A journey towards the Corporate Sustainability Reporting Directive

On 25 October 2022, the Board Leadership Center welcomed Katie Hoard, Global VP of ESG Strategy and Engagement at Anheuser-Busch InBev (AB InBev), and Steven Mulkens, Director of ESG Reporting and Assurance at KPMG in Belgium, for an insightful and engaging discussion on the Corporate Sustainability Reporting Directive (CSRD) and the journey towards implementation.
This article summarizes the key takeaways for boards.

The CSRD will expand the scope of the current Non-financial Reporting Directive (NFRD) and introduces new, more detailed, reporting requirements and a (limited) assurance requirement. It aims to bring more uniformity and standardization, but the short timeline and extensive reporting requirements are only two of the potential challenges that companies face. There are several success factors that can enable the journey, including creating a multidisciplinary team, ensuring leadership buy-in, and having an engaged and active board, who understand their responsibilities under the CSRD.

The EU is leading the way on sustainability reporting and disclosures. As part of the Green Deal, the CSRD will require companies to disclose, amongst others: the company’s sustainability strategy, targets, the role of the board/management, principal adverse impacts, intangibles, risk, and opportunity management. They will need to rely a combination of qualitative and quantitative, forward-looking and retrospective information, and will need to report in accordance with mandatory EU Sustainability Reporting Standards (ESRS), the Sustainable Finance Disclosure Regulation (SFDR), and the EU Taxonomy Regulation.

While current sustainability reporting frameworks provide guidelines on reporting through either an inside-out view (a company’s impact on society) or an outside-in view (the impact of sustainability topics on the company), the CSRD will require companies to look through both lenses – i.e. double materiality. The Impact Materiality will look at significant actual or potential impacts associated with an organization's activities, including those along the value chain, on the economy, environment, and society, while the Financial Materiality will look at sustainability risks and opportunities that can influence the company’s development, performance, and positioning – and thus create or erode enterprise value.

In terms of timing, there is a tiered approach to implementation, with the Directive coming into force as of:

• 1 January 2024 for entities already in scope of NFRD,
• 1 January 2025 for all large entities^[i],
• 1 January 2026 for all listed SMEs (except micro-undertakings^[ii]), and
• 1 January 2028 for non-EU ultimate parent companies with a combined group turnover in the EU of more than EUR 150 million.

For more information read: Taking the next step in non-financial reporting

Sustainability has been core to AB InBev’s business for many years – even before they started reporting extensively on it externally. Over time, their sustainability reporting evolved to where they are today, using multiple frameworks – including GRI, SASB, CDP, TCFD, and WEF (as well as contributing to the TNFD) – to respond to the needs and concerns of different stakeholders. Beyond reporting, they also obtain limited assurance on their sustainability reporting, recognizing it as leading practice even though not yet mandatory.

While they have developed their processes and governance over time, including internal controls, they recognize the efforts that will be needed to be ready for the implementation of the Directive, especially given it is more prescriptive than the existing frameworks.

Through an ongoing sustainability working group – including control, compliance, legal, supply and others – they bring together teams from across the business to understand what needs to be done, what training will be required, and how to integrate processes and procedures effectively and efficiently. This multidisciplinary approach, along with leadership buy-in, has been critical to integrating sustainability throughout the organization and preparing for the CSRD. 

The key is processes and governance.

By embedding sustainability metrics into existing processes, they can be monitored and reviewed regularly, along with existing metrics (financial, operational, etc.). This also sets the direction of travel towards bringing sustainability reporting up to the same level as financial reporting.

At AB InBev, there is a clear focus on sustainability performance throughout their operations. Local operational units are empowered to contribute to the company’s global sustainability goals in their day-to-day operations, collecting and reporting data, as well as assessing their performance towards local targets set. 

Suppliers will need to provide information and reporting as well – and may receive different requests from different customers. So AB InBev is working with their suppliers to see how they can streamline reporting requirements and providing them with a platform to help get ready to do so. 

