50 000 companies in the EU are affected and mandatory reporting is required on CSRD.
Get ready, we will be hearing a lot more about it…
Sustainability – a Hot Market
A lot has happened in the Sustainability Market in the last few years. According to Allied Market Research, the global green teach & sustainability market is forecasted to reach USD 48.36 billion by 2027.
All kinds of companies and brands are starting to use the word ”sustainable”, net-zero, and 100% slave-free in their marketing. Whether it is a t-shirt made from ethical cotton or an ”eco” car – companies are increasingly keen to show off their green credentials. At worst, they make claims based on manipulated or biased research.
On the surface, this is good news. The climate crisis is the biggest threat to our existence, so if companies promise to reduce their carbon footprint, shouldn’t we celebrate?
Also, Investors are eager to invest in sustainable companies or impact companies – because they see that Sustainability is the future. However, they also believe ethical businesses will deliver better investment returns.
Investors are increasingly considering companies’ Environmental, Social, and Governance (ESG) activities when making investment decisions, and this sustainability trend will continue to accelerate.
Why lack of transparency and standardization creates an uncertain world
Data availability, quality, and comparability are critical to the success of ESG investments. Until now, the available date has not yet been sufficiently comparable.
While third-party ESG data providers help gather information about companies’ sustainability performance, their different methods limit the relevance of ESG scores. This lack of standardization is worsened by in-house developed methods and a lack of transparency around data collection, materiality, aggregation, and metric weighting.
Companies that use terms like ”green” are not bound by any regulatory marketing standards. It allows several brands to advertise themselves with misleading claims and untruthful products.
In a world where greenwashing and fake news occur, this has led stakeholders to be skeptical of corporate sustainability promises!
On what basis can investors, customers, and business partners verify the truth?
The key to eliminating greenwashing is transparency and standardization.
And if transparency is the key to building trust among stakeholders, then data that can be verified is the key to achieving transparency.
It is about verifying and confirming the correctness, of a statement or a claim.
In a major step towards the establishment of a new sustainability reporting system in Europe, the European Parliament adopted the Corporate Sustainability Reporting Directive (CSRD)
The rules will begin applying from the beginning of 2024 for large public-interest companies with over 500 employees, followed by companies with more than 250 employees or €40 million in revenue in 2025, and listed SMEs in 2026.
The reporting requirements will be based on the ESRSs – European Sustainability Reporting Standards.
Why another reporting framework?
In a nutshell, CSRD is the EU’s aspiration to strengthen and standardize European companies’ communication on sustainability-related information, by putting financial and non-financial information on equal terms.
ESRSs will streamline the most critical European policies and global sustainability standards into a single, unified framework.
This way, data reported by all business will be consistent, comparable, and aligned with both Paris Agreement & EU’s Green Deal (Net-zero emission by 2050).
Sustainability information will be on an equal footing with financial information where the ESRS specifies both qualitative (statements) and quantitative information (data) to be disclosed, using both a retrospective and forward-looking approach.
What are the main challenges for companies?
- ESG is entering the annual reporting process.
- Sustainability information will sit alongside financial information.
- The amount of data that needs to be collected will significantly increase.
- Sustainability statements will have to be audited by an accredited 3rd party.
- Double Materiality will enter the reporting.
What will the standards require companies to disclose?
The first drafts of ESRSs have been published.
We had a look at what kind of climate-related reporting will be required.
✔️ A transition plan and strategy: How the company takes the climate-related risks and opportunities into account and how they impact their core business.
✔️ Policies, actions and resources the company has adopted to manage climate-related risks and opportunities.
✔️Metrics and measurable climate-related targets: All scopes (1-3)
👉 If the business has a net-zero emissions target, it must disclose the scope, methodologies and frameworks appiled.
✔️ Current greenhouse gas emissions: All scopes (1-3)
👉 Scope 3 includes emissions occurring in the company’s value chain. For the food industry, this is the primary source of emissions, hence particularly important to report as precisely as possible.
✔️ Greenhouse gas emission reductions and removals, all scopes (1-3)
👉 Again, measuring and reporting Scope 3 reductions in a credible way will be particularly important as Scope 3 has the most impact on total greenhouse gas emissions in many industries such as the food industry.
Sound like a lot?
No worries. You can start to prepare today by using a framework that is already here and covering a lot of the topics!
We help you by following the steps;
- We measure your level of maturity, find your gaps and help you to decide the way forward. Click here to measure your level of maturity!
- Your sustainability work and statements can already get verified by VERIFY AGENCY which will strengthen your competitiveness and future-proof your business. Take a look at these inspiring reference cases.
- The program to verify is ISO 26000 Sustainability Standard and its self-declaration.
I hope these recommendations can help you in your work to prepare for the new EU regulation for sustainability reporting, which will be here in just about 6 months.