Over the past few years, I have had the opportunity to observe many companies bravely navigating the currents of the CSRD and its accompanying requirements. This blog is a collection of my observations, but above all, a tribute to the perseverance and problem-solving skills of sustainability professionals and their colleagues. It’s time to celebrate, even though the development work still continues at a fast pace.
Materiality or minimization of the reporting burden?
It comes as no surprise that there has been a lot of variation and interpretation in the implementation of the CSRD and the definition of material topics: some companies aim for a product that meets the minimum requirements, while others define almost all topics as material – even though the guidelines are essentially the same for everyone.
Indeed, minimizing the reporting burden should not drive the process, but rather a strict and realistic definition of materiality. However, the temptation is hard to resist when there is an enormous number of topics and data points to report, and resources are limited even in larger companies.
Double materiality is a multifaceted process
The challenge in double materiality lies in the fact that multiple elements are being evaluated simultaneously. The roles of impacts, risks, and opportunities are emphasized. If impacts on people and the environment are carefully assessed, it becomes easier to assess the financial impact of risks and opportunities. The connection to risk management is strong, and the risk management frameworks help, for example, in setting thresholds and understanding the overall picture.
Ultimately, the auditor decides whether the assessment and documentation of double materiality and the basis for decision-making have been done in accordance with the requirements. It would be interesting to hear how different large audit firms, such as Big4 firms evaluate the double materiality assessments and interpretations made by other audit firms or other service providers.
Established processes exist in finance
Although finance may be somewhat reluctant to take on its massive role in sustainability reporting, its established processes and frameworks are incredibly important. They can be utilized in defining data points, describing indicators, and in the reporting itself.
In the new reality of reporting, functions such as finance, sustainability, risk management, and IT should work seamlessly together.
This allows sustainability professionals to focus on impactful actions and development projects, as the reporting role of the sustainability function is lightened.
Resources are limited, interpretations guide actions
ESG data hierarchy and technology choices that can ideally automate a large part of the reporting process and reduce the need for resources are widely discussed among organizations.
The 2024 reporting cycle has taken a lot of time and money as companies practice reporting. There are still very few actual benchmarks. Many smaller companies that will be reporting in the future openly admit that they will copy or at least seek support for their own interpretations from the reports published by larger companies.
What happens to the additional sustainability content?
It is incredibly interesting to seek a new balance between reporting and communication. As reporting becomes over the next few years part of the financial reporting, what will be done with all the other valuable sustainability content that serves many stakeholders? What is the future of annual reports? The CSRD reporting format does not have a lot of room for stories or descriptions of people’s daily work. Visual elements are also notably absent.
One thing is certain: future sustainability reporting will require continuous adaptation and collaboration between different parties. The future will show how reporting practices will be formed and how the new format of sustainability content finds its place in organizational communication.
Principal Consultant , Sustainability
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