeople and invest in the circular economy to fit it out. The company has ticked the compliance box. But the reality is that its workforce is spending the majority of time working from home, using electricity and gas fired boilers for heating; or employees are having to drive to the office using petrol-fuelled cars. Organisations aren’t thinking holistically around ESG and digging deep into the reality of how their operations are actually impacting the environment and their communities.

In so many industries, ESG reporting has been a wild west show. With more than 1,000 ESG-related KPIs being captured across numerous standards, companies have struggled to identify what they need to measure and report on. Complexity has led to confusion, which in turn has led to greenwashing and a severe erosion of trust amongst consumers around sustainability.

CSRD tries to simplify ESG reporting by bringing in one standard across the EU. But ultimately, companies need to remember the real purpose behind the new directive – to create a more sustainable planet and more inclusive workforces and communities for current and future generations. With this in mind, you soon recognise that doing the bare minimum to comply is essentially missing the point.

In today’s world, where consumers are becoming ever more driven by ESG considerations in their purchasing decisions, businesses should be approaching ESG as a strategic priority. Those that are able to demonstrate a genuine commitment to making a positive impact, have an opportunity to create differentiation in the market, driving customer demand, brand equity, employee engagement and shareholder value.


Data and insight must be the foundation for improved ESG performance

 The hope must be that organisations increasingly wake up to the opportunities that a strategic approach to CSRD compliance and broader ESG initiatives presents.

Certainly, the standard of double materiality contained within CSRD will force a change in thinking. Businesses will need to report on both impact materiality – how the business affects or is likely to affect key sustainability factors (such as carbon emissions, workforce diversity, respect for human rights) – and financial materiality – the impact that sustainability factors have or are likely to have on finances (cash flows, exposure to risk and access to funding).

Crucially, the starting point for this has to be a thorough evaluation and understanding of the company and its operations, in the context of its history, values and culture. When thinking about CSRD, businesses need to spend time working out which requirements are relevant to them and then connect this to their infrastructure. Without this up front work, organisations can easily fall into the trap of over-reporting and waste vast amounts of money on consultancy and tools that they don’t need and won’t deliver value.

A holistic, integrated approach to CSRD reporting, bringing together and balancing the E,S and G elements, requires businesses to tap into and bring together a vast array of data sources and to ensure and maintain the quality of their data at all times. In particular, many businesses will need far greater visibility and insight across hugely complex supply chains to report on Scope 3 carbon emissions.

The data requirements for CSRD are extensive across 10 key ESG topics but with the right mindset and strategy, business leaders can leverage this data to generate game-changing insights into their operations and track how improvements in environmental, social and governance factors can drive business performance and culture.

One key area for consideration is how organisations combine their through-life asset management with ESG data, to enable them to better track the environmental and social impacts of their operations and assets throughout their lifecycle. From design and construction or acquisition, through to operational usage and maintenance, and eventual disposal, businesses can now capture real-time, IoT-enabled data on their assets and marry this against ESG performance metrics.

This approach enables more informed decision-making and targeted investment, as organisations optimise their asset portfolio and asset performance while minimising operating cost, waste, emissions, and resource consumption. It also enhances transparency and accountability by aligning financial performance with sustainability metrics, and societal outcomes, helping businesses meet stakeholder expectations, improve long-term resilience, and contribute positively to global sustainability goals.

With the roll-out of CSRD, it’s time for organisations to decide whether they are really serious about having a positive impact on the environment and their communities. ESG reporting can go one of two ways – more box ticking and greenwashing or genuine business transformation.

 

Ready to take your ESG strategy beyond compliance? At MACS, we help businesses like yours turn CSRD requirements into opportunities for genuine transformation. Whether it’s simplifying your ESG reporting, aligning your operations with sustainability goals, or leveraging data to drive business performance, we’re here to guide you every step of the way.

Contact us today to learn how MACS can help your business thrive in the new era of ESG.