With the close of the first quarter of 2024, time is advancing towards both to the deadlines for compliance with the Corporate Sustainability Reporting Directive (CSRD) and the start of the new benchmarking season. However, one of the biggest challenges facing companies (identified by 72% of respondents in our survey for the State of ESG 2024 report) is collecting and managing ESG data across the business. This challenge becomes more pressing during the benchmarking and reporting season and is closely linked to the second most cited challenge of budget and resource limitations (39% of respondents, an increase of 8 percentage points compared to 2022).

To combat these interlinked challenges, companies can take several steps to confront this including:

1. Using double materiality as a strategic foundation
2. Creating a strong system of informed and empowered topic owners
3. Identify areas of overlap and interoperability in ESG reporting

The rest of this article explores these three steps, and the attached downloadable document summarises the key recommendations.

1. Using double materiality as a strategic foundation

Fittingly, as a part of the CSRD, the first step towards compliance is completing a double materiality assessment. This exercise allows a company to get a strong understanding of its risks, opportunities, and impacts (both potential and actual) from a financial and impact materiality perspective. Once this assessment has been carried out, a company can leverage its outcomes to review its strategic priorities.

Companies are advised to start with mapping the material topics to the company strategy to better understand how these issues should be reported on. For example, if human rights came up as a material issue, the company should implement and disclose a comprehensive human rights policy, due diligence approach, remediation actions, and a target for screening.

This not only contributes to complying with CSRD, but a company also showcases its commitment to manage these material issues in ways which typically align with what ESG benchmarks are looking for. More importantly, the benchmarks can gauge how ambitious a company is in its management of these issues by virtue of the way they measure a company against the rating’s standard as well as its peers.

Finally, benchmarks are quicker to react to stakeholder questions and requests as compared to the slower moving regulatory landscape, including helping a company to identify any emerging issues. For example, S&P Global’s introduction of the Biodiversity criterion in its Corporate Sustainability Assessment (CSA) in 2022 pushed companies towards a commitment and management approach years before it might appear in a company’s CSRD mandate. In essence, CSRD can be the starting point for compliance, but ratings agencies are continuing to push companies forward to be leaders in sustainability.

2. Creating a strong system of informed and empowered topic owners

To become a leader in the eyes of the benchmarks, companies must rely on their internal topic experts across the business, beyond the sustainability department. For example, questions on labour practice indicators require a strong link towards the HR department, a link that will serve the company well in responding to the topical standard ESRS S1 Own Workforce. Creating strong channels of communication and collaboration with these topic owners is key to having a community of agile data owners who can help the sustainability team execute its mission. It also creates a shared sense of responsibility and commitment towards achieving the company’s sustainability goals.

A key point to drive this engagement is consistent touchpoints with topic owners relating to the benchmark, identifying the performance gaps, and how (if possible) they can be closed. This relationship can also yield strong results in being able to adapt to the impending legislation for reporting. If the topic owners are already accustomed to requests from the sustainability team for certain KPIs, policy updates, etc., they will already be well-prepared to help contribute to the requirements of providing information relating to new reporting requirements.

3. Identify areas of overlap and interoperability in ESG reporting

Given that a key challenge is a limit on budget and resources, companies will aim to streamline and identify the most pressing issues it will allocate more time to focus on. Fortunately, we can observe a move towards benchmarks aligning with reporting regulations as well as other benchmarks. The recommendations of the Taskforce for Climate-Related Financial Disclosures (TCFD) were a prime example, as these are is now aligned with in ESRS E1 Climate Change as well as CDP and CSA criteria on climate. However, for the differences that still exist, it can be greatly valuable to compare relevant benchmarks to identify where there are overlapping requirements.

Through this exercise, it can highlight where certain data, policies, or actions could yield improvements for reporting compliance plus the ESG benchmarks at once. It is crucial to carry out the comparison exercise prior to the reporting phase so that any disclosure elements are incorporated into the annual reporting.

Maximising efficiencies for time spent on the reporting requirements can help to ensure that sustainability departments still have the capacity to push the sustainability agenda of the company forward, and generate actual positive impact. Utilising the CSRD to further catalyse benchmarking performance can allow companies to keep a clear eye on the horizon while also receiving insights on how their performance compares to peers, demonstrate themselves as leaders to investors, and communicate achievements to interested stakeholders.

Aiming to reduce the reporting burden associated with CSRD preparation and ESG ratings?

If your company is interested in reducing its reporting burden and streamlining ESG disclosures, contact Johana Schlotter at johana@finchandbeak.com or +31 6 28 02 18 80 to discuss how Finch & Beak can help you.

^{Photo by George Rosema on Unsplash}