The landscape of sustainability reporting is rapidly evolving, with an alphabet soup of standards, initiatives, forums, and legislation both in and out of Europe.
The introduction of the Corporate Sustainability Reporting Directive (CSRD) has further complicated matters, leaving companies with limited time to prepare for compliance. For business leaders it's crucial to understand how to effectively navigate this overwhelming subject.
In this article, I suggest some practical strategies to embrace ESG reporting, turn compliance into a competitive advantage, and drive long-term value creation for your company.
1."Start with why": Grasping the Purpose of New Legislation
To tackle the challenges posed by climate change and other global issues, it's essential to understand the motivations behind the new legislation. Familiarize yourself with initiatives such as the EU Green Deal and the UN Guiding Principles, which advocate for transparency, comparability, and a common language in reporting. Just as financial data drives decision-making processes, ESG reporting aims to provide a similar framework for measuring and evaluating sustainability performance. Where reporting standards are at times unclear, these guiding initiatives will help you with their interpretation.
2. Embracing the "How": An Ongoing Journey
Recognize that there is no one-size-fits-all approach to ESG reporting. Instead, view it as a multi-year journey during which you gradually build experience and expertise. This journey should prioritize the development of ESG intelligence, similar to how Business Intelligence and Competitive intelligence are fundamental reporting pillars that inform strategic decision-making.
3. The Crucial First Step: Double Materiality Assessment
With a staggering number of potential data points, conducting a double materiality assessment becomes imperative. Identify and report on the specific aspects relevant to your company's operations, considering both positive and negative impacts. Applying the Pareto principle (80/20 rule) can help pinpoint the areas where you have the most significant influence and where meaningful changes can be made.
4. Details Matter, but Imperfection is Acceptable
Do not be discouraged by the lack of detailed guidelines. Start with the available data, whether it be from employee records, energy consumption, or leased assets. If certain data is unavailable, it is permissible to work with industry averages or explain why you are unable to provide specific information. Compliance is primarily about transparency, and demonstrating your commitment to improving data collection and reporting processes will reinforce your credibility.
5. Make It About Your Company
ESG reporting should extend beyond mere compliance obligations. Drawing parallels with financial reporting, consider the absurdity of producing numbers solely for compliance purposes without utilizing that information to drive your business. Similarly, your ESG analytics hold enormous value for risk assessment, integrated business strategy, and long-term value creation for stakeholders, including investors, customers, employees, and society at large.
6. Embrace cross-functional Collaboration
ESG reporting demands effective stakeholder management and interdisciplinary collaboration. You may need to engage with previously unfamiliar departments, suppliers, and partner organizations to gather relevant data. Expect diverse data formats and varying levels of granularity. By clearly communicating the purpose and benefits of this process to your stakeholders, referring back to the "why," and embracing skillful data governance, you can streamline the reporting process and ensure accurate and meaningful insights.
Conclusion: it is not as much about compliance as it is about the long-term value creation of your company.
ESG reporting may appear daunting at first, but viewing it as a strategic opportunity enables your company to thrive in a changing landscape. Integrating ESG into your corporate strategy empowers you to create positive impacts for customers, employees, and society while satisfying the growing expectations of long-term investors. Embrace the challenge, invest in data literacy and data governance, and remember that getting started is the crucial first step towards setting your company up for a positive impact and long-term success.
