When I first saw the detail of the EU CSRD (Corporate Sustainability Responsibility Directive), my jaw dropped. Having worked in sustainability reporting for two decades, I thought I’d seen it all — but over 1,000 potential datapoints crammed into seventy-page reports? It was hugely ambitious, and completely overwhelming.
So, while the EU Omnibus Directive’s plan to simplify the requirements was widely welcomed, it also signalled a significant watering down of the CSRD’s original intentions: to put non-financial reporting on a par with financial reporting; provide rigorous, comparable data to the market; and, crucially, support Europe’s ambition to be the first climate-neutral continent by 2050.
The Omnibus reframed the CSRD in what many saw as binary terms — as an anti-competitive, unnecessary, and disproportionate compliance burden. And, after months of political wrangling, shorter, more streamlined European Sustainability Reporting Standards (ESRS) were drafted. But while far fewer companies are now required to report in line with the legislation, I still believe some of its ground-breaking ideas are already making a difference. Here’s how:
1) The idea of double materiality has been propelled to centre stage — and widely adopted as best practice.
We’re seeing the CSRD’s double materiality view of “inside out” and “outside in” impacts, risks and opportunities being voluntarily used by many companies who aren’t in scope. It brings businesses a 360° depth of insight and plays a fundamental role in reducing exposure to risk. Double materiality assessments (DMAs) are already making a mark, supporting long-term resilience in a changing and changed world.
2) Stakeholder engagement has become more targeted and deliberate — delivering invaluable business insight.
While stakeholder engagement wasn’t a specific CSRD requirement, guidance advocated a more strategic approach, engaging specific stakeholders on the issues they know most about. When we carry out stakeholder interviews on behalf of companies, we’re always surprised by the depth and breadth of the contributions, not only in identifying risks and negative impacts, but also sharing ideas, opportunities and solutions.
3) The thread between strategy and sustainability is explicitly drawn.
The CSRD obliges companies to disclose how sustainability relates to their strategy and business model, directing them to examine their full value chain. This opens up important internal conversations about how sustainability considerations intertwine with the business’s core operations. Mapping the value chain for the DMA is the first time the exercise has been undertaken for many businesses, and we’ve found that a one-page visual of impacts, risks and opportunities mapped to the company’s value chain can connect dots for senior audiences in a way that long reports often can’t.
4) The ESRS framework that underpins the CSRD is a useful management tool.
Frameworks help cut through the confusion. The ESRS, designed to work alongside other standards such as GRI, ISSB and B Corp, can answer the question: where do I start? The topical standards provide a thorough overview of sustainability topics, with clear guidance for reporting against them — helping companies understand value chain impacts, quantify risks and opportunities, and respond to stakeholder demands. Research from 100 early CSRD reporters found companies were using the framework to help navigate business decisions. Companies who we work with are using them as a useful starting point for developing core data sets, regardless of whether they’re still in the scope for CSRD.
5) Including the Sustainability Statement in the Annual Report drives leadership oversight.
Non-financial disclosures, instead of being tucked away on a separate website, are put front and centre alongside financial disclosures, part of a company’s core narrative. A DMA also requires Board-level validation of the final material topics; Board or Executive Committee members often take part in Philosophy’s approach to internal stakeholder engagement. As the Taskforce on Climate-related Financial Disclosures (TCFD) did before it, awareness of the CSRD legislation and its lexicon is weaving its way onto the Board’s agenda; and into governance frameworks, policies, reports and decision-making processes.
Some CSRD sustainability statements are undoubtably too long, too dense, and entirely missing storytelling magic. But they’re improving all the time and exemplars are clearly setting out their company’s intersection with people and the environment.
Reporting can be a burden, but it can also drive change — when it connects to a company’s strategy, brand and tone of voice, and is backed by a transparent narrative and reliable data. I understand the need to balance scarce resources: efforts must be proportionate and allow space for doing the actual work. I’ve been there, late at night staring forlornly at a verification table with several hundred points to evidence for the auditors. But I don’t believe the debate is as simple as either reporting or doing. What we say and what we do are inherently connected.
The regulatory direction of travel has been set in motion, even if the traffic has been slowed. It’s time to look for how you can make mandatory frameworks work for you now and prepare for the time when the brakes are taken off.
If your business is struggling to make sense of how best to proceed in a post-Omnibus world, and you’d like to book a free half call with the Philosophy team to chat through reporting obligations and options, we’d love to hear from you here.
Emma – Senior Associate, Strategy and Reporting