The Corporate Sustainability Reporting Directive (CSRD) is a significant advancement in enhancing corporate transparency and accountability in sustainability. It’s a new way of thinking about performance and resilience. Investors say that CSRD, ISSB and the SEC Climate Reporting Rule will drive better investment decisions (Source: ESGtoday), but it comes with some real challenges.
KPMG in the UK and in Germany partnered across some of our top banking clients to provide useful guidance to navigate CSRD implementation. Here are our top tips.
1. Strategy: CSRD is not just another ‘compliance exercise’
Successful CSRD implementation begins with aligning your ESG reporting to overall business objectives and corporate strategy. Companies must understand the regulatory requirements, assess current reporting practices, and define clear objectives that align with their mission, values, and stakeholder expectations. Organisations that want to maximise on available opportunities that CSRD reporting brings, will need to integrate sustainability reporting into core business processes and decision-making and align it with their business strategy and enterprise culture.
The European Sustainability Reporting Standards (ESRSs) promote engaging with stakeholders. Companies should share their vision, objectives and strategy with stakeholders and can use this engagement to demonstrate the long-term value opportunity that sustainability brings. Starting with strategic alignment is much easier than adding it in later.
2. Inclusion: Fostering stakeholder trust
Engaging the right stakeholders early on is critical to enhancing credibility and enabling transparency through the implementation. Typically, the key stakeholders to involve include investors, customers, employees, suppliers, and civil society organisations.
The format and extent of engagement should be tailored to the company’s existing engagement model, appetite and value chain, but may include a combination of questionnaires, workshops and feedback mechanisms to get input, address concerns and enhance the relevance and credibility of sustainability disclosures. An inclusive approach has considerable benefit over the longer-term. Projects have been delayed and forced to backtrack when stakeholders have been left out.
3. Good governance: there is more than one ‘right answer’
For most firms, sustainability offices maintain most of the responsibility for ESG reporting at the corporate level; however, one quarter of firms have adopted shared responsibility with finance or communications teams1. Recently there has been an increasing trend toward sole finance ownership, particularly in the banking sector, driven by the need for assurability and closer alignment to annual financial reporting.
But there is no “one size fits all” solution. The governance model should be driven by a firm’s strategic objectives, resource model and reporting priorities. What is important, is establishing clear accountability across the organisation and effective collaboration and communication between functions. Too often we see siloed approaches and a disconnect between sustainability goals and business imperatives. At worst these result in embarrassing public misstatements and costly remediation.
4. Market solutions: Robust data and reporting systems
Robust data management and reporting systems are essential for meeting CSRD requirements and ensuring the accuracy and reliability of sustainability disclosures. Leveraging technology solutions can streamline data collection and leverage the interlinkage of current and future reporting data requirements to accelerate gap assessments.
End-to-end reporting solutions (like Workiva or Microsoft Powered solutions) offer workflow management tools and enable data traceability from source through to end report which supports assurance-ready, compliant reporting. Reported ESG metrics are often a long way off being assurance-ready. Significant uplift of data quality, controls and processes is required to improve the quality of reported information and this burden can be eased with the help from the right tools.
5. Processes and progress: A culture of continued improvement
CSRD implementation is a multi-year process that requires continuous improvement and learning as the regulation, peer benchmarks and stakeholder expectations evolve. Companies must set clear targets and milestones within their roadmap to monitor and evaluate the effectiveness of their CSRD implementation.
Some firms are aiming for minimum compliance in year one, but some are rightly seeing it as a strategic opportunity to align the group on ESG reporting and develop stakeholder trust in the quality of their disclosures. Ideally, this should be: maximum compliance with minimum effort. Upfront investment underpinned by embedding a culture of continued progress. The design phase should have multi-year outcomes and incorporate improvement over time, with a clear view on interim objectives and ultimate target state. We see this approach as a critical driver of longer-term success and value.
Conclusion
CSRD implementations should align strategic objectives to reporting objectives and foster stakeholder engagement early on. Firms need to establish clear accountability across capabilities and will reap the reward from investing in robust data management and reporting solutions upfront.
This sounds easy on paper, but is complex in practice because of the breadth of the CSRD framework. There is now a growing body of work showing how to do it right and how to avoid mistakes. This lies at the heart of KPMG’s implementation approach and we would love to share our CSRD insights with you.
