With the EU’s new CSRD proposal, greenwashing won’t be an option for long, and the ones who are trying to fudge the numbers will pay the highest price. But there’s still time to get on the right side of sustainability.
Investors have called the greenwasher’s bluff
ESG reporting has been around for a while now, but the content of companies sustainability reports has so far been a wild west of claims and numbers. The EU has stated that there is “ample evidence that the information that companies report on is not sufficient”. There are many identified problems with the current requirements on sustainability reporting:
- The sustainability reports often omit important (read: unflattering) information.
- The information that is actually provided is hard to compare from company to company.
- Stakeholders who make decisions based on the sustainability data are unsure if they can trust the information.
A lack of trust and structure makes it harder for investors to get an overview of the sustainability-related risks to which their companies are exposed – leaving investors open to financial risks, and makes it difficult for them to meet their own disclosure requirements (Sustainable Finance Disclosure Regulation).
In order to channel money towards environmentally responsible activities and reach the 2030 goals, we need to hold greenwashers accountable. And that is what the EU is working on.
The CSRD will force accuracy in sustainability data
After extensive work, the EU has adopted the proposal to amend the Sustainability Reporting Directive, also known as the Non-Financial Reporting Directive (NFRD), which is now changing its name to the Corporate Sustainability Reporting Directive (CSRD).
The purpose of the amendments is to confirm that sustainability reports provide comparable, sufficient and qualitative information regarding companies’ sustainability work, and link sustainability reporting to future requirements according to the EU’s green deal. There are three major ways in which the CSRD will differ from the NFRD.
- More companies will be subject to the requirement for sustainability reporting within the EU. Previously, only so-called Public Interest Entities with more than 500 employees had to publish sustainability reports, but now all large companies and all listed companies in the EU will be covered.
- Company reports should be in line with EU standards, that will be common to all European companies covered by the directive. These standards have not yet been decided on, but they will play an important part in improving comparability between companies.
- The content of these sustainability reports will be audited. In order to verify that the information included in the sustainability report is according to the requirements, all EU directive sustainability reporting will be subject to mandatory review of independent assurance service providers.
Though this is an EU directive, the CSRD also applies to companies based abroad that have a presence in the EU. And non-EU countries like the UK will be taking a similar approach to sustainability reporting.
Digitalisation of sustainability data will change the ESG game
The Corporate Sustainability Reporting Directive will hopefully go a long way towards addressing the concerns of investors and other stakeholders about the reliability of the sustainability information that companies report today. And with this new level of accuracy, it’s evident that investors and policymakers are starting to treat sustainability the same way as finances. The name change from NFDR to CSRD in itself says a lot about how the attitude towards sustainability has changed in the past few years; sustainability is no longer “non-financial”, but rather very much linked to increased investment and financial success.
In the absence of sustainability assurance standards, the assurance approach will be rolled out in different stages (going from a ‘limited assurance’ to ‘reasonable assurance’). If the Commission does adopt sustainability assurance standards, the legal requirement would automatically come into effect. But no matter what level of assurance we end up on, the Commission’s proposal will lead to an increase of digitalisation of sustainability data.
Digitalisation of sustainability data is needed to both lower reporting costs for companies, and to radically improve how investors and other stakeholders can compare and use reported information. This is even planned for in the Commission’s proposal; tagging of reported sustainability information in accordance with a digital categorisation system is part of the proposal on sustainability reporting standards.
It’s time to start fixing your numbers
We know that it might feel scary to lay all your cards on the table and let your stakeholders fully know the energy status in your buildings. But the accuracy of the data reported will be increasingly more important as ESG reporting becomes more tightly intertwined with financial reporting and investments. Those who continue to keep unflattering numbers off the books will pay the price in time, and by then it will be an uphill battle to get back on solid ground, and regain investors’ trust.
As a property owner, you have a decision to make: keep fudging the numbers, or stay ahead of the game and work on actually changing them. We’d say that’s a pretty easy one.
If you want to know more about how Metry can help you get the quality data you need? Talk to one of our product experts!
When will the new CSRD be rolled out?
If they reach agreement in the first half of 2022, then the Commission should be able to adopt the first set of reporting standards under the new legislation by the end of 2022. That would mean that companies would apply the standards for the first time to reports published in 2024, covering the financial year 2023. You can follow updates here.