As companies across Europe grapple with the complexities of environmental, social, and governance (ESG) issues, there's a growing recognition that transparency and accountability are essential for building trust with stakeholders.
One key aspect of this trend is the increasing demand for sustainability reporting, which allows companies to demonstrate their commitment to responsible business practices.
The need for sustainability reporting in Europe
In recent years, European companies have faced mounting pressure to adopt more rigorous approaches to sustainability reporting.
This shift is driven by several factors, including:
- Regulatory requirements: Starting in January 2024, the Corporate Sustainability Reporting Directive (CSRD) will become effective and progressively apply to over 45,000 European companies, including over 10,000 non-EU multinationals.
- Stakeholder expectations: Investors, customers, suppliers, employees, trade associations and communities increasingly demand transparency from companies on their sustainability practices and impact.
- Risk management: Companies recognise that ESG issues can have significant financial implications, so proactively managing these risks through robust reporting can be mission critical to their continuation success.
The CSRD directive: a new era in sustainability reporting
The CSRD is a European Union (EU) regulatory directive created to strengthen corporate sustainability disclosures. It builds upon the EU's ESG reporting framework but takes a more comprehensive approach to sustainability disclosure. Companies must report using the European Sustainability Reporting Standards (ESRS).
The directive provides clear guidelines on what companies must disclose and how. Gone are the days of limited carbon-focused reporting – CSRD expands the scope to include pollution, water management, waste reduction, and biodiversity impact. Companies must report on these topics annually, alongside their financial statements, and subject them to audit assurance.
Why introduce the CSRD, and who does it apply to?
The EU is introducing the CSRD to harmonise sustainability reporting practices across Europe. This standardised approach will allow investors and other stakeholders to compare a company's environmental and social impact more effectively.
The CSRD will apply to the following companies:
- Large, listed companies, banks, and insurance companies already subject to the Non-Financial Reporting Directive (NFRD)
- Other listed EU companies
- Listed European SMEs
- Large private European companies
- Non-European companies with significant business in the EU
The CSRD is centered on several fundamental principles:
- Materiality: Companies must identify the ESG topics that are most relevant to their business and report on these issues.
- Stakeholder engagement: Companies must engage with stakeholders to understand their concerns and expectations and incorporate this feedback into their reporting.
- Transparency: Companies must provide clear, concise information about their sustainability performance and progress.
The role of stakeholder engagement in sustainability reporting
Stakeholder engagement is a critical component of the CSRD, as it enables companies to understand better the needs and expectations of those impacted by their operations.
By engaging with stakeholders, companies can:
- Identify material ESG topics: Companies can gain insights into the issues that matter most to their stakeholders and prioritise their reporting accordingly.
- Build trust and credibility: Stakeholder engagement helps to foster transparency and accountability, which are essential for building trust with the likes of investors, customers, employees, and communities.
- Improve sustainability performance: By considering stakeholder feedback, companies can identify areas for improvement and develop targeted strategies to address their sustainability challenges.
Effective stakeholder engagement requires companies to actively listen to their stakeholders' needs and concerns and incorporate this feedback into their reporting and decision-making processes.
As the CSRD regulation actively rolls out, the importance of building an effective stakeholder engagement plan grows. Ensure that all interactions with your stakeholders are tracked so you can report on them in your sustainability reporting. Don't wait until it is a requirement for your company; there is no better time to get started than now.
Jambo Stakeholder Relationship Management (SRM) software was purpose-built for companies to manage and track their stakeholder engagement data, making it easy to report on it. With Jambo, companies can easily streamline their stakeholder engagement processes, track key metrics, and report on their progress. Why not book a 15-minute call with our team to discuss your needs?
