This article is the new episode of Sustainability analysiswritten by members of the CFA Society Spain Sustainable Development Committee for elEconomista.es
More than 50,000 companies around the world, mainly European, will be obliged, from January 1, 2025 – and at different periods – to publish annual sustainable development reports, in response to the requirements of the European Directive on information on sustainable business development (CSRD for its acronym in English). When the directive is carefully evaluated, We observe many differences compared to the law on non-financial information, currently in force in Spain.. The fundamentals are double materiality and the value chain, the standards to be applied, digital labeling and the sanctions and control regime.
Companies are very concerned about how to comply with the directive and how to submit their first report.. However, the information to be disclosed is not intended to be checked off a list of things to do in a few months, or even a few years. It aims to promote significant, long-term changes in companies’ business models. Companies that recognize this fact will be the ones that stand out in a sustainable future. IV elEconomista ESG Forum: SMEs will face the biggest challenges with the new regulations.
The directive establishes that organizations must determine which sustainability issues carry relevant risks, opportunities and impacts through what is known as “double materiality” and on those issues which appear relevant, the company must report in terms of governance, strategy, performance and risk. opportunity management. In this way, whether companies must declare that there is no underlying strategy this shows that he is handling this matter adequately, it creates pressure so that the strategy is designed and the measures and actions are implemented.
“It will be difficult to meet the new requirements, but it will bring tangible benefits”
The expected impact of the Directive involves relevant changes to strategy, governance, risk management and due diligence. Anyone who does not take advantage of the opportunity to refocus and transform their business will not achieve the desired effect on investors and other interest groups, which the regulator is trying to provoke with the directive. In fact, PwC’s survey of more than 500 managers, the Global CSRD Survey 2024, highlights the number of respondents who anticipate tangible benefits from implementing the directive. More than half of those surveyed (51%) believe that it will greatly improve the environmental performance of companies, 49% that it will strengthen links with their stakeholders and 48% that it will contribute to better risk management. Additionally, 28% expect it to help them increase revenue and 26% expect it to reduce costs. The companies that most expect the CSRD to have economic effects are those whose reporting obligations are closest. This indicates that some managers are moving away from a simple compliance mindset to focus on value creation. Financing environmental sustainability: a major challenge of commitment and transparency.
In this regard, and in order to generate opportunities for value creation in companies, it is appropriate to work on the reliability of data and information from an early stage. It is essential to have a repository of reliable informationLeveraged technology and robust sustainability information monitoring systems to facilitate decision-making. Achieving this may involve a significant initial investment in technology (ERP) and AI solutions, but these are initial investments that will later make the transition easier. After that, it is necessary, on the one hand, the impetus of the boards of directors and senior management and, on the other hand, the coordination of all areas of the organization, working under the same objective and in avoiding silos. Sustainable development teams cannot identify value creation opportunities without having the support of other corporate departments (finance, communications, purchasing, etc.) or business units, where these transformation opportunities actually lie. From this perspective, it will be much easier to evaluate the initial situation of the company in relation to the requirements of the CSRD, the establishment of objectives and action plans and their integration into the corporate strategy.
In short, Meeting new EU sustainability reporting requirements will be difficult. However, doing it correctly will bring tangible benefits to businesses. It is therefore better to focus on the opportunities arising from the CSRD directive rather than the risks and treat it as a management and transformation directive rather than as a simple directive. compliance. The first year of application we can focus on meeting the minimums, but after this first exercise, companies must evaluate how they can improve and move their business towards more sustainable production models. ESRS standards (European sustainability reporting standards) provide many clues on how to think about sustainability and, if applied correctly, will contribute to this transformative process. In short, it is not enough to comply, it is time to transform economic models.
Pablo Bascones Ilundáin is a member of the CFA Society Spain Sustainability Committee, as well as a partner at PwC, a leader in sustainability and climate change.
