Implementing CSRD for sustainable transformation

As the urgency for environmental action increases, the private sector faces growing demands for action, transparency, and accountability. With the European Union leading the charge, the Corporate Sustainability Reporting Directive (CSRD) has emerged as a key lever for sustainable transformation towards net-zero. Director of Sustainable Transformation, Anne Philipona-Hintzy explores the intricacies of CSRD, its background, and how to use CSRD for sustainable transformation.

Background: How We Ended Up Here

Recent studies indicate that six out of the nine critical planetary boundaries have already been exceeded, signalling an urgent need for comprehensive climate action. Unfortunately, the response from the private sector remains insufficient. In this context, the role of ambitious European regulations becomes crucial, offering a beacon of hope for a sustainable future.

In 2019, a significant milestone was achieved with the adoption of the European Green Deal. Ursula Van der Leyen, President of the European Commission and a key figure in this initiative, described the European Green Deal as a dual-natured strategy. It is “on the one hand, our vision of a climate-neutral continent by 2050 and, on the other, a very precise roadmap for achieving this goal.” It outlines fifty concrete actions for 2050 and is a detailed roadmap to achieve this ambitious goal.   Its aim is to reconcile the economy with our planet, to minimize the impact of the way we produce and the way we consume on the environment, and ensure benefits for citizens.

The Sustainable Finance Action Plan: A Blueprint for Change

The European Commission’s “Sustainable Finance Action Plan” plays a pivotal role in this transition. Key actions include:

1. Establishing a unified taxonomy: Creates a common language to define “sustainable” and high-impact activities
2. European labels for green financial products: Promote environmentally responsible investment options.
3. Sustainability in Investment Processes: Requires asset managers and investors to incorporate sustainability considerations.
4. Enhanced Transparency in ESG Reporting: Ensures companies disclose environmental, social, and governance information more transparently.

The objective is clear: to make ESG information a pillar of companies’ economic performance, in order to sustainably transform the European economy. Beyond that, this information will substantially change the way in which companies are valued. It’s a paradigm shift that concerns a large proportion of European and Non-European companies: those with more than 500 employees and more than 25M€ in balance sheet or 50M€ in revenue, listed SMEs and subsidiaries of international groups with sales of over 150M€ in Europe. Following its introduction, the CSRD will now impact an estimated 50,000 companies, a significant leap from the 10,000 companies previously reporting CSR information.

How can we make sustainability reporting a pillar of corporate economic performance?

To integrate sustainability into the corporate fabric, ESG reporting must reach the same level of rigor as financial reporting. This involves:

• Standardisation of ESG Reporting: Standardise and impose comparable, transparent, reliable and auditable ESG information of equivalent quality to financial information, thanks to the ESRS reference framework
• Reporting Alignment: Align ESG reporting with financial statements.
• Board Approval and Audit Requirements: As for financial information, have sustainability reporting approved by the Board of Directors
• Have ESG reporting audited by the Statutory Auditors or PSAI (independent assurance service provider), thanks to an ESG reporting audit framework applicable to all auditors who are under the supervision of the H2A (High Audit Authority),
• Digital Publishing: Publish ESG reports digitally in European Single Electronic Format (ESEF), like financial information.

The CSRD introduces 12 standards under three ESG themes and four reporting areas, emphasising governance, integration into business models, risk management, and clearly defined indicators and objectives, including:

• How governance takes each of these issues into account,
• How these issues are integrated into strategy and the business model
• How impacts, risks and opportunities are identified and managed in the value chain
• What are the indicators, what are their trajectories and objectives, and what are the associated resources to establish the transition plan

Risk Analysis

CSRD requires companies to conduct a double materiality assessment, encompassing both financial and impact risks. a good risk analysis, broadened to include stakeholders, is the starting point for assessing the most important issues (known as “material” issues), and for mobilizing the company around priority issues.

Preparing for 360° Reporting: A Holistic Approach

The reporting is designed to be comprehensive, catering not only to corporate management, shareholders and stakeholders but also and above all, shared reporting with internal change agents, so that each KPI is a tool adapted to transformation on the ground.

EcoAct’s approach to maximising CSRD for sustainable transformation

ESG reporting, as mandated by the CSRD, is more than just compliance. It’s an opportunity for businesses to accelerate their decarbonisation and transformation. This new dimension of accounting is ambitious and optimistic, and should act as a transformation gas pedal.

Companies can begin to produce robust and realistic transition plans for real, lasting, and profound transformations through three key levers:

1. Science-Based Approach: EcoAct’s experience in climate, science and data-driven approaches helps to ensure the renewed robustness and continuous progress loop of transformation plans
   
2. ESG-Driven Transition Plans: Focusing on significant risks and impacts for continuous improvement.
   
   EcoAct can help build transition plans that prioritise ESG reporting on so-called “material/important” topics, for a continuous transformation loop that everyone involved takes ownership of. These plans should prioritise:
   • A company’s most important risks, with climate at the top of the list as a de facto mandatory priority, but also includes other risks, such as water resources
   • The most significant impacts that companies have on their environment; these risks enable the measurement of impact

• Human Commitment: Emphasising the importance of awareness and engagement at all organisational level to engage the hearts and minds of stakeholders, without which transformation becomes just another plan.
  
  In a broader sense, we can  help our clients get their organisations moving, so that ESG reporting becomes a catalyst for transformation, and our clients become actors of their own transformation.

Is Your Business Committed to Continuous Improvement and Transformation?

The path to sustainable transformation involves continuous improvement, robust transition planning, and active engagement in reducing greenhouse gas emissions and regenerating ecosystems. This approach ensures that businesses not only comply with regulations but also become active participants in the global fight against climate change.

The European Green Deal and the Sustainable Finance Action Plan mark a significant shift towards sustainable business practices. By embracing ESG reporting and aligning corporate strategies with environmental goals, European companies can lead the way.

I truly I believe that all this will be possible if we are committed to continuous improvement. EcoAct’s ACTR model can help business achieve this by Analysing and evaluating what is most important today, thanks to this double materiality exercise, Committing to transformation by creating robust transition plans and associated reporting to engage everyone, and to Transform, Reduce/Remove GHG emissions from our atmosphere, and Regenerate our ecosystems.

Anne Philipona-Hintzy
Director of Sustainable Transformation