Francis Wade Why business strategy can’t ignore CSRD in a net-zero world
You have heard of the corporate sustainability reporting directive or its acronym, CSRD. You know that it has something to do with the European Union, but you haven’t paid it much attention because it’s far away.
However, this could be a mistake. This new standard for disclosure reaches into some unlikely places for all companies that do business with the continent. In this article, we’ll look at the impact on your corporate strategy.
Recently, the European Commission reaffirmed its commitment to the global ‘Net Zero 2050’. Inspired by the Paris Agreement, their goal is to be climate-neutral by 2050 – an economy with net zero greenhouse gas emissions. Lest the world relax, an interim target was set to reduce emissions by at least 55 per cent by 2030.
CSRD makes it plain that big companies must play their part in accomplishing these goals. As such, they are required to report their progress annually via certain templates. But what does this have to do with a large company in Jamaica?
Well, your firm may not have a European subsidiary. And it may never reach the EUR40 million turnover or 250 employee lower limit for inclusion. However, it may have wholesale customers on the continent. If so, it will probably be required by them to report on your conduct as a member of its supply chain.
But this is already happening.
Last week, I browsed Booking.com for a holiday stay in Ocho Rios. Now, there’s a new badge for each property to earn: a ‘travel sustainable level’. According to the website, the programme was “introduced in 2021 to provide travellers with transparent and credible information to make more mindful choices for their trips”.
In other words, the intent of CSRD is already being realised. It seeks to give stakeholders knowledge about each large company’s progress on goals such as Net Zero 2050.
This new standard is likely to be seen by some as a nuisance. But for others, particularly in the area of strategic planning, there lies an opportunity.
Essentially, the new standard mandates your company to tell the world how its strategy for topics related to ESG factors – environment, social, and governance – are faring. It expects you to address this explicitly in your short, mid and long-term strategic plans.
However, if you are like most companies, you don’t have anything more than a five-year list of tactics. But you aren’t alone. As a result of upheavals since the September 2001 terrorist attacks on the United States, known as 9/11, firms have argued that they don’t have time for long-term thinking.
Instead, their energies have focused on basic survival – short-termism.
CSRD says that if you continue to indulge in this dangerous practice, you will be required to highlight this fact to your stakeholders in your ESG disclosures.
While this sounds like a threat, some are seeing it as an opportunity, or at least an excuse to do the right thing.
In essence, your company has two choices to meet the directive.
First, the ‘compliant low road’ consists of sticking to an approach of only keeping short-term business tactics. This means that you will need a separate strategic plan for all matters ESG-related.
While some firms have hired sustainability professionals to do this very task, some are calling it out as a form of greenwashing. Said differently, it’s probably just a way to be compliant without making fundamental changes.
Second, the ‘transformational high road’ means crafting mid- and long-term strategic plans for your business if they don’t currently exist. Ideally, they should reach as far as 2050 to be completely aligned with the net-zero aspiration.
If your company already has a written long-term strategic plan, then this may just be an exercise in adding a few different dimensions. The CSRD is actually developed for companies like yours. The adjustment should be easy.
However, if it has never had an interwoven short-/long-term strategic plan, this might be the perfect moment to begin. You do have some time before this becomes a requirement.
But your free paper is being burned up. The Securities Exchange Commission in the United States and the IFRS accounting standards body are expected to recommend similar reporting standards in line with existing requirements for financial disclosure.
It’s not too late to start getting your company ready. Schedule time to prepare the right kind of interwoven short-/long-term strategic plans.
As you do so, be prepared to answer the questions raised by CSRD. Even if the process you follow is sound, these may not be central concerns, but they will fit in with the thinking the EU Commission wants you to do.
When the time comes to complete the forms required for your CSRD reporting, you’ll be ready.
Francis Wade is a management consultant and author of Perfect Time-Based Productivity. To search past columns on productivity, strategy and business processes, or give feedback, email: columns@fwconsulting.com