How can a company avoid these pitfalls?
1. Start on time with a clear plan
We notice that the ‘sense of urgency’ is not yet present everywhere in business. And yet for just about all companies covered by CSRD, it is high time to start preparing the reporting and, more precisely, the double materiality assessment.
It is understandable that companies are focusing their energy and resources primarily on their operations and more urgent obligations. But this reporting requires a timely and structured approach, including a roadmap with deadlines, deliverables, and who is responsible for what. January 1, 2025, is much closer than people think, so waiting comes with risks.
2. Free up enough of the right resources
Companies that are somewhat larger and/or have previous experience in sustainability reporting may already have one or more employees working on sustainability. Smaller companies where this is not the case are advised to appoint someone (or a team for the somewhat larger entities), or to employ external specialists to manage the implications of CSRD and thus the double materiality assessment. Determine clearly who is responsible, including at the level of the board of directors, and, if necessary, have a separate spokesperson for internal and for external stakeholders. Also give the designated person or team sufficient time, and do not see it as an extra task on top of an already existing set of tasks. Robust implementation will pay off because it allows you to focus on the right challenges, make the right decisions to attract resources and people to meet those challenges, and thus have an impact and contribute to the realization of the goals of the EU Green Deal.
So, go to specialist consultants if you do not have your own team. They will support you in one or more steps of the process, or help take a critical look at the different phases within the process. This is also an important piece of advice that we give to all companies. Remain critical at all times, because often people think they are doing a good job, while a critical outsider can see more quickly where the gaps are or where adjustment is needed.
3. Make a well-considered selection of all stakeholders
Ensure the careful selection of stakeholders. Zoom out and look beyond internal stakeholders. Think of employees, government, press, board of directors, and shareholders. Also include customers, suppliers, subcontractors, partners, local residents, and other possible groups in the evaluation. It is important here to always identify 'impacted stakeholders'. These can also be silent stakeholders, such as the environment, which must be represented by, among others, non-governmental organizations (NGOs). These stakeholders must not only be identified, but also questioned and involved in the various phases of the process. They should be taken into account not only when determining the topics but also when scoring them.
Another way to ensure that the identified impacts are comprehensive is to include the output of thorough due diligence processes and to make a complete inventory of the possible material impacts, risks, and opportunities.
4. Document and communicate
Carefully document the process from the outset. This is not only important to ensure that the entire process runs smoothly. It is also important during the audit to be able to demonstrate what steps have been taken, the context in which the company operates, which stakeholders have been interviewed, what considerations have been taken into account, and what decisions a company has made. This also requires a description of the company strategy and the way in which ESG is incorporated, the due diligence process followed, etc.
Keep the whole process alive within the company and among external stakeholders by communicating regularly. This increases the buy-in of all parties involved.
5. It is an annual and dynamic reporting exercise
CSRD reporting is an annual exercise, and that also applies to the assurance aspect (initially ‘limited assurance’). But that does not mean you have to start from scratch every year. Of course, data has to be collected annually for the defined topics, and the actions taken must be updated. But if the methodology used in the initial reporting is well designed, as with financial reporting, the effort required to prepare the sustainability reporting will level off over the medium term.
For CSRD reporting, the double materiality assessment and its output is audited by a company auditor, within an assurance engagement. A company must therefore be able to submit proof of the double materiality exercise to the auditor. This includes the process followed to determine the completeness of the impacts, risks, and opportunities, and the criteria of the materiality exercise that ultimately result in the topics to be reported. So, if something has changed in the business operations, business locations, or other aspect that has an impact that goes beyond updating data or the status of an action plan, the annual update is a larger job.
