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Beyond reports: the CSRD as a bridge between businesses and sustainability

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By Fabrizio Dodaro

· 6 min read

The stages of CSR development in corporate strategy

Corporate Social Responsibility (CSR) has been a key focus of organizational management research in recent decades. This has led to a shift in the relationship between the economy, society, and the natural environment.

Nowadays, it has become common practice for companies to transparently inform on their websites about their corporate programs focused on social and environmental issues; ethics and sustainability have been introduced into the managerial training curriculum of most universities, and finally, governments and international organizations are working on regulations that promote responsible business practices, while NGOs and consulting firms are developing standards to help companies in the transition to sustainability. Driven by growing stakeholder importance and failures in value-based management, CSR offers a new business philosophy, shifting focus from financial performance and shareholder primacy to new goals; integrating ESG practices and maximizing shared value.

Adopting CSR means incorporating changes into business strategy and operations, reporting, and procedures. In the language of institutional theory, CSR represents the implementation of new practices and organizational changes. A set of new rules and standards must be translated into a new form of business strategy, take the form of decision-making models, and ensure adequate organizational resources in the effective implementation of a specific strategy. In this way, organizations can react differently to these changes and pressures and adopt various approaches to respond to them.

Change, complexity, and interconnectedness are characteristics of contemporary economies and societies. Globalization, along with new social and economic models, has profoundly influenced how governments, managers, and leaders interact with their activities. John Elkington, an English entrepreneur and writer, coined the term “Triple Bottom Line” or “PPP” (Planet, People, Profit) to summarize the idea of sustainable business. His theory argues that companies should operate in a way that creates value for the environment, people, and businesses.

In other words, companies should consider the environmental, social, and economic (ESG) aspects of their activities. This approach can lead to a series of benefits, including:

  • greater production value: sustainable companies can reduce costs and increase efficiency, leading to increased profits.
  • more attractiveness to investors and consumers: consumers and investors are increasingly interested in companies committed to sustainability.
  • a more sustainable environment: sustainable companies can reduce pollution and protect the environment.

In the past, companies adopted sustainable strategies voluntarily. However, today, regulations are considered the main tool for promoting corporate sustainability. Regulations can guide companies, providing them with a framework for their activities. They can also be used to encourage companies to adopt sustainable practices, offering incentives or disincentives. Companies that provide sustainability reporting have easier access to credit as this demonstrates their attention to sustainability and their ability to manage associated risks.

Transitioning from NFRD to CSRD

In recent years, the European Union has initiated a series of initiatives to become a global leader in sustainable transition. With the goal of achieving climate neutrality by 2050, the EU has introduced structural measures for industry and presented a roadmap for sustainable finance. These initiatives aim to create a more sustainable economic-financial system, where businesses are accountable for their impact on the planet. In this context, the Non-Financial Reporting Directive (NFRD), adopted in 2014, introduced the requirement for large European companies to publish non-financial information, particularly on environmental, social, and governance matters. The directive was subsequently updated in 2019 to include new topics such as respect for human rights and the fight against corruption.

On December 16, 2022, Directive 2022/2464 on Corporate Sustainability Reporting (CSRD) was published in the Official Journal of the EU. The CSRD amends Directive 2013/34/EU, which requires large companies to communicate non-financial information. It represents a significant step forward compared to the NFRD (Non-Financial Reporting Directive), primarily in the terminology used; it removes the bias against something not considered financial by introducing a new term “Corporate Sustainability”. The new directive significantly expands the scope of reporting obligations, implementing new topics and strengthening existing rules.

The CSRD has three main objectives:

  • improving the quality and transparency of sustainability information provided by companies;
  • promoting comparability of sustainability information among companies;
  • encouraging companies to improve their sustainability performance.

The CSRD introduces several innovations compared to the NFRD, including:

Assurance requirement

Sustainability reports will undergo a review, with an initial “limited assurance” level of review. In the future, the goal is to achieve a “reasonable assurance” level of review, like that for financial statements. The review will be conducted by an accredited auditor.

Introduction of “double materiality”

The CSRD requires companies to consider both the impacts of sustainability on their economic results and the impacts of their economic results on sustainability.

Digitized sustainability reporting

To facilitate the dissemination of sustainability reports, companies will be required to make them digital, using XHTML and XBRL languages. This will involve the use of "tags" (digital labels) for ESG reporting.

Placement of sustainability reporting

Sustainability reporting must be included in the Management Report, not in a separate document. This will ensure greater integration between financial and non-financial information.

A single reporting standard

To ensure greater comparability among sustainability reports, companies will be required to adopt a single reporting standard, the ESRS (European Sustainability Reporting Standard), developed by the EFRAG (European Financial Reporting Advisory Group). Specific standards will be introduced for SMEs, taking into account their needs and characteristics.

Implications for companies

The CSRD will have significant implications for European companies, which must comply with the new rules by 2026, if not earlier. Compliance will require companies to implement new processes and systems for data collection and sustainability information management.

The CSRD represents an opportunity for companies to improve their sustainability performance and communicate their results more effectively to their stakeholders. Companies that can seize this opportunity will have a competitive advantage over others. Integrating social responsibility as part of business strategies is essential to create sustainable long-term value; the directive aims to strengthen corporate social responsibility and improve transparency and reporting of non-financial information by companies. This requires a managerial approach that carefully considers stakeholder needs, assesses the impacts of business activities, and develops policies and practices consistent with ethical and sustainable principles.

For HSE experts and ESG specialists, the CSRD represents a significant opportunity to promote CSR within their organizations. They can play a key role in identifying risks related to social, environmental, and governance issues and in defining policies and measures to mitigate them. Moreover, they can provide valuable guidance in data collection and processing the information required by the CSRD, ensuring that companies provide accurate and complete reporting of their activities. They will be responsible for assessing the impacts of business activities on employees, health and safety, the environment, and society as a whole. In addition, they will be responsible for defining policies and measures to mitigate risks and promote social responsibility within organizations.

The EU's guiding hand on the shoulders of companies will represent a significant push towards greater social responsibility and transparency of companies. A cultural change will occur in the way companies conceive and manage social responsibility, pushing them to consider it a central element of their business strategies. This will contribute to creating more sustainable and resilient organizations, capable of facing current and future social and environmental challenges.

Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Fabrizio Dodaro is a Consultant at Deloitte and an experienced professional in the ESG field, advising businesses on the integration of sustainable practices into their decision-making and operations. His passion revolves around aiding organizations in identifying and pursuing ESG goals to generate a positive impact on communities, the environment, and their financial performance.

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