Making CSRD your business ally

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ESG can be misunderstood as an adversary to business growth and profitability. However, this perception is far from accurate. Embracing ESG principles can be a powerful driver of business success, fueling profitability and creating sustainable value for all stakeholders in the long run. Mitigating risks and strengthening stakeholder ties are just a few examples of how running a business responsibly can be a strategic advantage. It’s Blackrock research who says it: during the Covid-19 pandemic, sustainable indices outperformed their parent benchmark

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. ESG is not the enemy; instead, it's a business's ally in navigating the challenges and opportunities of the modern world.

Transparency builds trust

The benefit of transparency applies to our relationships just as it applies to companies and their stakeholders. When a company is transparent about its operations, stakeholders feel more confident and reassured about its integrity.

Good reporting means granting access to ESG data to investors, partners, suppliers, consumers, and employees. When it is done right, stakeholders can be more informed about their relationship with a company, both ethical and financial. For instance, stakeholders should care if an energy company is investing in green alternatives - first because it impacts the climate, but also because its financial sustainability might be compromised in the long term if it’s not. On the consumer side, I am sure many of us already felt deceived by sustainability claims that were not backed by strong evidence and felt delighted and empowered when they were. In addition, consumers often want to compare brands based on their sustainability practices but they do not have enough information to do so.

Providing this information is an ethical responsibility of companies. A few have been doing it voluntarily for a long time and should be praised for that - like Patagonia and Unilever. Some, amid competing priorities, see reporting as secondary and do not invest enough in producing quality reports. In worst cases, companies that are not particularly proud of how they do business do not have incentives to make this information public.

Regulation: not a burden, an incentive

Aware of these latter cases, the European Commission is strongly committed to mainstream reporting best practices for companies operating in Europe. It does so through many different regulations, but CSRD (Corporate Sustainability Reporting Directive) might be the most encompassing one - both in the number of companies covered and the amount of information that must be disclosed.

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CSRD aims to make reliable and structured sustainability information available to various stakeholders. It does so by forcing firms to disclose their environmental and social impacts, and how their environmental, social, and governance (ESG) actions affect their business. These two effects - non-financial and financial - are what CSRD calls double materiality.

CSRD will gradually apply to more companies, according to their size. The timeline below shows, for each fiscal year (FY), which companies will be added to the scope of CSRD. Companies that become eligible in a certain fiscal year will have to publish the report of that year in the following year.

Maze has been supporting companies in their voluntary reporting efforts for over 10 years, and we are happy to see that, even if pushed by regulatory obligations, many others are now following. We don’t see regulation as a burden but as an incentive to accelerate the process of companies becoming more socially and environmentally responsible. As such, when working with companies, our goal is not to solely help them be compliant with regulations. Instead, we push our clients and partners to raise the bar as high as possible to the benefit of their business, society, and the planet.

Our approach at maze: diagnostic, structure, and report

The methodology we follow is adaptable to the size and priorities of the company we are working with, ensuring the end result primarily serves the needs of the company, while also making it compliant. CSRD requirements are a good practice for all companies, regardless of whether or when they are subject to it. As such, our proposed approach can be simplified when engaging with companies that are doing voluntary ESG reporting but in general terms, it should include the following phases:

Phase 1 - Diagnostic: double materiality assessment

The magnitude of ESG can easily translate into a neverending list of concerns for companies, making them overwhelmed and ultimately stuck. Prioritisation is key to ensuring companies’ efforts are deployed efficiently and effectively.

That is the main objective of the double materiality assessment. It captures stakeholders’ perspectives on ESG, setting a course and helping prioritise topics for investment and resource allocation. The output of a materiality assessment tells a company what ESG topics it can make the most difference on or which should just be monitored for compliance.

Phase 2 - Structure: indicators mapping and gap analysis

The material ESG topics identified in Phase 1 will narrow our approach moving forward. They will inform the indicators that must be reported under the CSRD obligations and should serve as key pillars for the company’s sustainability strategy if those are not yet defined.

In this phase, we help companies map such indicators, who the owners of the information are, what are the internal processes for the collection and management of information, and what data points are not yet collected (gap analysis).

For less mature companies in sustainability matters, we also help to design a sustainability strategy for a 3-4 year cycle, sustained by thematic pillars and substantiated in public targets and commitments. Such strategy will also be the basis of the annual sustainability report, which comprises quantitative and qualitative information on the sustainability performance of the company.

Phase 3- Report: structuring, developing, and disseminating the annual sustainability report

You might be thinking your company doesn’t have much to share in a sustainability report. Regardless of having a structured approach to sustainability, most companies already have a lot of good practices implemented. They are just not aware, or they are not documented. In this work together, we will help you identify what policies and processes you have in place that fall under the umbrella of sustainability so that you can start to communicate them externally in a more structured way, benefiting your business and positively influencing your competitors to follow your example.

This is the moment when your ESG practices and priorities become public to stakeholders. We help you prepare your annual report within the agreed structure and contents, and support you the internal and external dissemination of the report, according to defined guidelines.

A small step is better than none

If we want to be in business for the long run, we must all start our ESG journey at some point. Our clients, employees, suppliers, partners, and investors expect it from us and will easily trade us if we do not meet their sustainability standards.

If you are feeling stuck, we are here to break the ESG journey into pieces for you and help you take your first steps.

Questions about ESG or CSRD? Ask our team!

Amanda Feldman

Cristina Almeida

Rita Brito e Faro

→ Start by getting inspiration from PLMJ’s sustainability journey.

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References

$^1$ "New BlackRock research points to ESG resilience during coronavirus downturn”