Some 50,000 medium and large companies in the EU will be required to report under the new Corporate Sustainability Reporting Directive (CSRD) on environmental, social and governance (ESG)-related topics from Jan. 1, 2025. A recent Empact survey shows that the majority of companies still have a compliance-driven attitude toward ESG. Will the introduction of the CSRD change this and will companies use ESG more strategically? We think so, because the introduction of the CSRD forces companies to thoroughly review their policies in this area and offers a great opportunity to start making real social impact.
CSRD makes non-financial plans and performance visible
With the introduction of the CSRD, companies will have to start reporting on ESG with the same care as on their financial performance. That is: complete, transparent and according to legally defined guidelines. In addition, an external audit will (probably) be mandatory and the report must be shared publicly. As a result, from 2025 not only the financial performance of companies will be accessible and freely understandable to everyone, but also all relevant strategies, plans and achievements in the field of ESG. This ensures that everyone can see how a company is doing on topics such as the environment, good employment practices and corporate governance.
Visibility leads to making choices
Having their ESG information become public will make many companies think and reconsider their strategic directions. Where CSR still has a mostly non-committal character and is often taken up by a department that “does something with CSR,” the CSRD prompts a review of policies at the c-level. From the carbon footprint of the supply chain to safety in the workplace and from concrete plans for improving privacy to the impact on social cohesion within ‘communities’: it all becomes transparent and public. And not just from your organization, also from your competitors, in the same format. Poor performance and the lack of a well thought-out vision for improvement will sooner or later have (financial) consequences and make an organization less attractive to stakeholders such as customers, investors and employees.
Against these risks, however, there are also great opportunities to add value and make a real impact. Strategic choices in this area and seizing the opportunities that lie ahead are, in our view, the path to success.
Opportunities to make an impact
On the one hand, a strong ESG policy is about mitigating risks, such as environmental damage and health problems among neighbors or employees. On the other hand, strong policies can also ensure that you increase positive impact, such as customer welfare and employment around your facilities. Both mitigating risks and increasing positive impact offer plenty of opportunities to increase your overall impact. We list some opportunities to make impact.
1. Reduce your environmental impact
Environmental impact is often thought of as your own carbon emissions. But environmental impact is much more than that, and reducing your impact on the planet can be done in many ways. Consider, for example, the impact on biodiversity, identifying and reducing scope-3 emissions, or changing production processes so that you produce less waste. And opportunities such as changing from a linear business model focused on selling your products to a circular business model focused on using your products. Of course, what suits you best depends on a lot of factors. In any case, make sure you focus on things that are relevant.
2. Become a better employer
As an employer, you can choose to simply comply with all laws and regulations. But you can also go further and really make an impact in this area. Take advantage of the opportunities available to grow employees by investing in their development and provide an inclusive and inspiring work environment. Not only will you create extra value for employees that way, employees will also create extra value for you. This is because, for example, they feel better about themselves and are less likely to drop out. And what about retaining talent? Opportunities to become a better employer include investing in employee development, ensuring an inclusive workplace and inspiring workplaces.
3. Improve your social (governance) impact
In terms of social impact, there are also many opportunities to reduce the risks of your activities and increase the positive consequences. Think very simply about making products healthier so that you make a positive contribution to the health of your customers. Or consider mapping the supply chain for exploitation and poor working conditions (and then act accordingly). Or sponsor social and community projects. The (updated) Corporate Governance code is going to help you with this.
From report to impact
Most large companies have now started making preparations for at least meeting the obligations set by the CSRD. In addition, we see that large companies like Alliander, Nationale Nederlanden, ASML and ABN AMRO have already made considerable progress and are reporting transparently (and quite completely) on a large number of ESG-related topics. So these companies are already making an impact with their annual reports.
Do you also want to leverage the CSRD to take strategic steps and make real impact? Contact us without obligation. We will be happy to help you.