”The non-committal approach to reporting on sustainability issues is really a thing of the past now.”
Towards sustainability reporting: the LLC
Under the CSRD, the different types of firms that fall within its scope must comply with these regulations at different times. First up are the companies falling under the scope of the NFRD, the predecessor of the CSRD: large listed companies and banks and insurers with more than 500 employees. They are expected to publish, from 2025 for the 2024 financial year, a sustainability report that meets the requirements to be imposed on them in all respects. Here you can read when the CSRD comes into effect for other types of companies.
The LLC has already had to include a non-financial statement in its board report and a diversity statement in its corporate governance statement since 2018 (for the 2017 financial year). It has thus already had some years of experience in reporting on sustainability issues. However, this was not yet subject to prescribed standards. For its non-financial reporting during that period, the LLC used the GRI standards.
The AFM has previously been highly critical of the way non-financial information has been reported under the NFRD. For instance, in December 2018, it concluded that reporting on various non-financial aspects “can and must improve“. And in December 2019 that further transparency on non-financial aspects, particularly on climate change impacts, is “urgent and necessary“. The LLC has taken this criticism to heart and improved its non-financial reporting (process) in parts, in line with the AFM’s expectations on this.
In order to meet expectations properly and on time, it is obviously very important to know and understand the new rules. In this case, they are extensive and complex, with a long history of development. The LLC has always kept a close eye on this history and has also sought external advice. The creation of the ESRS has received particular attention. Based on the European Financial Reporting Advisory Group’s (EFRAG) exposure draft of November 2022, the LLC critically assessed its existing ESG reporting framework and started to adapt it based on the new (draft) standards. Following the publication of the final ESRS by the European Commission at the end of July this year, the LLC again critically reviewed its ESG reporting framework and adjusted it where necessary.
Complying with the new CSRD and ESRS requirements is effectively a data challenge. The LLC can only comply if it has the data required for reporting, and of the required quality. Or, to put it another way, “no data, no compliance”. Adequate collection and management of sustainability data is essential for the LLC to measure, assess and manage its sustainability performance. A complete picture of sustainability data requires the use of both qualitative and quantitative data. The lack of such data and standardised reporting practices is a barrier to accurate reporting.
The LLC has adopted an integrated approach to data collection and analysis. Through the use of automated systems, it is able to produce reliable reports that are fully compliant with the ESRS standards that are relevant to it. This approach aims to overcome the challenges of fragmented data and lack of consistent reporting practices, paving the way for accurate and standardised sustainability reporting.
For LLC, the transition from non-financial reporting under the NFRD to sustainability reporting under the CSRD is a major change that needs to be completed successfully and in a very short time. At the request of the Board of Directors, an internal ‘Sustainability Team’ (ST) has been set up. This team consists of employees from various departments, including Finance, Legal & Compliance, Risk Management, HR and IT, and acts as a catalyst for change within LLC. This includes workshops, training and individual coaching to create wider support and awareness. This contributes to a culture of shared responsibility for this important issue within the organisation. Gaps in expertise have also been identified and, where necessary, new colleagues will be added to the sustainability team. The ST reports monthly to the Board on the progress of its work.
As a first step, the ST performed the required ‘double materiality analysis’. This allows a proper (reasoned) assessment of which of the 10 ESRS are relevant (= material) to the LLC at the subject level. This analysis is ‘double’ because it addresses two aspects: (i) how the LLC is affected (financially) by sustainability developments, e.g. climate change, and (ii) how the LLC affects its environment, e.g. what is the impact of the use of fossil fuels by the LLC and its supply chain partners.
The ST is in regular contact with the LLC’s auditor. After all, based on the CSRD, the auditor ultimately has to provide (limited) assurance on the sustainability report to be published. In addition, the ST works with specialised external partners, such as an ESG reporting software provider and a company specialising in the calculation of GHG emissions, in order to demonstrably meet high expectations.
How can Projective Group help?
Is your company also moving towards sustainability reporting? We offer you a unique blend of the multidisciplinary knowledge and decisiveness needed to demonstrably comply with the CSRD. Wondering how our combination of Risk & Compliance, Data and Transformation expertise can help your organisation move forward? Feel free to contact us.