There is no single answer as to how sustainability and the related reporting should sit within an organization.

For AB InBev, it has been an evolution, with sustainability moving as their needs and objectives changed. What started within the corporate affairs function many years ago later moved to procurement, as they focused on implementing sustainability within their supply chain, and today sits with the Chief Sustainability Officer who reports to the CEO.

At board level, different pillars of sustainability sit within different committees, aligned to their responsibilities. Most importantly the board is active and engaged and sustainability is routinely on the agenda.

EU Sustainability Reporting Standard, or ESRS 2 on General, Strategy, Governance and Materiality Assessment, covers, amongst others, the disclosures and role of the supervisory bodies within the company in relation to sustainability matters. This includes, but is not limited to, disclosures around:

• the distribution of sustainability-related roles and responsibilities throughout the organization,
• the expertise of governance bodies and relevant management levels on sustainability matters,
• the sustainability-related criteria applied for nominating and selecting their members,
• how governance bodies are informed about sustainability-related facts, decisions and/or concerns,
• the sustainability matters that were addressed during the reporting period,
• a general assessment of how the company embeds the core elements of due diligence in its sustainability statements, and
• a mapping that reconciles the main aspects of sustainability due diligence to the relevant disclosures in its sustainability statements.

Responsible persons within the company will be required to confirm, to the best of their knowledge, that the management report is prepared in accordance with the sustainability reporting standards. It is the collective responsibility of the members of the administrative, management, and supervisory bodies to ensure that the company has reported in accordance with EU sustainability reporting standards, reported in the digital format required, and marked up the sustainability reporting. 

Audit committees will have additional responsibilities under the CSRD, including:

• informing the company’s administrative or supervisory body of the outcome of the assurance of sustainability reporting,
• explaining how the audit committee contributed to the integrity of sustainability reporting and what the role of the audit committee was in that process,
• monitoring the sustainability reporting process, including the digital reporting process and the process to identify the information reported according to relevant reporting standards,
• submitting recommendations or proposals to ensure the integrity of the sustainability information,
• monitoring the effectiveness of the company’s internal quality control and risk management systems, as well as its internal audit functions,
• monitoring the assurance of annual and consolidated sustainability reporting, and
• reviewing and monitoring the independence of the assurance providers.

Sustainability reporting may feel burdensome at times, but it can also be a benefit – beyond compliance or addressing stakeholder demands. It can be a source of attracting and retaining talent. People want to have purpose in their work; they want to work on sustainability issues. How can the company leverage that and align it to what needs to be done to bring people along on the journey and show them how they are contributing?

For AB InBev, their focus on sustainability has also been a source of innovation. Exploring how to make their processes better has frequently resulted in a solution that made business sense while being more sustainable – for example, looking at water efficiency or supplier engagement.

The question of cost often comes up when discussing sustainability, but this is another reason a multi-disciplinary approach – where the Chief Sustainability Officer works closely with the CFO – is beneficial. It is also about how you convey your message and reach your objectives. Sustainability is about business risks and opportunities – regulatory risk, reputational risk, supply security, innovation, etc. and how those risks and opportunities are embedded in the business and shared externally.

The journey to implementing CSRD properly can be a long one and the timetable is challenging. We recommend that companies and their boards initiate awareness sessions and engage with the internal stakeholders on who should be involved in this journey. We further recommend identifying the critical gaps in the current reporting and assessing the readiness and maturity towards CSRD adoption.

KPMG’s Board Leadership Center (BLC) offers non-executive and executive board members – and those working closely with them – a place within a community of board-level peers. Through an array of insights, perspectives, and events – including topical seminars and more technical Board Academy sessions – the BLC promotes continuous education around the critical issues driving board agendas.

1. _{“Large companies” refers to all entities that exceed two of the following three criteria: 250 employees; net revenue of EUR 40mn; and total assets of EUR 20mn.}
2. _{“Micro-undertakings” refers to any entity that does not exceed two of the following three criteria: 10 employees; net revenue of EUR 700k; total assets of EUR 350k.}