Beyond CSRD: CFOs at the helm of regulatory adaptation

In January 2024, the EU’s Corporate Sustainability Reporting Directive (CSRD) will come into force. The initiative aims to strengthen and extend the reach of the reporting requirements currently imposed on companies.

The directive will affect approximately 50,000 entities, many of whom do not currently face a requirement to report on the environmental, social, and governance (ESG) impact of their activities. Even those who have begun their sustainability reporting journey with the existing Non-Financial Reporting Directive (NFRD) will find the breadth and depth of reporting will increase.

Reporting will be mandatory for all large European companies and also for companies that are listed on the various EU-regulated markets. This includes EU subsidiaries of non-EU firms.

A further change to the NFRD regulations is that companies will need external auditing and third-party assurance to ensure that what’s reported is reliable and verified.

“The scale of the challenge is outlined by the Dutch firm Royal Philips, who outlined at the start of 2023 that of the 950 data points they would be required to report on under the new CSRD regulations, they are currently only compliant with around 30% of them,” says Henrik Sandin, principal ESG specialist at Workiva.

“This is a company with over 15 years of experience in reporting on sustainability measures. The company revealed that it was somewhat compliant with nearly 20% of the remainder, but this still leaves over 50% of the data points not being recorded to the requisite standards.”

Rapid change required

 It is clear that organisations will have to change in order to be compliant with the regulations, but whereas this brings numerous risks, there are also considerable benefits from how ESG data is collected and reported.

For instance, companies need to determine how the required data is going to be collected, consolidated and reported to regulators and other stakeholders who are already requesting details about the sustainability of their business. For this to be both transparent and scalable will require that companies focus on things like taxonomies, double materiality and external assurance. The aim should be to reduce the burden of information requests as well as the external verification of the data.

Introducing changes in this way will improve the oversight of information that is increasingly being demanded by consumers, employees, and investors who want firms to be more sustainable, and the first step toward that goal is to measure the impact of one’s activities.

New responsibility

To achieve this, the CFO can take a central role in helping organisations both become more sustainable and meet their new obligations. CFOs and their teams have considerable experience in setting up the processes and mechanisms for collecting the data required for onerous financial reporting regulations. They also have expertise in collating the kind of documentation required by regulators and auditors, so stakeholders both inside and outside of the business can have confidence in the data that is reported.

For instance, CFOs have a huge amount of experience with International Financial Reporting Standards (IFRS), which can be directly applicable to the new requirements for sustainable reporting, allowing sustainability teams to tap into a vast pool of existing knowledge and experience.

What’s more, CFOs have also had decades of experience in ensuring that what data they collect and report on is sufficiently reliable to meet exacting reporting standards, whether in terms of what the market, regulators, and auditors require. This includes the production not only of financial statements but also annual financial reports. These are all things that may be new to sustainability teams but is something financial teams have been doing for a very long time.

“For this to work will require the whole organisation to shift focus toward sustainability,” says Hamish Prince, Industry Principal Reporting Solutions (EMEA) at Workiva. “Strategy will need to be aligned behind technology, HR, legal and finance to ensure that the new requirements are met as smoothly as possible.”

Meeting one’s sustainability requirements is inevitably going to be a collaborative effort, so this pan-organisational reach will be crucial if sustainability is to truly become a priority for all aspects of the business.

This was exemplified by the Workiva Global ESG Practitioners Survey, which showed that 71% of organisations have at least three internal teams collaborating on their ESG reporting.

Silos are a well-known issue for data-based projects across the corporate world, and it is essential that data does not get bogged down in departmental or geographic silos. The earlier this content is shared the sooner it can deliver insights to drive decisions and strategy.  The friction to sharing content is confidence.

“For organisations to truly become sustainable will require a collaborative effort from across the business,” Sandin concludes.

“This will involve the chief sustainability officer perhaps taking the lead but bringing in people from across the business, with technology doing a lot of the heavy lifting in terms of data collection and reporting.”

He says that if this combination can be achieved, then real-time reporting need not be a “pipedream” and can help to drive the lasting and meaningful changes that are demanded by employees and consumers.

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