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After five years of applying the Non-Financial Reporting Directive (the DPEF in France), the 11th Tennaxia study on CSR reporting practices aimed to identify the developments and lessons learned from this initial directive. The goal was to understand how companies already subject to these rules, as well as those soon to be affected, are preparing for the new Corporate Sustainability Reporting Directive requirements.
PANEL: Over 200 respondents, 54% listed companies, 58% French companies, 11% Benelux, 7% Italy, 4% Portugal, 4% Norway, 6% other (Ireland, Austria, Spain, etc.). 122 questionnaires were retained. In the 2022 panel, 60% of companies were already subject to the NFRD and 40% will be subject to the CSRD.
Five key points emerge from the study.
Finance departments are becoming more involved in sustainability strategy and reporting. With the need to link financial and non-financial data, 74% of companies report that their CFO is involved in ESG matters. 92% of respondents report increased pressure from banks and investors. For 66% of companies, the focus is on sustainable financing, and 69% on ESG data related to the company.
Consequently, the trend will likely move toward closer collaboration, or even a merger, between finance and CSR departments. CFOs will be expected to provide rigor in processes and data, while the CSR department will provide expertise on sustainability topics.
Executive committee involvement in KPI management is becoming more frequent. 34% of executive committees review KPIs quarterly and 12% monthly, whereas in 2022, 55% of executive committees reviewed them annually. This shift also reflects the positive impact companies have perceived from producing a DPEF: better management involvement in CSR issues and improved performance monitoring.
Climate change remains the primary risk identified by companies. Among the main risks identified by companies, climate change ranks first. More than 70% of these companies will have completed their climate change risk analysis by the end of the year. 52% of companies newly subject to sustainability reporting say they are preparing for it by first measuring their carbon footprint.
Double materiality analysis is a major challenge that is well understood by the responding companies. 32% of companies that will apply the CSRD starting in 2025 have already completed their double materiality analysis, even though methodologies had not yet been finalized at the time of the survey. 41% of respondents currently conducting their analysis will also be subject to the directive starting in 2025.
These figures may seem optimistic when compared to those from the 5th Medef study of 100 large SBF 120 companies. In that report, only 14 companies published a double materiality analysis according to the two axes required by the CSRD (impact materiality and financial materiality).
Sustainability reporting remains a generally complex subject to grasp. Although 82% of companies mentioned that the DPEF has helped embed CSR more deeply within the organization, the complexity of the guidelines and the variety of definitions have remained the primary obstacles since its implementation. To overcome these hurdles, 52% of companies state they intend to hire staff to prepare for the CSRD. KPIs have also been a challenge for companies since the introduction of the DPEF, and this is also the priority area for companies preparing their first report.
Preparing for CSRD: A guide for companies soon to be subject to the regulation
While 60% of the companies surveyed report having started work on CSRD, initial findings reveal the difficulty of looking past the regulatory burden to see the potential opportunities, as well as a relative lack of knowledge regarding the topics to be addressed. The lack of human resources and financial means to cope with the complexity and weight of the exercise is highlighted, along with the difficulty of involving governance.
"CSRD will be a huge undertaking for us. Even if we aren't required to report on every single line of the CSRD, the challenge lies upstream: finding the data, prioritizing meaningful indicators, ensuring reliability, and maintaining long-term tracking... This will require mobilizing every department in the company."
In conclusion,
Even for companies that have been experienced in reporting for many years, aligning with CSRD represents a significant shift. This starts with the double materiality assessment, both in terms of the methodology to be implemented and the scope of its implications.
For mid-sized companies (ETIs), the challenge is multifaceted. The first hurdle is building a culture of sustainability reporting, while understanding that it is not an end in itself and that there are numerous opportunities to be gained. These include attracting customers, differentiating from competitors, retaining employees, attracting talent and investors, accessing sustainability-linked financing, and ultimately ensuring the long-term viability of the business model. These potential benefits far outweigh the "chore" that CSRD might appear to be at first glance.
The second challenge is establishing the appropriate organization and the necessary resources. This is an organization where CFOs can contribute their expertise in processes and data collection, and beyond the finance department, it requires the involvement of other support functions and operational management. And, of course, the involvement of executive leadership in steering material issues.
This means human resources, through hiring to drive CSR topics within the organization and ensure they permeate the teams. It also means financial resources to secure support from service providers and reporting software.
Ultimately, CSRD represents a real shift: the integration of CSR topics by executive leadership and the consideration of their impacts on the company, the environment, and society. There is extensive literature on the fear of change within companies. Implementing CSRD would benefit from being treated as a genuine change management operation. The key steps are well-known: be an agent of change, determine what you are afraid of losing and plan ahead, ask yourself what you stand to gain, and seek help.
Stay tuned!