The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulation within the European Union, broadening the scope of sustainability reporting beyond the previous Non-Financial Reporting Directive (NFRD). It mandates enhanced transparency from companies on environmental, social, and governance (ESG) matters, affecting over 49,000 companies in the EU. The CSRD not only requires detailed sustainability disclosures but also insists on third-party audit verification, ensuring accountability and reliability in reporting.

However, meeting CSRD standards only forms one element in the steps companies are taking towards environmentally conscious business models today. Corporations are increasingly recognizing that exceeding these regulatory requirements by setting ambitious environmental targets can offer a competitive edge. Businesses like Patagonia and IKEA, which have set industry-leading sustainability goals, thereby enhance their brand reputation and customer loyalty.

Ambitious targets are not just about compliance; they're a strategic move towards sustainability, innovation, and long-term profitability. By going beyond the CSRD, companies contribute significantly to global sustainability efforts, positioning themselves as leaders in a future where environmental responsibility is paramount. In this guide, we explain how to take your company’s sustainability efforts from reporting to reducing.

Understanding CSRD Compliance

The Corporate Sustainability Reporting Directive (CSRD) marks a significant step forward in the European Union's commitment to sustainability, expanding the scope and enhancing the transparency of corporate sustainability reporting. Originating from the Non-Financial Reporting Directive (NFRD), the CSRD seeks to address its predecessor's limitations by broadening the range of companies under its purview and deepening the level of disclosure required. Its primary aim is to furnish stakeholders, including investors, customers, and the general public, with a more detailed insight into the environmental and social impacts of corporate activities.

A critical component of CSRD compliance is the adherence to the European Sustainability Reporting Standards (ESRS), which provides the detailed reporting guidelines under the CSRD framework. These standards underscore the importance of carbon accounting as a pivotal practice for companies striving to meet and surpass regulatory requirements. Carbon accounting, which involves the measurement of a company's greenhouse gas emissions, plays a vital role in not only achieving baseline compliance but also in setting and realizing more ambitious environmental strategies.

CSRD/ ESRS timeline

• Large companies already reporting under the NFRD will transition to CSRD standards starting in 2024 (reporting in 2025).
• Large companies meeting two of the following criteria must comply with the CSRD in 2025 (reporting in 2026): 250+ employees, €50m+ net turnover, €25m+ total assets.
• Listed small-to-medium enterprises (SMEs) that meet two of the following criteria must comply with the CSRD in 2026 (reporting in 2027): small-sized (50-249 employees, €10-50m net turnover, €5-25m total assets) or micro-sized (10-49 employees, €900k-10m net turnover, €450k-5m total assets).
• Third-country undertakings must comply with the CSRD by 2028 (reporting in 2029).

The case for ambition

The drive for companies to go beyond mere compliance and set ambitious environmental targets is not just a moral obligation but a strategic advantage, delivering significant environmental, social, and economic benefits. By aiming beyond the baseline requirements, organizations can:

• mitigate risks;
• enhance their brand reputation
• uncover new opportunities for growth and innovation.

Here are the benefits per sustainability pillar:

Environmental benefits

Ambitious environmental targets lead to a reduction in greenhouse gas emissions, conservation of natural resources, and a decrease in waste generation. These efforts contribute significantly to combating climate change and preserving biodiversity, ensuring a healthier planet for future generations.

Social benefits

Companies taking proactive steps in their environmental strategy often see improved stakeholder relationships. Employees are increasingly looking to work for companies with a clear commitment to sustainability: A global IBM survey from 2021 revealed that 71% of employees and job seekers want to work for sustainability-engaged companies. Additionally, only 48% of survey respondents trust corporate commitments on sustainability, signaling a worrisome trend fuelled by greenwashing. Imposing tangible goals based on reporting requirements help mitigate these risks.

Economic benefits

There's a strong economic case for ambitious environmental strategies. Energy efficiency and waste reduction not only lower operational costs but also protect companies from the volatility of resource prices. Furthermore, sustainability initiatives often open up new markets and opportunities for innovation, positioning companies as leaders in emerging green industries.

Setting clear targets

Setting ambitious environmental targets requires a strategic approach that extends beyond mere compliance with regulations such as the CSRD. To identify areas for improvement, companies must first conduct thorough internal assessments. This involves analyzing all aspects of their operations, from supply chain logistics to product lifecycle, to pinpoint areas with significant environmental footprints.

