Tips for moving to mandatory ESG reporting
Three key tips for moving from voluntary to mandatory ESG reporting. Focusing on the SEC’s ruling in March, which mandated climate risk disclosures.
A major shift is going on in the world of ESG - regulation will dictate what companies disclose. Corporate reporting on ESG data is not new, in fact, many companies have decades of experiences disclosing on topics ranging from staff diversity through to emissions. However, starting with 2024 data, tens of thousands of large companies must begin reporting in compliance with the CSRD. In total, 50,000+ companies will be impacted by this regulation over the next 5 years.
This article is focused on how a company needs to consider their ESG reporting in light of this regulation.
How did corporate ESG reporting work before the CSRD?
There has been a strong voluntary market around CSR / ESG / Sustainability / Responsible business / Integrated Reporting for many years. The voluntary market was driven by a variety of stakeholders including:
There has even been regulation before the CSRD such as NFDR or the EU Taxonomy. However, previous regulation was much lighter in breadth and depth than what we are now seeing. More on this below.
Why is the CSRD different from other regulations or voluntary reporting?
It is different due to its breadth, depth, and related assurance requirements. What I mean by that is:
Why should annual accounts start with CSRD?
The traditional work flow for most corporate ESG narrative is to start with a draft communication at the narrative level then to align that narrative to the voluntary ESG frameworks such as GRI or SASB. Given the fact that most companies subject to this regulation have been reporting extensively on E, S and G topics for many years, there is a material risk that there is a misalignment between: What they are saying to the regulator vs the narrative they have historically published around a particular topic.
Considering the data points published by EFRAG let's consider a few examples of this.
In ESRS S1 “Own Workforce” there are 202 data points. 88 of those data points have been classified by EFRAG as Narrative data points. Many data points are around topics a corporate has likely already communicated about for years such as:
Discussion topics around human rights, employee engagement and target settings are staples for any corporate communication. However, a company needs to be careful that their pre-regulation description of employee engagement does not contradict their regulatory definition. Worse still, a company cannot publish contradictory statements within the same document (e.g. their annual report).
How should a company’s ESG disclosure workflow work in a CSRD world?
Given the large number of narrative questions that a company must disclose to, our view is that the company should FIRST collect their CSRD data - both the quantitative and qualitative, THEN the company should use that data to formally prepare their wider reporting narrative and formal responses. By starting with the CSRD response, a company can protect themselves from data mis-alignment as they will collect the regulatory data first.
Feedback on how to do this?
Everyone is collectively deciding the correct way to approach this regulation. I would love to hear from corporates on how they are planning for CSRD from the front lines. Please get in touch with the Nossa Data team and would love to have a chat all things ESG and public company company disclosure.