CSRD Series- Part 16: Evidencing CSRD compliance: Which data do you need to focus on?

In this podcast, we dive into how we should look to evidence compliance with CSRD and specifically touch upon the data side of the things which is proving to be a minefield for so many companies. Listen in for insight and tools to help make the task more manageable.

 Speakers:

• Catherine Beare - Regional Director, Business Assurance, UK and Iberia at Intertek
• Simona Romanoschi - Vice President, Business Assurance Innovation at Intertek

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Transcript

Evidencing CSRD compliance: Which data do you need to focus on?

 Hello and welcome to our series of podcasts dedicated to the EU Corporate Sustainability Reporting Directive, CSRD. I'm Simona Romanoschi, Vice President, Business Assurance Innovation at Intertek.  I'm joined by my colleague Catherine Beare, Regional Director of for Business Assurance in the UK and Iberia. Catherine's going to dive into how we should look to evidence compliance with CSRD and specifically touch upon the data side of the things. So Catherine, let me start by asking you a question with CSRD reporting. Proving to be a minefield for so many companies, can you help give some insight and tools that are making the task more manageable?

0:50 Catherine Beare

Hi Simona and thanks for the introduction.  I think while organisations may have had almost two years now to get to grips with CSRD ultimately demonstrating compliance and reporting on progress is what we ultimately imagine and see as the main widespread challenge. Now things like which metrics should be monitored after you've done your double materiality analysis, which KPIs must be reported on, and of course more importantly, what does good look like? I think regardless of sector, you know that you operate in, CSRD compliance can be achieved, but not without taking a deep dive into your overall operations through ultimately an ESG lens. So best practise dictates that all areas of the business, with an impact of either environmental, or governance matters. Those need to be identified, some of the work that you and I have been involved in in doing double materiality assessments. It's really important to look at each of those areas as we take the company on the journey. However, that's only really the start. So once these areas have then been identified, only then can the second layer - which is equally all-encompassing start. that piece of work start which is around Data collection, analysis, and ultimately the interpretation of that data and analysis. So for me, data collection is absolutely crucial to ensuring that CSRD compliance actually happens, but it can only be achieved if you have the correct systems which will enable the data to be collected and analysed accurately and consistently. So those need to be implemented first. Fundamentally, all the data needs to be analysed, interpreted and reported against the ESRS, which stands for the European Sustainability Reporting Standards of which govern the CSRD reporting. Furthermore, it must be, I think it's important you have that consistency, because it needs to be audited to make sure that it remains accurate and reliable, which obviously the whole point of CSRD this is a formal part of this process that this audit and this certification needs to happen.
 Now the right technological investment will need to be considered there, so some companies may already have systems in place, or they may have part systems in place for one piece, like maybe they're at their carbon tracking for example, but they might not have it for some of the other elements around areas like Supplier 
 Controls when it comes to the social compliance, human rights matters, for example. So you'll have to make decisions on whether you keep all of those systems, you get new systems and what you do around that. Under the current CSRD reporting guidance, organisations are required to report on all 913 ESRS data points.
 Unless they go through the double materiality process and define which data points are not material to their business period, or they're not at this point something of top critical importance for the business to be focused on.
 So that that task, I guess you know is just what I need to keep emphasising is that the double materiality process needs to happen first, so that you know which ESRS’S are going to be, the ones that you need to pick data points to report on. So those voluntary ones versus the more mandatory ones and making decisions on that.

 Now, once that's done, then we need to look at what data is actually reported.
 Now what is classed as being acceptable data for one company may not necessarily be the same for another, and making CSRD reporting a unique requirement for each and every company. Ultimately as a result we're seeing 2/3 of companies feel confident about being ready to report under CSRD, but more than half, 59% cited that data quality and availability was a key challenge and an obstacle.
 And I've read a few different reports on that. So given the scale of the required data and the range of variables involved, it's easy to see how organisations could quickly become overwhelmed and daunted by the prospect of evidencing the compliance. But by establishing ultimately a clear and objective outlook on first of all, which ESRS you're going to report on? What and why have you chosen those data points.
 And proving how and why you're going to use those two evidence is going to be your starting point. So establishing clear and objective outlook on which details are relevant versus irrelevant, based on your activities and properly preparing the data
 is the starting point for the strategy and from there you can then further fine tune that.

