The CSRD is all about reporting, right? Not exactly…

Menno Kooistra, Head of ESG Advisory, and Mark McKenzie, Director, ESG Advisory, KPMG Netherlands

Thousands of companies are currently scrambling to comply with the EU’s Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standards (ESRS).

Your organization may one of those with an urgent need to publish a compliant sustainability report within a short timeline. If so, you are likely focusing on getting your reporting process right and ensuring your sustainability data is complete, accurate and ready for disclosure. That’s entirely understandable but, in the rush to comply, it is easy to forget that the CSRD is, ultimately, not just about reporting.

What do I mean? The CSRD is a Sustainability Reporting Directive. Of course it’s about reporting! The clue is in the name, surely?

Well, yes and no.

The CSRD obliges certain companies to publish sustainability reports that comply with common standards. So, to that extent, yes it is about reporting. But, let’s take a step back and remember why the EU introduced the CSRD in the first place.

The overall objective is not simply to create thousands of sustainability reports. Sustainability reporting a tool (albeit a critical one) to achieve a much greater goal – namely, a wholesale change to the financial system. The vision the EU has is of a world where capital is channelled towards sustainable businesses, ESG-related financial risks are identified and managed effectively, and a new financial culture of transparency and long-termism drives sustainable and inclusive economic growth.

That’s what the CSRD is really for.

Why is this important for you if your company is one of the thousands racing against time to issue a CSRD-compliant report?

It matters because publishing your sustainability report is just an early step in a much bigger journey of on-going sustainable business transformation. Your short-term need is to comply with the regulation by publishing the right sustainability information at the right time. But, arguably, what you do with the information you report - and how you use it to shape and change your business in the medium to long terms – is what matters most over time.

Thanks to CSRD, you need to identify the environmental, social and governance (ESG) matters that are material to your organization and its stakeholders. You need to explain the related impacts your organization has on people and the environment. You need to identify associated business risks and opportunities and have plans in place to deal with them. You need to set relevant non-financial performance targets and implement policies and action plans to achieve them. You need to do all this not only within the scope of your own company operations but across your entire value chain.

That’s why the CSRD is not, at the end of the day, simply about complying with reporting regulation. It’s about measuring your impacts and managing your business risks. It’s about quantifying commercial opportunities and changing your business models and strategies in order to grasp them. It’s about maintaining competitive edge in your market. It’s about understanding and improving the sustainability performance of your suppliers. It’s about being in control of the environmental and social performance of your entire value chain, day in, day out, indefinitely. The list goes on, but you get the picture. CSRD is about much, much more than reporting.

Companies that only report the required information without simultaneously taking proactive and genuine action to reduce their sustainability impacts, mitigate their risks and harness their opportunities, will soon be exposed by their own reporting. Thanks to the CSRD and ESRSs, your banks, institutional investors, insurers and customers will soon have more consistent and comparable sustainability data to factor into their decisions on which companies to work with.

Organizations that fail to demonstrate, through their CSRD reporting, that they are engaged in a meaningful process of sustainable transformation will begin to appear far less attractive to their most important financial and commercial stakeholders. And that is a risk few would willingly take. 

So, what can you do now? A good first step is to understand where your organization currently stands in terms of its readiness for CSRD-driven sustainable transformation. At KPMG, we offer our clients an ESG Health Check. This comprehensive assessment process is designed by our experts to examine the essential elements of your corporate sustainability activities. It looks at the operational fundamentals you need in place to manage your company’s day-to-day sustainability performance effectively, as well as the transformational factors that can help you protect and create business value by building ESG into your strategy.

To find out more and to access our free KPMG ESG Health Check self-scan, click here.