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In recent weeks, some observers have expressed alarm at the rise of what can now be called sustainability reporting, with the launch of the Corporate Sustainability Reporting Directive (CSRD). Too time-consuming, too much data to collect, consolidate, and publish. On the other hand, too few human, technical, and financial resources to devote to it... Has sustainability reporting become the unloved child of CSR? In any case, it is the focus of everyone's attention!
During this Six Nations tournament, the French team's impressive victory over England was hailed as a return to basics, a term dear to rugby players and fans alike. While sustainability reporting is not an end in itself, it is one of the fundamentals of corporate social responsibility (CSR). It is the basis for steering CSR policies, just as it is the foundation for sharing information and data with corporate stakeholders.
Sustainability reporting in the service of CSR
From non-financial reporting to sustainability reporting, including CSR reports, sustainable development reports, and non-financial performance statements (DPEF), this evolution is no coincidence. It reflects the evolution of CSR itself. That of normative CSR, which was the subject of French regulatory requirements, then European requirements transposed into our law. At the same time, CSR has always been seen as an opportunity for communication, if not a lever for transformation.
The transposition of the European Directive of October 22, 2014, on the disclosure of non-financial information, into French law, with Order No. 2017-1180 of July 19, 2017, and Decree No. 2017-1265 of August 9, 2017, was intended to set companies on a new path. Its "materiality" approach was accompanied by a desire to anchor CSR in its contribution to the overall performance of companies, thereby generating greater relevance and usefulness for companies and their stakeholders alike.
The four years of implementation of the DPEF have undoubtedly led to progress. However, the concept of performance has not systematically been accompanied by more frequent collection of key performance indicators. According to Tennaxia's10th study on non-financial reporting practices, 55% of companies in the sample report KPIs to their governing bodies on an annual basis, 12% on a semi-annual basis, and 22% on a quarterly basis.
This demonstrates the difficulty of integrating CSR throughout the company, in its operational and functional departments, and ensuring that it is systematically taken into account in decisions and actions, as stipulated in the ISO 26000 definition of CSR. Specifically, while many people question and, it must be said, criticize the profusion of indicators, key performance indicators, and other KPIs, how can we do without them to certify the implementation of environmental, social, and ethical policies? Without them, how can we report on what has been done and what still needs to be done?
In a recent post on LinkedIn, Dominique Steiler, senior professor and holder of the UNESCO Chair for a Culture of Economic Peace at Grenoble Ecole de Management, commented on the illustration below, saying, "We often confuse management tools with reality, which leads us to 'manage by indicators' instead of taking care of the company's driving forces. While tools are useful for understanding and decision-making, they require discernment above all else."
Discernment! Yes, that's exactly what it's about. Identifying the right KPIs, i.e., those that are material. Explaining them to those who will be responsible for implementing the actions that need to be measured in order to be managed, and therefore also explaining them to those who will be responsible for collecting the data.
Measure, because "what is not measured cannot be improved" (William Edwards Deming, theorist of continuous improvement). That said, while keeping teams interested, informed, involved, and inspired is an excellent management practice and a guarantee of relevant and fulfilling leadership for the women and men in the company, should we be satisfied with simply stating this to convince ourselves that it is being implemented and that the objective is being achieved? Certainly not. Just as we cannot be satisfied with CSR policies that are merely posted on the wall without being able to see their effects, illustrating them with a few actions is not enough.
Discernment is therefore key when choosing key performance indicators. "Less but better" should be the motto of today's DPEFs and tomorrow's CSRDs in order to prove the effectiveness of CSR policies.
CSRD: sustainability reporting finally serving business transformation
The CSRD spells the end of retrospective reporting, annual data collection, and a lack of commitment to targets. The CSRD aims to promote the transition of European companies towards a sustainable global economy and to improve financial flows in favor of sustainable activities in the European Union.
Improving the content of non-financial reports, now known as sustainability reports, is essential to the success of the ecological transition sought by the CSRD. Companies will therefore be required to disclose data and information relating to sustainability issues identified through double materiality analysis. This data will be used to assess the impact of their activities on the environment and society in general, as well as the risks and opportunities that this environment and society pose to their business model and, therefore, to their sustainability.
With the CSRD, transformational reporting and therefore reporting on companies' commitment to this energy and social transition, environmental, social, and governance (ESG) information will become a marker of companies' economic performance, with strong connectivity between financial and non-financial statements, both for financial players and for all stakeholders.
The 12 ESRS (European Sustainability Reporting Standards), developed by EFRAG, provide a framework for reporting under the future CSRD and propose a reporting architecture based on:
- 3 levels of information: agnostic, sector-specific, and specific,
- 4 reporting areas: governance involvement in sustainability issues, strategy including risks and impacts, deployment, and performance measurement
- Three themes: environment, social, and governance.
Performance measurement brings us back to the reporting process, data collection, and data management, which are central concerns for the various stakeholders impacted by the CSRD, foremost among them businesses.
According to a study conducted by C3D, while "CSR performance management and measurement is thefourth most important task for CSR departments (91% of respondents), formalizing non-financial reporting to account for CSR performance comes infifth place (81%), only 31% of respondents have mature indicators that are defined globally and implemented locally... 55% of the companies surveyed (very small businesses/SMEs and large companies) do not have a reporting tool for their non-financial performance."
As a result, the majority of respondents appear to be insufficiently equipped to manage the sustainable performance of their companies, to manage and report on their companies' transformation, even though data will become an integral part of their commitments to their trajectories and the success or failure of their implementation.
In other words, the data will be used to account for the action. It will have to provide evidence of the concrete transformation of the company during the annual publication, and it will form the basis for steering the transition as it progresses. Provided, of course, that it is readily available.
Sustainability reporting software solutions are now emerging as an indispensable tool for CSR/sustainable development departments, Chief Impact Officers, and Chief Value Officers to steer their CSR/ESG strategy and report on it to their companies' governance bodies and stakeholders.
In conclusion
One of the objectives of the CSRD is to improve transparency for all stakeholders in order to redirect investments towards more sustainable technologies and companies.
The quality of data and the ease with which it can be collected, consolidated, and managed is a major challenge. For example, the Science Based Targets initiative (SBTi) has been chosen by a number of companies that want to demonstrate the robustness of their commitments to reducing greenhouse gas emissions. After their commitments have been validated, these companies must report on the compliance of their actual trajectory with the trajectory announced in the SBT commitment. Some observers have noted that this reporting has sometimes been lacking.
It is no longer enough to simply say. Information must be backed up with robust data that reflects the reality of ESG commitments in sustainability reports.
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