How CSRD enables companies to go beyond sustainability reporting

Today, with greater emphasis on the Corporate Sustainability Reporting Directive (CSRD), sustainability and environmental leadership are in focus. The CSRD, a European Union (EU) legislation, requires all companies across Europe to publish information on the environmental and social impacts of their businesses and the business impact of their environmental, social and governance (ESG) initiatives.

So, how do you meet the CSRD demands and how does it provide you an opportunity for a holistic transformation? Let’s explore.

The current ESG scenario

The ESG benchmarking is important for two reasons—it provides a closer look at a company’s sustainability performance and offers insights about its targets and strategies. The ESG benchmarking involves systematically comparing a company’s environmental impact, social practices and governance standards to those of its peers within the industry. In this way, it helps to identify the sustainability gaps and plans future strategies while promoting transparency, accountability and risk management.

But the challenge is that companies often report their best efforts and past performances, whereas ESG benchmarking requires companies to assess their progress toward goals or targets. Not to mention, the criteria to assess good performance varies from industry to industry.

Shift from baseline reporting to proactive ESG target-setting

As the CSRD pushes companies toward committing to leading metrics and science-based targets, they should consider ESG data to serve the purpose of target setting and driving goals within the organization while going beyond baseline reporting.

One key factor to make it possible is real-time data collection from transactions to generate ESG insights. For instance, when you collect data from your organization at the time a loan originates, as a shipment leaves, or when a new purchase is made, that data allows translating actions and compliance into materiality, which in turn unveils your baseline. It answers questions about your performance, gaps, measures needed, investments required, etc. Like the financial data, which you use to discuss performance incentives and budgets, use this data for a cyclic model—to better manage operational performance and transformation.

The crux is that there is no single regulatory framework that everyone complies with. Various governments, industries and industry bodies have different targets and compliance models, but they all start feeding off the same data. The CSRD exemplifies future-readiness. And companies need to shift from baseline reporting to proactive ESG target-setting, using real-time data—to manage performance and meet evolving demands of regulations such as the CSRD. Some of the best-in-class companies take a holistic approach, moving beyond compliance-driven reporting to leveraging sustainability data strategically to create value and resilience.

The three key CSRD demands

The CSRD demands three important things—broad range of disclosure initiatives, traceable data and better stakeholder collaboration. Let’s look at each of them in detail.

1. Broad range of disclosure initiatives: When companies report on sustainability, they need to focus on material topics that matter to them the most and that could vary depending on the industry they belong to and the operations they carry out. 
   
   
2. Traceable data: In the coming years, there will be further enhancements to the regulations. In that scenario, what’s required is traceable data over manual processes, and companies would require machine-readable data and a standardized information model, ensuring accuracy.
   
   
3. Better stakeholder collaboration: Collecting ESG data is no longer the sole responsibility of the sustainability teams of organizations. With the number of upcoming regulations and the need for traceable data, there needs to be broader stakeholder collaboration, including technology, risk and compliance, finance, procurement and sustainability teams. It also demands a cross-functional view on who owns, manages and certifies the data.

Emphasizing the importance of this type of view at our recent workshop,  Acting for Impact: Leading with ESG- Data, Technology, and Partnerships in Amsterdam, Manoj Mathew, Global Head of Sustainability Practice at Cognizant , said, “While preparing the ESG report at Cognizant this year, for the first time, four stakeholders—the Chief Sustainability Officer, the Chief Financial Officer, the Head of Delivery Excellence and the Head of Sustainability Practice—were required to individually certify different parts of the report. Usually, the Chief Sustainability Officer alone would certify the whole report.”

Enabling a holistic transformation with CSRD

The CSRD enables companies to build their foundations through the process of defining goals, understanding what’s material and prioritizing it, setting targets and creating data and technology strategy that can drive targets and measure progress in real time.

Interestingly, the CSRD compliance can go a long way with the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) in the EU and Securities and Exchange Commission (SEC) regulations in the US.   

The CSRD enables utilizing data for business operations. It will raise questions in terms of how businesses can procure, build financial products and manage risks differently. In short, the CSRD drives companies to rethink data models, prioritize materiality and use data beyond reporting—creating opportunities for holistic transformation.

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