The SMART approach

Once these areas are identified, setting realistic yet ambitious targets becomes the next crucial step. Employing the SMART (Specific, Measurable, Achievable, Relevant, Time-bound) framework can ensure that these targets are not only challenging but also attainable and aligned with the company's broader environmental and business objectives. For instance, a target could be to reduce greenhouse gas emissions by 25% within the next five years using specific, innovative technologies and the Science-Based Targets initiative (SBTi) as a framework.

Engaging stakeholders

Involving stakeholders is essential for the success of these environmental initiatives. Engaging employees, investors, and customers in the target-setting process can provide valuable insights, foster a culture of sustainability, and build collective commitment to achieving these goals. Transparent communication about these targets and progress towards them helps maintain accountability and can enhance a company's reputation as a leader in environmental stewardship. By integrating these strategies, companies can ensure that their ambitious environmental targets are not just aspirational but achievable milestones on the path to sustainability.

To go beyond the requirements of the CSRD, companies must adopt comprehensive strategies that address key areas of environmental impact. Reducing carbon footprint, enhancing waste reduction, improving energy efficiency, and ensuring sustainable sourcing are pivotal steps toward a more sustainable future.

Strategies to exceed compliance

Reducing scope 1 emissions

Scope 1 emissions – a term frequently used in relation to emission management – stems largely from purchased natural gas and fuel combustion in company controlled vehicles. This can be reduced by improving heat-use efficiency, switching to electric boilers and heat pumps, as well as electrifying the vehicle fleet.

Reducing scope 2 emissions

Scope 2 emissions refer mainly to the emissions coming from purchased electricity (for both the office and electric vehicles). A key strategy to reduce this involves transitioning to renewable energy sources and optimizing logistics to minimize emissions. Companies can invest in solar or wind energy for their operations and adopt electric or hybrid vehicles for their fleets.

Waste reduction

Implementing zero-waste policies and circular economy principles can significantly minimize waste in the production process. This involves redesigning product life cycles through recycling, reusing, and reducing materials, thereby extending the life of products and materials.

Energy efficiency

Upgrading to energy-efficient appliances, lighting, and machinery can dramatically reduce energy consumption. Conducting regular energy audits identifies opportunities for improvement, ensuring that operations are as efficient as possible.

Sustainable procurement

Prioritizing materials and products that are sustainably sourced ensures that supply chains contribute positively to environmental objectives. This includes using certified sustainable materials and engaging with suppliers who adhere to environmental standards. Read our sustainable procurement guide for actionable advice on this.

Carbon accounting and reporting

To effectively track progress towards these ambitious goals, robust carbon accounting and reporting practices are essential. These practices not only measure the impact of implemented strategies but also inform future decision-making, ensuring continuous improvement.

Leveraging technology and innovation

Advanced technologies, such as AI for energy management, blockchain for supply chain transparency, and innovative materials for sustainable product design, play a crucial role in exceeding compliance. These tools enable companies to achieve their environmental targets more efficiently and with greater impact.

Overcome challenges

Setting and achieving ambitious environmental targets present companies with a variety of challenges, ranging from financial and technological hurdles to navigating complex regulatory landscapes. Financial constraints often emerge as a significant barrier, particularly for initiatives requiring upfront investment in sustainable technologies or infrastructure. Technological challenges include the integration of new systems or processes and ensuring that these innovations can scale effectively. Regulatory obstacles may involve compliance with evolving sustainability standards and reporting requirements.

To overcome these challenges, companies can leverage a range of strategies. Government incentives, such as subsidies or tax breaks for green initiatives, can alleviate financial pressures and encourage investment in sustainability.

Forming partnerships with other organizations, including NGOs or industry peers, can share knowledge, resources, and best practices, fostering innovation and reducing costs. Green financing options, like sustainability-linked loans or green bonds, provide crucial capital for environmental projects, aligning financial strategies with sustainability goals. By strategically navigating these obstacles, companies can ensure the successful implementation and achievement of their ambitious environmental targets.

Conclusion

The journey beyond CSRD compliance is not only a regulatory mandate but a strategic imperative that delivers major benefits for the environment, society, and businesses themselves.

As this guide has explored, setting and achieving ambitious environmental targets elevates companies, distinguishing them as leaders in sustainability, innovation, and corporate responsibility. These efforts contribute significantly to combating climate change, fostering social goodwill, and unlocking economic opportunities through improved efficiency, brand loyalty, and stakeholder engagement.

Looking to become CSRD-compliant, or want to measure your company’s carbon emissions so you can get ahead? Check out our interactive demo below or get in touch with one of our experts.

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