 Simona Romanoschi 6.48

Thanks, Catherine. So as you rightly said and highlighted very well, the data availability quality - it's very important in this process. So when we look at the data preparation, can you give some thoughts on how can companies perfect their data, what steps do you suggest they should follow?

 Catherine Beare    7:10
 The word perfect is a good point because people will be constantly looking to see how they're going to start and then how they keep making that better as they go along the journey. Look, there's about 7 areas I think you could touch on. Let me go into a couple of them in slightly more detail and just mention the others. So I've already said determine applicability, so confirm whether your company falls under CSRD or not and from there, then decide what you're going to report.
 Conduct a gap analysis so review all of the existing sustainability practices, policies and data collection practices that you already have in place.
 Once you've done your double materiality, you'll have identified which data points you need to report on. From that pinpoint missing data, incomplete processes and any other areas that require improvement, you know, so one area is the scope. 3 missions emissions tracking where you might note that you only have certain data sets, but that's OK. And then report what you need to improve on and how are you going on human rights you may have started on the human rights journey, but don't have it fully embedded across your supply chain, for example. I'd also need to look at developing your reporting strategy, because the end output will need to be what you put in the report, so focus on the most material sustainability issues as we've said, that will come out of your double materiality process for your business and your stakeholders. Establish those milestones that will enable you to prepare your first CSRD compliant report, and what's going to be covered in that first year of reporting.
 And then I think this is now one of the key elements is establish robust data collection processes. Sorry to say this, but I think it is a fact you probably will need to go down the route of looking at certain ESG reporting software tools to help most organisations, especially if they're falling within csrd  even for the smaller to medium companies in 2028, when it becomes applicable. It could be a vast amount of data that needs collected and manual ways of doing that are possible, but they can lead to human error. And of course, the sheer magnitude of administration can be epic in itself. So look at what ESG reporting software you can use to consolidate and manage data efficiently implement systems to gather.
 All the different parameters, whether it's the scope 3 like I mentioned or especially when you look to reach out to your supply chain for any of the human rights or workplace matters or other environmental touch points and established templates and frameworks. So look at where you have an area where your data is really well consolidated and very articulately managed and controlled. So look at those templates and see is there ways you can standardize your data collection processes.
 And doing that means that you're then in a position for that to be verifiable and comparable, because you want to think through how it's going to evolve over the years. You know you might start now, but it's going to evolve later on, and you want to have something where you can compare this year to 2nd year to 3rd, to 5th to 10th year, etc.  

 I would also say strengthen the governance and internal expertise, so if not already done, make sure that you have trained not just your sustainability team if you have one, but you know, make sure that you're looking at a number of the functions, finance, legal, operational departments and make sure they're clear on the requirements and the practices, and the commitment that they need to put in.
 
 

11.50

Just another one I'll finalise on is around aligning your data with not just CSRD but is there any other frameworks and standards which are important to you or that you already have? Or likewise if you already report you know against GRI, for example, how do you take what you have and then again link that to CSRD reporting. So think of your EU taxonomy identify eligible and aligned economic activities based on the EU taxonomy for sustainable activities. Look at the climate standards - whether it's the GHG protocol or TCFD or your science based targets and of course various social standards, whether it's GRI or the UN guiding principles, make sure there's alignment across them all because it may be important for you to still continue reporting against different areas, although the end intent, the CSRD is that, that would be the leading and overarching one.  

And of course, involve external experts. And I'm not just saying that because we're one of them, Simona!  But I think it's important that you look to involve other external inputs into this, whether it's people from, you know, verifying the data. But other people, stakeholders you might want to work with on social matters in your supply chain or whatever else.

 Simona Romanoschi   13:18
 And this data collection, it's really a daunting task. I think for most organisations, how well, obviously for those that are bigger, you know it's even more of a task, but it's also as you've said, it depends on their materiality assessment and how many things and data points they would have to report on. So when it comes to the data collection aspect, as we also said, there are of course a number of systems and providers that they could use and leverage. But could you touch more on the ways companies can guarantee robust data collection? 

