Companies are increasingly expected to act sustainably and socially responsible. This expectation shows itself in a variety of ways, such as pressure from society, as well as in the form of legislation. The Corporate Sustainability Reporting Directive (CSRD), a cornerstone of the EU Green Deal, is such a piece of legislation, mandating companies to be transparent about their ESG (Environment, Social, Governance) performance. The law requires all large companies and all listed companies to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment. This information helps investors, civil society organizations, consumers and other stakeholders to evaluate the sustainability performance of companies. In this article, we will dive into the scale of reporting under the CSRD, associated challenges, share considerations on when to involve data and tooling and introduce our advised approach. 

THIS ARTICLE IS WRITTEN BY BART LADRU ([email protected]) AND ABDEL EL AMRANI ([email protected]). BART AND ABDEL ARE BOTH PART OF RSM NETHERLANDS BUSINESS CONSULTING SERVICES WITH A SPECIFIC FOCUS ON SUSTAINABILITY AND TECHNOLOGY.

Challenges associated with ESG data management

The CSRD introduces 12 standards and 92 reporting requirements (sub-sub-topics), representing about 500 KPIs and more than 10,000 data points. The 10,000 data points, spread across various internal and external software applications, generate data consistency, integration and accessibility challenges. Reporting requirements are expanding, not only across one's own organization but across the entire value chain, with both retrospective and forward-looking analyses. Managing ESG data encompasses various challenges. It involves gathering, processing, analyzing, and reporting data that reflects an organization's performance in these areas. 

One challenge lies in the fact that for most companies, ESG data is something new. Traditional data systems developed organically over the years, while often ESG systems need to be set up overnight. Moreover, the IT department in charge of setting up the system may not fully grasp the reporting requirements, leading to wrong decision making. To avoid this, it is crucial that ESG knowledge is developed across your organization, and not just centralized at the ESG manager. 

Another aspect to consider is the reporting scope. Companies must offer insights into their impacts, risks, and opportunities throughout their operations and supply chains. Unless you gather all the information by yourself, this often introduces a level of dependency on external sources provided by supply chain partners. 

When to integrate data tooling into the ESG/CSRD process

When confronted with the scale and complexity of gathering, organizing and ultimately reporting on ESG data, it is understandable that organizations might feel inclined to turn to ESG tooling available on the market to regain a sense of control. However, before purchasing a tool, it is important to first consider how the CSRD applies to your organization. Instead of seeking shortcuts, take the necessary fundamental steps: evaluate your business model, outline your value chain, and determine who your most important stakeholders are. Also, it is vital to conduct a double materiality assessment, create a strategic plan, carefully analyze the data needed for reporting and determine what is accessible within your organization. Once you have this understanding, it will be easier to identify if ESG tooling is needed, and, if so, with what features. Failure to build up this understanding may result in investing in a costly tool that does not align with your data requirements, or one that incorporates sophisticated features to gather information about all sorts of topics that, for your organization, might not prove to be material at all.

Our ESG data management process in a nutshell

To help organizations traverse the complexity of accurately gathering and managing ESG data, we have developed the following five step approach: 

  1. Understanding CSRD Reporting Obligations: Identify the relevant reporting obligations under CSRD for your organization, including material sustainability themes by means of a double materiality analysis. Translate sustainability themes into KPIs and link the required data points to the KPIs. Map which data points come from your own organization and which from the value chain.
  2. ESG Data Sourcing and Collection Analysis: Evaluate where and how ESG data is collected, stored, and managed within your organization. Determine the availability of data, where it is recorded, by whom, for what purpose, and what the level of quality is. Develop an action plan for data that is not recorded and/or available, as well as how ESG data can be integrated with other systems within the organization.
  3. Strategic Analysis and Future Planning: Develop strategic recommendations to bring your ESG data management to a desired future state. Consider the ESG strategy, governance framework, and the pace at which data needs to be collected. Tip: The European Sustainability Reporting Standards (ESRS), the framework over which the CSRD requires you to report, accepts a 3-year growth path for value chain-related data. Where possible, utilize that time. Assess whether available data aligns with strategy and needs, take action to improve reliability, including a plan to obtain missing data, such as dummy data or gradual acquisition according to the strategic plan.
  4. Implementation Roadmap: Create a detailed plan for implementing chosen strategies and software and promote internal capacity building. Identify software needs, select suitable software based on requirements such as compatibility, capabilities, price, etc., and discuss possible approaches with suppliers. Then implement these and train employees in effectively registering and analyzing ESG data points.
  5. Monitoring, Improvement, and Innovation: Establish systems for continuous monitoring, improvement, and integration of innovations in your ESG data management process. Compare reporting with standards and competitors, involve various stakeholders to optimize data registration and analysis. 

Forward thinking

While getting started with ESG data management presents challenges, overcoming them is feasible with dedication and a well-structured plan. If implemented effectively, ESG data management empowers companies to proactively pinpoint and address ESG-related risks, thereby reducing operational and reputational vulnerabilities. Most importantly, a robust data management system ensures the accuracy and transparency of ESG/CSRD reporting, providing stakeholders with valuable insights into the organization's ESG performance. 
RSM is a thought leader in the field of Sustainability consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.