WATCH: How can finance leaders champion ESG & CSR compliance while fortifying financial systems?

Sustainability has revolutionised how businesses report and manage finance. The introduction of the Corporate Sustainability Reporting Directive (CSRD) in the EU in 2022 is not just a regulatory change—it’s a strategic shift that intertwines financial operations with sustainable objectives. This transition brings big opportunities for innovation and progress, as well as new and formidable challenges.

The CFO recently hosted a webinar with Henrik Sandin, Director, Principal ESG Specialist at Workiva, Joanna Bonnett, Head of Sustainability and Group Treasury at PageGroup, and Andrew Coburn, CEO and Co-Founder at Risilience, to explore how to weave CSRD and ESG reporting requirements into existing systems, ensuring both compliance and agility.

Navigating the new CSR landscape 

Henrik Sandin kicks off by explaining the Corporate Sustainability Reporting Directive (CSRD), an expansion of the non-financial reporting directive proposed in 2014. The CSRD aims to enhance corporate disclosure on sustainability-related information. It involves structured reporting on sustainability, European Sustainability Reporting Standards (ESRS), inclusion in annual accounts, auditing, and digital readability. The objective is to create a European single access point for transparent information access.

The impact is significant, with 11,178 data points, 60-70% narrative text in the ESRS, making it a detailed sustainability disclosure. Companies must meet the requirements, facing challenges in process controls, target setting, and strategy alignment.

Regarding affected entities, phase one includes existing non-financial reporting directive companies (11,700); phase two involves large corporates (over 250 employees, 40 million euros turnover); and phase three covers SMEs, financial service institutions, and third-country undertakings. The latter, if operating in the EU with over 150 million euros in revenue, must report at the group level by 2029.

A quick poll among the webinar audience reveals varying levels of preparedness for the CSRD, with 50% expressing uncertainty and 20% confident in their ability to meet the requirements. Henrik notes varying confidence levels, with mature companies more prepared than those treating sustainability as a ‘nice to have.’

Joanna Bonnett concurs, stating that, as a multinational, they’re in the second phase and confident in their preparation within the next nine months. Henrik anticipates the CSRD impacting ESG reporting significantly, emphasising the need to tie strategies, target setting, and value chain considerations.

He describes it as a shock to the system, likening reporting to “getting an X-ray before surgery”, highlighting the broader impact on societal operations beyond environmental aspects.

A paradigm shift in ESG reporting

The discussion continues with a focus on the fundamental impact of CSRD on the ESG landscape. Coburn emphasises that CSRD will be as structurally game-changing as the introduction of International Financial Reporting Standards (IFRS) for accountants 20 years ago. The CSRD standardises reporting requirements within the EU and for entities engaging with the EU, consolidating and standardising reporting.

Bonnett adds that CSRD’s impact extends beyond the EU, affecting non-European corporates. She highlights the challenges in integrating the S (social) aspect of ESG reporting, emphasising the need for data availability and consistent reporting.

Coburn notes that CSRD pushes companies to go beyond climate-related reporting, urging them to consider water use, land use changes, deforestation, biodiversity, and other factors.

Sustainability to success

The conversation then shifts to opportunities and challenges in integrating CSRD requirements into financial operations. Bonnett stresses the need to move sustainability from being a cost inhibitor to a core element of operations, integrated into revenue-generating activities. Coburn emphasises the linkage between reporting and the profit and loss of organisations, calculating the return on investment for sustainability efforts.

The collaboration between ESG specialists and CFOs is also explored. Bonnett and Coburn both highlight the need to demonstrate the value of sustainability efforts in financial terms. Bonnett emphasises the importance of sustainability in revenue generation, while Coburn discusses how businesses can itemise and calculate the impacts of sustainability efforts on their balance sheets.

Henrik Sandin adds that companies not directly impacted by regulations are often more advanced in ESG efforts due to market demands and investor expectations. He stresses that ESG considerations impact M&A deals, with private equity and other investors increasingly focused on sustainability due diligence. The overall message is that CSRD is not just a reporting framework; it represents a fundamental shift in mindset towards sustainability, impacting various aspects of business operations and strategy.

A wake-up call

Henrik provides insights into the impact of CSRD across European regions. He explains that CSRD is a directive from the European Commission, and each member state needs to transpose it into local law. Currently, countries in the European Economic Area (EEA) are in the process of transposing the directive into local laws. There might be variances in the application of the directive at the country level, such as applying it to companies of different sizes.

Regarding the impact on the UK, Henrik highlights that UK companies with legal entities incorporated in the EU will be subject to European law. If these entities meet the size criteria, they will need to report under the CSRD requirements, with the second phase for UK companies falling in 2029 for the financial year 2028 if they generate more than 150 million euros in turnover revenue in the EU.

The discussion emphasises the need for companies to stay informed about the progress of CSRD transposition in each country and be aware of potential differences in local requirements. ESG is no longer a niche issue; it is now a core business priority. Companies that embrace ESG and CSR principles will be better able to attract investors, talent, and customers. They will also be more resilient in the face of environmental, social, and governance risks.Top of Form

Watch the full webinar here.

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