CSRD – The Great Leveller, a Strategic Driver, or Both?
19th May 2023
Insights
Alex McKay, Anthesis’ Associate Director, reflects on how CSRD is raising the bar for sustainability reporting.
Creativity and differentiation have been the name of the sustainability game for the last decade. Companies have created inspiring strategies, with catchy names, slicing their material topics in a myriad of ways to wow stakeholders with their innovative approach as much as their impact. This creativity has flowed into reporting – glossy brochures, inspiring case studies and innovative methodologies, with varying amounts of reference to standards. An opaque GRI Index is often tucked away at the back of the report leading to content that doesn’t really answer whether any of this is making a material difference to environmental and social issues.
The new Corporate Sustainability Reporting Directive (CSRD) and supporting European Sustainability Reporting Standards (ESRS) will change all that. The standards will impose a far more formulaic approach to reporting – reporting against the standards rather than alongside – and raising the bar on governance, due diligence and process.
What does it mean for the future of reporting? I see two main trends:
- A levelling up on transparency. Show-case stories can disguise a multitude of sins, giving the impression of more action than there is, especially with a handful of date gaps. The (incredibly pragmatic) ‘comply or explain’ approach in GRI allows companies to avoid uncomfortable disclosures (I’m looking at you 2-21 Annual total compensation ratio). Assurance and mandated compliance levels the playing field, removing these hiding places and allowing direct comparison.
- Reporting suite (the continuation of a trend rather than something new). Sustainability/ESG reports have a proliferation of audiences. ESRS compliant reports may not necessarily meet the needs of all those audiences or of the companies leading the sustainability charge. I foresee the continuation of shorter, glossier, story-based reports to complement the compliance-focused, data-led reporting of ESRS, ISSB, TCFD, Gender Pay Gap etc.
In short, CSRD will raise the bar massively. The baseline of governance, materiality and due diligence move beyond what even many leading-edge companies are currently doing. The forcing hand requiring disclosure will push companies to improve data management and open up about more ‘sensitive’ disclosures. Whilst companies are engaging with the concept of double materiality, the methodology is still emerging and there is still a question mark over how this process and its outcomes will be cemented in business reporting. However, it’s clear companies can no longer purely focus on financial risk or ESG impact – both are essential, and we expect to see this become business as usual for organisations of all sizes.
But we will still have companies that want to demonstrate excellence and make sustainability part of their USP. There is value in finding your narrative and using strategic communications to find ways to push your sustainability messaging to receptive .
If you are looking for help in getting started with CSRD – check out our free webinars from our in-house experts on non-financial and ESG reporting. Or if you are interested in how can you meet the emerging regulatory requirements on double materiality, but also use the process to make your organisation more sustainable – read more in our free guide.
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