What if you have not yet started ESG reporting? Simple, just start. Reporting non-financial data is far from easy, and it takes time. In this fourth blog post in a series on ESG-related topics, CFO Services expert Mario Matthys urges companies to start their ESG reporting, to start transforming, and to start now.
The urgency of the matter
In this blog post, I want to stress the urgency of the matter: companies must start ESG reporting. As you may recall, the European Union’s Corporate Sustainability Reporting Directive (CSRD) aims to get companies to provide more verifiable, accessible and consistent non-financial data. The first reports will cover the financial year 2024, with an initial group of large companies publishing in 2025. Over time, more and more companies will have to comply with the directive.
Because of the trickle-down effect, companies will need to start ESG reporting sooner than they might initially think
The clock is ticking
Research has shown that only 17 percent of companies are on track to meet their emissions targets, illustrating the enormous amount of work that still remains to turn ambition into action. With the new directive, the EU institutions hope to achieve more sustainable and inclusive growth. It should encourage the financial world to move more towards sustainable investments. Regardless, it is important to see this directive as an opportunity rather than an obligation.
In fact, a sustainability report may reveal inefficiencies. By addressing these and optimizing processes, you can reduce costs. A sustainability report also allows a company to be transparent about its sustainability initiatives and business practices. Being transparent about your sustainability efforts is not only good, but also necessary, as it allows you to differentiate your company.
Because of the trickle-down effect, companies will need to start ESG reporting sooner than they might initially think. For companies to seize all opportunities and make a positive impact, companies should move from compliance to transformation. This requires several steps, including a change in strategy.
The Double Materiality Analysis takes at least six months to complete. It is the basis of your strategy and therefore the basis of your ESG report.
Start to… transform
Because ESG reporting is based on a solid strategy, it cannot be done overnight. The double materiality exercise is critical at this point. What is your organization’s impact on climate, society and people and what is the impact of climate, society and people on your organization? This exercise alone takes at least six months to complete. It is the basis of your strategy and therefore the basis of your ESG report.
Once the company’s goals and strategy are defined and you know what to report on, you need to start designing a framework. The CSRD covers many aspects of sustainability. Look at each of these aspects and map out how your company is dealing with them. For instance, for Scope 1 emissions you need to ask yourself questions such as: where do we generate them, what are we doing to minimize them, how are we measuring them, how do we report Scope 1 emissions, and so on. You should expect a lead time of about six months.
Then you have to think about data management. How are you going to manage all the data you collect? You can do it manually by creating a data lake for instance, or you can purchase software from external sources. Currently, the market is flooded with non-financial data management tools that can be used to collect, analyze and ultimately report on non-financial data.
Nevertheless, people also need to understand how to report, how to work with the tools, and perhaps just as importantly, why they should do so. This requires governance and oversight for change.
While these steps overlap in time, we can conclude that transformation, ESG reports and the preparation thereof take time. The time to act is now.
People need to understand how to report, how to work with the tools, and, just as importantly, why they should do so. This requires governance and oversight for change.
