For those of you who managed to stay off the news feed during the summer months, the Raison Recap: Summer Special brings you some of the biggest headlines, news stories and resources you may have missed.
New report from EFRAG takes the temperature on CSRD implementation in 28 large companies
During July, EFRAG published a new study looking more closely at the implementation practices and challenges in the initial stages of the implementation of the ESRS standards within 28 large European companies. Despite the relatively small survey population, the report offers a useful behind-the-curtain view on several dimensions that many – also less mature – companies are struggling with. A few key points stood out:
- The DMA appears to be viewed as more than a “compliance exercise” by most of the surveyed companies, with a general trend towards more evidence-based (vs. judgement-based) approaches
- There appears to be a disconnect between the materiality assessment and the subsequent interpretation of individual data points (DPs) – also referred to as “Information Materiality” – which may lead to over-reporting. Consistent with our experiences, the notion that individual data points should only be reported if they are linked to a material sustainability matter is not well understood (we note that this is further clarified in EFRAG’s latest FAQ, see Question ID 29 and ID 261)
- To no surprise, the vast majority of even the more mature and larger companies are struggling with the value chain aspect, as most are using highly aggregated approaches and struggling to move beyond tier 1
- Finally, CSRD appears to be breaking down the traditional sustainability reporting silos, with enhanced cross-departmental collaboration and call for new capabilities. In the context of our most recent article on the sustainability compliance-innovation nexus, this is one of the critical factors for CSRD to drive long-term progress and change beyond a tick-mark exercise.
Access the full report here
While Taxonomy eligibility figures are improving, alignment remains low overall, according to new PwC study
Another state-of-play-report on the EU sustainable disclosure regime, this time by PwC and with focus on the EU Taxonomy, whose uptake has been infamously slow in both the financial and corporate sector since the first mandatory reporting cycle in 2021.
The good news: There seems to be improvement and standardisation in the way that companies and investors are disclosing on the Taxonomy, which is an important first step towards any hopes of greater Taxonomy alignment figures. One key driver has been the phase-in of mandatory Taxonomy disclosure templates, which was introduced to companies in 2022 and investors just last year.
The not-so-good news: We are still a far cry from achieving the EU’s goal of using the Taxonomy to channel capital into environmentally sustainable investments, as alignment figures among companies and financial institutions remain low overall. The report also indicates that while most financial institutions are meeting their Taxonomy disclosure obligations and improving data quality, the financial sector has yet to move beyond compliance and set clear targets for future Taxonomy alignment, thereby providing limited incentives for companies to increase their focus on sustainable activities and investments.
Check out the PwC report here
Call for action by CDP as companies continue to overlook and deprioritize Scope 3 emissions
It’s a while back by now, but in case you missed it, CDP and BCG published a joint report in June, calling for greater corporate attention to scope 3 emissions reporting and reductions. The report builds on CDP’s comprehensive GHG data inventory and calls out the growing discrepancy between the actions and targets set by companies in relation to scope 1 and 2 and the lack of equivalent focus on scope 3, which – to most companies – represent the by far largest contribution at an average x 26 factor compared to operational emissions. As an example, only 15% of the ~23,000 companies that report their GHG data to CDP have set targets on scope 3. The remedy, says CDP? Make your Board accountable for Scope 3 emissions, engage your suppliers to identify reductions and adopt an internal carbon price to incentivise action.
Read the report and access the stats here
New research on the inherent sustainability dilemmas and opportunities of AI
During July, we also came across Salesforce’s recent survey with ~500 sustainability professionals, highlighting the intersection between sustainability goals and AI – for good and for bad. The survey reveals that while a fair chunk seem to worry that AI can have negative impacts on their organisation’s sustainability efforts (37%) and consider AI’s environmental footprint a key focus area (81%), more than half (58%) believe that the benefits of AI in addressing the climate crisis will outweigh its risks. Finally, 65% of the surveyed sustainability professionals state that AI has already transformed their sustainability efforts – either by improved energy efficiency, better carbon accounting/modelling or by aiding with regulatory compliance.
For more details, you can read the full report here.
The EU Commission posts new FAQs on CSDDD and CSRD
While you have (hopefully) been vacationing, EU officials have been busy sending out clarifying answers to frequent questions on CSRD and CSDDD, respectively. Here’s a quick brief:
- CSRD FAQ: For those of you hoping to get clarification on some of the trickier questions pertaining to the ESRSs such as thresholds, DMAs, datapoints etc., you may be disappointed (here you should refer to EFRAG’s updated guidance from July instead). Much of the CSRD FAQ pertains to scope, application, supervision, language etc., however, the FAQ does include some additional wording on what constitutes as ‘reasonable effort’ when it comes to the value chain in particular, offering a set of criteria that companies can use to determine if they are indeed being reasonable: These include the size, resources, technical readiness and access to tools of both the reporting entity and their value chain actors as well as level of influence and connectivity/proximity to the value chain actor. Access the CSRD FAQ here
- CSDDD FAQ: The CSDDD FAQ is more helpful when it comes to practically relevant definitions to aid the future implementation of the directive. The Commission e.g. provides further details on the illusive concept of “chain of activities” and practical examples of upstream and downstream activities and what constitutes a direct and indirect business partner (this may also prove useful for companies struggling with the value chain concept in their DMAs). In addition, the FAQ offers additional insights into what is meant with “risk-based due diligence”; examples of concrete measures companies have to take to prevent, mitigate and bring-to-an-end any adverse impacts; if and when companies are required to disengage from certain value chain activities and/or partners (basically as last resort only) and additional details on what is required in terms of climate mitigation targets and transition planning. Overall: Really helpful document! Access the CSDDD FAQ here
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