Sustainable-business trend is set to accelerate – MHC

A penalties and enforcement regime will apply after the February 23 EU Corporate Sustainability Due Diligence Directive (CSDDD) is transposed into national law, within the next 18 months, an MHC webinar has heard (29 March).

The directive aims to foster sustainable and responsible corporate behaviour throughout global value chains.

The legislation will complement last December’s Corporate Sustainability Reporting Directive (CSRD).

The CSRD is now in force and drastically changes the EU’s sustainability reporting landscape, with the goal of harmonising and improving the nature and extent of environmental, social and governance (ESG) information available to stakeholders.

‘Matter of debate’

The scope of the new measures is a “matter of debate”, the MHC webinar heard, and will not capture the entire range of organisations, being geared to larger entities or approximately 50,000 companies across the EU and beyond.

However, self-assessment of value chains and adverse impacts on environment and human rights will be required.

Many companies may also comply voluntarily as their value chains and other stakeholders begin to request or expect alignment with CSRD standards.

Many boards are taking ownership of sustainability now, Emer Shelly (MHC senior associate in corporate governance) said, and controls and oversight are being put in place.

Upskilling is also taking place at board level, in view of this shared responsibility, Shelly said.

The webinar heard that there is now a positive obligation on firms, as distinct from a reporting duty, to identify and take steps to mitigate negative impacts.

Britain’s Modern Slavery Act also imposes supply-chain scrutiny and standards, the webinar heard.

Robust governance structures

Robust governance structures will be required in preparing for and managing the new reporting process.

The CSRD has borrowed its framework from the existing Global Reporting Initiative (GRI), but not replaced it, with similar disclosure requirements.

Firms already using GRI should segue into the CSRD, the webinar heard. The advantages of compliance will be in information and data that pinpoint which processes need to be improved.

The deadline for CSRD reporting will be June 2024, if the directive is transposed.

Reporting templates

Jay Sattin of MHC said that there are templates for reporting available, which companies should examine.

Employers should be aware that the directive will cover employees outside the EU, as well as employees of customers and suppliers, the webinar heard.

The new standards have very prescriptive ‘materiality assessments’ that spell out exactly what firms need to do, in identifying a broad range of risks and opportunities, said Karen Deignan (SustainabilityWorks).

These could include climate or biodiversity, and firms will need to figure out what impact they have in terms of people and the planet.

Áine Higgins (ESG and risk manager, NTR plc) said that the sophistication of investors is now noticeable on due-diligence calls.

“They are asking us how we manage these things – their level of knowledge and probing has increased massively,” she said.

Greenwashing concerns

The knowledge of ‘greenwashing’ is increasingly rapidly, she added.

Higgins warned firms against ‘glossing’ and said that they should stay true to their values.

“It’s very important to stay close to reality in terms of sustainability,” she said.

Higgins noted “huge appetite” among investors for detailed information on NTR funds and assets, beyond simple data points.

“We try and really bring to life what we are doing to live the ‘E’, ‘S’, and ‘G’ by sharing some of the activities that we’ve done – that might be stories on biodiversity, circular economy, trying to reduce our embodied carbon.

“There is huge appetite for this – we get asked a lot of questions,” Higgins added.

Emer Shelly concurred that this is an increasing trend.

Reputational benefit

Meeting reporting standards has a reputational benefit for firms, Shelly added: “If a company has good ESG attributes, it may just want to advertise them. It gives them a good reputation and, potentially, a competitive advantage.”

The benefit of harmonised standards is that the information is reliable and comparable, Shelly said.

“The CSRD is likely to accelerate that trend even further,” she continued, “with stakeholder demand as a key driver, because they have their own reporting requirements on sustainability information.”

Jay Sattin (MHC senior associate in planning and environment law) showed the range of topics on which companies must report under the directive, such as climate change, as well as employee health and safety.

Materiality is decided upon across all business operations, Sattin said.

Converging standards

Firms will be relieved to see converging standards, Karen Deignan suggested.

Because the sustainability agenda is so broad, it will touch on many different functions in any organisation – from facilities to energy management, to HR, to procurement.

“It’s about getting good processes and systems in place for that,” Deignan said.

She added that the first sustainability report was always the hardest, but that the repository of information accrued really helped in terms of communication – both internal and external, and with customers and suppliers.

A full 40% of webinar attendees said that they believed their organisations would come within the scope of the new directive.

The webinar was chaired by Claire Lord of MHC and moderated by Ian Kehoe (editor, The Currency).