 Catherine Beare   13:48
 It's a good point because that as we know is going to be the main focus of 
 why is CSRD happening? Because we're not seeing fast enough movement against these far reaching goals that we need to address as a nation, as a global set of organisations, because it's not moving fast enough. So we have to make sure the data can be relied on, so that we actually know whether the impacts truly are making enough of an impact. So compliant data collection is significant and it is the responsibility of the organisation 100%.  Spreadsheets might be tried and tested,
 but unfortunately, companies that use them can only get so far. And again, as I said, we're not pushing any systems because we don't have them per se but I think there is a lot very interesting technology advances out there and many dedicated softwares, but not just softwares for aggregating data, softwares that can actually help you to identify reduction opportunities that have the greatest impact. Things that can help you look at the R&D perspective, you know right at the design phase in a different way and so on. So they've got huge business financial benefits associated with them, as you would expect for anyone selling these types of technologies. But I do think it's important that you go with a tried and tested set of software principles that allow you to have unified ways of ‘system says no’, you're going to enter something that doesn't make sense or that you try to botch it up. It says no.
 And unfortunately, anybody can still sometimes make figures up. I'm not saying people would want to do that, but that is where you will need to have people coming in and looking at verifying. 

So for me I would say three things :

1)    build a centralised data collection framework, so every company will be different, but you need to look at implementing, you know, a set of softwares. It doesn't matter. I could name many, you know, Enbalon would be one that would jump to mind very quickly. As an example of having a huge amount of ways that you can gather track.

2)    and ensure accuracy. They have built an angle algorithms that check the data, look for the data and find. Any issues Integrating systems. So look at your connecting your existing systems, whether it's your Erps, your HR systems, your procurement software, all of those integrated in will have a flow of data that allows you know from step one in the process through to step five it all to be connected and then where you do need to use manual data.
 Entry where automation is impossible. Make sure that you've got very standardised templates for collecting it from the internal teams through to your suppliers.
 
 

3)    Engage with internal teams.  So again I know this sounds slightly repeat of what I've said in the previous question, but enabling cross functional collaboration from finance, HR, legal, procurement and operations and making sure who has what responsibility and that they've been trained, 
 and their teams have been educated on not just how they complete data accuracy, but how it results in the end information that needs to be reported. To be very clear on this, I think companies usually that are doing this well, have put it into the performance of the organisation too, so sustainability targets are usually now part and parcel of certainly senior management but if not all of people's, you know, bonuses and targets and that means that everybody understands the importance of the end goal. Everybody is bought into achieving and working towards that accuracy.

4)    And then I think the last big one to be looked at is addressing the supply chain data. Probably the most difficult one. But looking at how you're going to engage with suppliers? So providing them with guidelines, providing them with training and I see that as you, the company's organisation.
 And tools to make it easy. These suppliers are bombarded not just by one company but by multiple. Make it easy. If there are sector joint initiatives, join them. If there are industry wide collaborative platforms, use those because anything that makes it easier for the supplier. And you're going to have to sample and audit the data. You're going to have to conduct and make sure that the information you're getting from the supplier is accurate.
 There's no easy way but evidencing CSRD compliance will be challenging, but it's not impossible. It's very, very doable. You need to develop a clear strategy. I would highly recommend looking at and investing in CSRD softwares. I think it's important for companies to ensure they've thought through the roles of the teams from a compliance perspective, and I would suggest significantly
 fast track your efforts now and put the investment in, because this is just the start of a journey, Simona, that will go on for some time.

 Simona Romanoschi 19:57
Thanks so much, Catherine for sharing your insights and really a lot of good practises and suggestions which clearly you've had the opportunity to see, from working with the many brands and organisations that you're supporting today with CSRD and some of the other steps obviously. So thank you so much. And as a reminder for the audience on how Intertek can help on CSRD, there are four ways.
 
 

1)    Understand your current CSRD readiness, keep in mind that we can help you to undertake a gap analysis to ensure that you have a clear view of your organisation current readiness and we can work with you with experts such as Catherine to define clear action plans to address any gaps to prepare you for your first submission.

2)     We can help you through training to ensure that everyone in your organisation understands what's required to prepare for your submission. This can be delivered to a range of different teams and functions across the organization, also for your suppliers and will be bespoke to best fit your requirements. 

3)    We can also provide you with auditing solutions. You heard Catherine - how important it is to sample and verify the data. So in some markets we will also be able to act as the auditor of your CSRD directive report. One single provider supporting you from your early preparation to the final audit of the submission of the report.

4)     And finally we have also partnered with a software provider ESG Playbook. They offer a SAAS supporting a solution that brings in one tool all required data collection, aggregation, tracking and reporting for your ESG needs.
 For more information, of course, please look at our website https://www.intertek.com/assurance/eu-CSRD

So thank you so much. This concludes today's podcast. Thank you for listening. And watch out for further CSRD episodes to help with your journey to compliance.