The countdown is on: The sooner companies initiate the planning process to meet the new CSRD requirements, the smoother the transition will be and they will come into force – as of the publication of this article in exactly 24 days, 13 hours, 16 minutes and 55 seconds.

With Corporate Social Responsibility (CSR), companies are moving away from a one-dimensional profit maximization goal and open themselves up to a triple bottom line. The focus is equally on economic, ecological and social goals.

The adoption of the Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standards (ESRS) brings major changes and creates higher standards for sustainability reporting. The reasons for a sustainability transformation are manifold and range from greater transparency, to using the specifications as triggers, to embedding the standards in the sustainability strategy.

Interesting insights can already be derived from the first practical experiences with CSRD – and there are certainly many more to come. I would like to address the top 3 below:

  • Sustainable corporate strategy and culture,
  • seamless data connectivity and automated analytics, and
  • KPI-driven CSRD implementation and communication.

Sustainable corporate strategy and culture

The development of a sustainable corporate strategy does not differ significantly from the classic strategy process. It’s about markets, strengths and weaknesses, opportunities and risks, competitors, stakeholders and much more. A sustainable corporate strategy aims to integrate ecological, social and economic sustainability into business processes.

Materiality analysis

The so-called materiality analysis should be highlighted. This is a process for identifying the most important sustainability issues for a company according to the principle of dual materiality: financial materiality (outside-in; opportunities and risks) and impact materiality (inside-out; people and the environment). Stakeholders – customers, investors, banks, employees, etc. – should be involved as early as possible. Detailed explanations can be found here.

The 17 Sustainable Development Goals (SDG) of the United Nations usually serve as the basis.
Concrete example: A company that particularly wants to focus on social sustainability has selected the goals

  • 3 (Good Health and Well-Being),
  • 4 (Quality Education) and
  • 5 (Gender Equality).

A second, very well documented example comes from Generali.

The result of a materiality analysis is a list of the most important sustainability issues that the company should address in order to improve its sustainability performance. This list forms the basis for the definition of targets and indicators.

Operationalizing the strategy

Readers of my blog posts know what comes next: the X-Matrix. After all, once the overarching strategy is clear, concrete goals and corresponding measures, topic owners, as well as metrics and indicators must be derived from it. According to a recent PwC study, 61 percent of the companies surveyed already collect KPIs for CSRD reporting obligations.

When it comes to human capital management, investors are particularly interested in two aspects:

  1. How does HCM contribute to risk avoidance?
  2. Which value drivers for company success can HCM have a positive influence on?

Could you provide well-founded answers to these aspects?

Such an approach is not a purely logical one, but rather a revolution in thinking. We need to think from the future. Efficiency must give way to effectiveness, because innovations are rarely efficient.
With the right mindset and a strategic approach, there are plenty of opportunities waiting to be discovered for the respective company.

Seamless data connectivity and automated analytics

When looking at the data points for Set 1 of the ESRS published by the European Financial Reporting Advisory Group (EFRAG), many companies are struggling with internal data challenges, so the idea of sourcing and aggregating multiple data sets – including from partners and third parties – can seem almost impossible. The most common challenges include data availability, sourcing and traceability, as well as data security.

Caution when using MS Excel

More than half of the companies surveyed stated in the PwC study cited above that they were planning to use software solutions for CSRD implementation. MS Excel seems to be the most popular solution for respondents, although there are some disadvantages associated with it:

  • Data entry and referencing, as well as formula creation, are extremely error-prone,
  • the program does not allow secure, verifiable documentation,
  • different processing versions are not fully traceable,
  • the import and export of data from and to other systems is subject to errors, and
  • user role management and the potential changeability of content are problematic.

In view of a future audit, MS Excel is therefore not an optimal software solution for reporting.

According to my observations, repetitive processes and tasks cost analysis teams 85% or more of their time. Automating repetitive workflows would not only improve transparency, but, together with AI and other technologies, can help companies significantly reduce quantified efforts and costs and also significantly increase effectiveness. Alteryx AiDIN is certainly one example among many that “leverages” this potential.

CSRD software solutions

I would just like to say this much at this point: The STRIM operating model includes Alteryx and Visier. The following key questions will help you make your decisions:

  • Can the solution seamlessly connect to multiple data sources and easily perform large and complex data integrations?
  • Can the solution be automated to reduce the extensive manual effort and high costs of normalizing and preparing sustainability data?
  • Is the solution dynamic and flexible to accommodate changes across the CSRD landscape while adhering to data governance standards?
  • Does the solution foster a culture of innovation with self-service, low-code/no-code capabilities that help support a wide range of users – from data novices to data scientists?
  • Can the solution go beyond CSRD data management to uncover and deliver analytical insights to all decision makers?

KPI-driven CSRD implementation and communication

As if that wasn’t already challenging enough, it’s now about discipline and consistency in implementation. This often fails due to a lack of transparency, a lack of focus and clarity, unclear responsibilities, inadequate transformation management and constant resistance to change.

With regard to CSRD, the main challenges in implementation are the complexity of technical implementation, resource bottlenecks, time pressure, technical requirements and lack of expertise, as well as organizational anchoring including clear responsibilities.
In particular, the consideration of the entire value chain and the data basis outlined above increase the technical complexity.

These reasons are probably significant why, according to the PwC study cited above, 16% of the companies surveyed have not yet started implementing CSRD.

However, CSRD and ESRS oblige managers to analyze sustainability issues, make set targets transparent and measure goal achievement! Key figures, reports and reviews help to evaluate progress and respond to potential problems. Findings gained in this way are incorporated into project or program reports and an overall CSR report and form the basis for permanent and transparent communication – both within the company and externally.

Therefore: get started, learn from others and form strong partnerships. A McKinsey study cited elsewhere highlights seven organizational characteristics that distinguish companies that are on the right track in terms of CSRD implementation.

Conclusion

CSRD poses significant challenges for many companies on a technical, organizational, procedural and financial level. Companies must adapt and prepare accordingly for the requirements associated with CSRD. In my opinion, which process model is used (3, 5, x phases) is of secondary importance.

Companies have to deal with many issues within a very short period of time and sometimes develop them from scratch. The resulting expenditure of time and resources is considerable. The complexity of the technical implementation is also a major hurdle for most companies. Added to this are the technical requirements and a lack of expertise.

For HR managers who are particularly interested in ESRS S1 Own Workforce, Visier has put together 10 questions that can be used to determine the current CSRD Readiness Score. What score does your company have? I’m looking forward to a valuable exchange!