For more than a year European sustainability executives have been focused on how they would comply with the Corporate Sustainability Reporting Directive (CSRD), the EU regulation requiring third-party assured disclosures of climate targets, greenhouse gas emissions, governance and more. Now, as CSRD goes into effect for the reporting year starting in January, they’re illuminating ways regulation is already changing corporate sustainability.
Last week I talked with 20 Europe- and UK-based sustainability leads from some of the world’s biggest companies at the London meeting of Trellis Network, GreenBiz’s peer membership group.
They’re a step ahead in making or at least considering fundamental shifts, driven by regulation, that the U.S. practitioner community is only starting to confront, since CSRD applies to 50,000 companies, including 10,000-plus based outside the EU, and the U.S.’s own SEC climate disclosure rules weren’t issued till earlier this month. While CSRD takes a more comprehensive approach, the U.S. rules also require companies to disclose on emissions and climate risks.
There are ripples U.S. sustainability practitioners can anticipate as the regulatory disclosure waves make their way across the Atlantic. Here are three of the most pronounced.
Less appetite for ambitious public goals
Motivation is diminishing for sustainability “first movers” to set ambitious public goals such as Science Based Targets or participate in voluntary indexes and disclosures such as the Dow Jones Sustainability Indices (DJSI) or the Carbon Disclosure Project known as CDP. Leaders will likely quell their stated ambitions in the fear of being held legally accountable for aiming high, but may privately continue to set and achieve audacious goals. At the same time, the bar is being raised for “bottom-dwellers,” corporate sustainability laggards who are being dragged into the fray by regulated disclosures, the European Parliament’s greenwashing crackdown, and rules such as the Corporate Sustainability Due Diligence Directive that will govern environmental and human rights within corporate supply chains.
Integral AI
While it’s no secret that complex sustainability data begs to be automated or that AI tools have developed to fill the space, EU regulation has launched CSRD-reporting companies into the AI revolution full force. Some companies are already using or considering using Salesforce’s AI capabilities through its Net Zero Cloud or platforms like Datamaran to crunch vast amounts of greenhouse gas and supplier information. The undeniable efficiencies are proving irresistible and the technology’s potential is increasing exponentially, though third-party auditors could question, say, the veracity of AI-generated disclosure information rather than human-conducted stakeholder interviews for something like materiality assessments.
Nature and biodiversity are next
Starting small (and remaining quiet for now) with corporate biodiversity efforts is a popular approach. While the expansion of sustainability apertures to include nature is not new, regulation is driving companies to more quickly account for their material biodiversity risks, dependencies and impacts. CSRD includes nature and biodiversity provisions; companies are using the Taskforce on Nature-related Financial Disclosure (TNFD) nature framework. For those downtrodden by the regulatory slog, an expansion into nature seems to hold a “new frontier” appeal, but implementation is nascent, and companies’ perceived lack of capacity to work on it (given all their disclosure burdens) is a barrier. NGOs and nature coalitions are encouraging companies to go public on nature commitments, but that growing wariness about the value of public goals abounds.
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