The Corporate Sustainability Reporting Directive (CSRD) and its important change for European companies
Interview with Dr. Jens Ramsbrock, Alexander Roas and Dr. Kesheng Shu
The Corporate Sustainability Reporting Directive (CSRD) brings with it an important change for European companies: sustainability reports are now just as central to corporate reporting as financial reports. The directive is intended to ensure that companies provide reliable and therefore comparable sustainability data. Uniform standards create transparency and are intended to reorient investments in sustainable technologies and companies: This is because the CSRD not only requires companies to disclose their sustainability practices in detail, but also stipulates that this information must be published according to uniform standards and in a specified format. As a result, companies affected by the CSRD must disclose detailed information on environmental, social and governance (ESG) issues from the 2024 financial year. The CSRD raises sustainability reporting to a new level, resulting in new requirements for the companies concerned.
In this article, Dr. Jens Ramsbrock, Alexander Roas and Dr. Kesheng Shu shed light on the most important requirements of CSRD, the challenges involved in its implementation and the strategic opportunities that may arise for companies in the future.
Jens Ramsbrock: After completing his MBA in Sustainability Management, he worked in innovation management, where he helped companies to develop their products in a targeted and structured manner. This task often overlapped with internal business development, which also applies to his current role at ARRK Engineering GmbH. In the role of technical supervisor, he is now responsible for the development of business strategies and consulting services. He is also a Certified Sustainability Reporting Specialist with a focus on CSRD.
Kesheng Shu is a certified project manager and ESG analyst with 18 years of cross-industry experience in real estate, renewable energy, agriculture and academia. His international project experience in sustainability management spans across Europe (Germany, Austria, Poland) and Asia, especially China, with a focus on energy policy strategy development. He is familiar with ESG reporting guidelines in both the EU market (SDG, GRI, IFRS, ESRS) and the Chinese market (CASS-ESG, HKEX-ESG). His project management skills include both traditional and agile management, especially in terms of CSRD and GHG accounting compliance. He is also deeply rooted in the academic world of sustainability and plays an active role in trend research. Furthermore, he has participated in trainings on the GHG Protocol, ISO 9001 and 14001 as well as Life Cycle Assessment (LCA). In the team, he supports Jens and Alexander with his technical expertise and focuses on the Chinese market.
Alexander Roas has completed training as a Business Transformation Coach (univ.) and acquired an additional qualification as a certified sustainability consultant. Over many years, he has gained experience in the operation of large commercial vehicle fleets and has worked intensively on the sustainable transformation of fleet management. In the team with Jens and Kesheng, one of his main focuses is on analyzing innovation management.
Which organizations, industries and companies are among your customers? And what are the most common challenges that your customers face when implementing sustainability measures?
The number of companies that will have to comply with EU sustainability reporting requirements in the future will increase significantly - and by leaps and bounds - as a result of the new regulations. At the same time, manufacturing companies operating in global supply chains in particular are recognizing the importance of transparency and sustainability, both to meet regulatory requirements and to strengthen their market position. Large companies that meet certain criteria often have to comply not only with the new EU directives, but also with specific industry requirements.
In our experience, a key challenge for companies is their internal organizational structure, as there is often no one specifically responsible for sustainability. Many companies are still in the analysis phase of the current situation with regard to CSRD requirements. Because there is often no sustainability specialist on staff (yet), the topic is often assigned to people with seemingly appropriate functions, such as EHS managers, the HR department or the accounting department.
Selecting a suitable consulting team is not easy for some clients, especially when it comes to a topic as complex as the CSRD report. In your opinion, what criteria are decisive when selecting an external consulting team?
Basically, the human component is very important to us: We work with our clients on a basis of trust and always on an equal footing. Our consulting approach is pragmatic and efficient - and we as people are approachable and accessible.
In our opinion, several criteria should be considered in parallel when selecting a suitable sustainability consultant: It is understood without saying that the consultant should have extensive expertise and experience in the field of sustainability and ESG reporting. Specific experience with the requirements and extensive standards of the CSRD is particularly important at this point.
The consultant's methodology should also be clear and transparent at all times: it is important that consultants present a clear concept for the implementation of consulting services and are flexible enough to adapt to the company's specific needs and objectives. If communication is kept open and transparent at all times, everyone involved is informed of progress and able to act. Keyword transparency: Ultimately, a transparent cost structure is also a criterion for the selection of the consulting team, as this helps to avoid unexpected expenses and manage the sustainability budget effectively.
Where appropriate, the consulting team offers additional training to further develop employees' sustainability skills. In addition, a basic understanding of the industry-specific challenges is of course always helpful.
Where can the services of a sustainability consultant be applied? Please give a brief overview of the services you offer in relation to CSRD.
Within a company, there are many areas of application in various departments, e.g. with the topics of compliance, reporting or strategy. We can provide valuable support in these areas as sustainability consultants.
A central aspect is the double materiality analysis, which involves identifying the company's impact on the environment and society as well as sustainability-related opportunities and risks for the company. Data management must then be set up to define the relevant data and systematically record and evaluate it.
We consistently support companies in their sustainable transformation, starting with a comprehensive analysis from a corporate perspective. We consider both current products and services as well as future developments in order to promote innovative business models. In addition, we can take over the entire project management in the area of sustainability or, if available, support the internal project manager. This can be advantageous for complex projects where both the coordination of different departments and adherence to schedules are crucial.
Our services can be applied at local, national or international level as required, enabling companies to respond to specific market requirements: Specifically, we offer Chinese companies support to meet European ESG requirements - in Chinese if required.
And what specialist knowledge or experience do companies expect from a sustainability consultant?
SMEs attach great importance to a fairly broad range of skills and experience in a sustainability consultant; above all, this includes a solid understanding of sustainable business and innovation management in order to be able to develop practicable and future-oriented solutions. It is also important to be well versed in the relevant laws and regulations to ensure that all proposed measures are legally compliant.
Last but not least, experience in working on consulting projects and developing strategies is valued, as this forms the basis for developing concrete recommendations and successfully supporting their implementation.
You certainly see specific challenges in SMEs when it comes to implementing CSRD - what are they?
A key challenge is often a lack of resources. Many companies have limited financial resources, which makes it difficult to implement comprehensive reporting obligations. There is also often a lack of specialized employees or departments that deal exclusively with sustainability and reporting. Data sourcing and data management are also a challenge, as smaller SMEs often struggle to access reliable and consistent data for sustainability reporting. Integrating new systems for data collection and analysis can also be complex and costly. Existing business processes may have to be fundamentally changed or at least adapted in order to meet the new reporting obligations.
Nevertheless, the sustainable positioning of the company can be a measure to secure its future. We operate in this area of tension.
How do you also help companies to use the collected data and reports for strategic decisions? How can the respective sustainability goals be integrated into a company's long-term business strategy?
By developing strategies that minimize environmental and social risks, companies can reduce potential legal and financial risks while increasing their profits in the long term. On the other hand, employees benefit from a better working environment and a positive corporate culture, both of which are promoted by sustainable practices. This generally leads directly to higher motivation and greater productivity. End customers also appreciate environmentally aware and socially responsible companies, which leads to greater customer loyalty. Investors and stakeholders see sustainable business practices as a lower risk and a higher long-term return, which makes the company more attractive for investment. And finally, suppliers benefit from clear guidelines and requirements, which enable more stable business relationships and thus help them to reduce their own risks.
In our role as sustainability consultants, we help with long-term strategic planning to ensure that corporate goals are fundamentally in line with sustainable principles. For example, if a company is pursuing growth plans or looking to enter new markets, we help integrate sustainable practices right from the start of new projects to secure long-term benefits. In the event of changes to environmental legislation or industry standards, such as the introduction of the CSRD, which sets clear deadlines for ESG reporting, we ensure that the company remains compliant and thus avoids non-compliance.
There are indeed a multitude of possibilities: We show ways in which energy and resource costs can be reduced by increasing efficiency, which in some cases leads to considerable savings. We can also provide support in preparing for financing rounds by preparing the company for sustainable requirements and thus increasing the chances of (further) financing. We can also develop strategies for competitive analysis in order to increase competitiveness through sustainable differentiation.
If the company is currently receiving negative attention due to its environmental or social practices or customers are increasingly asking for sustainable products and services, we can help to improve the corporate strategy with our consulting services.
You are currently working on developing your own app. Do companies have to meet certain requirements in order to be able to use the app successfully?
In addition to our consulting services, we also want to provide our customers with digital solutions that support them throughout the CSRD project. We therefore help companies subject to CSRD with an app that enables efficient and clear management of the various project management activities and data collection - right through to the submission of reports to the auditor.
From our point of view, there are considerable advantages to developing the app specifically for a Microsoft environment. And also from the user's point of view: the biggest advantage is that the entire data management is fully integrated into the Mi crosoft environment and all familiar Microsoft applications can be used seamlessly. This in turn simplifies the workflow considerably. Microsoft customers also benefit from the fact that the app can be implemented cost-effectively because it is designed to use existing infrastructures and licenses.
We expect this to ensure a high level of compatibility and smooth integration into the customer's IT landscape. The close integration with Microsoft services also ensures security and data protection.
Is there something like the top five best practices that you would recommend to a medium-sized company to fulfill the CSRD requirements?
Best practices are not the issue when preparing a report for the first time; instead, it is advisable to follow a structured procedure.
The central starting point is to carry out a double materiality analysis. This makes it possible to identify the material topics that are important both for the company itself and for its stakeholders. This involves looking not only at the financial relevance of the issues for the company, but also at their impact on the environment and society. In this way, companies can ensure that they focus their attention on the most important and impactful areas.
Strong stakeholder engagement is also crucial. By actively involving stakeholders in the reporting process, their expectations and concerns can be better taken into account. This not only leads to greater acceptance and support of the corporate strategy by investors, but also to valuable insights on the investor side that the company can use for future decisions.
Generating the required data (successively) as automatically as possible helps to reduce the reporting effort.
Finally, the efficient management of sustainability data through the use of digital tools, such as our CSRD app, is another best practice. By using such technologies, companies are reporting-ready because they can collect their data effectively and analyze it much faster. This helps to optimize the entire reporting process and ensure that all information is accurate, up-to-date and easily accessible at all times.
Do you have any guesses as to how CSRD reports will develop over the next few years? Are there any new technologies or approaches in the field of sustainability reporting that you think are particularly promising?
The question of how the EU taxonomy, which currently only refers to ecological criteria, will be expanded is particularly interesting. The inclusion of social criteria can be expected.
Furthermore, audit accuracy is to develop from limited assurance to reasonable assurance in the future. This will require even more precise reporting.
A central focus will presumably be placed on data management and checking data quality. Furthermore, transparent and comprehensible data processes will be crucial in order to meet the increased requirements.
But there are other key factors, one of which is the increasing importance of artificial intelligence (AI), as AI technologies offer the potential to significantly increase efficiency in the pre-selection and analysis of sustainability data, for example. AI could also open up new opportunities for innovative approaches in the area of the circular economy. Overall, with the growing importance of data analysis and digital tools, the ability to implement and effectively use technological solutions is becoming an essential part of the consultant role.