ESG / CSRD how to communicate?
The CSRD (Corporate Sustainability Reporting Directive) standards are a set of directives established by the European Union to improve and standardize corporate communication regarding their impact on sustainability.
This therefore responds to the growing demand from investors mainly, but from my point of view, to the need to homogenize, to structure this information for all stakeholders interested in the subject (Obviously, more and more numerous, because it is a societal evolution, as everyone knows).
Fundamental Principles of CSRD Standards
1. Transparency and Comparability. Having clear and comparable information, which is the key word of this new approach. There is also a concept that I will refer to as “plain language”. Concept highlighted by the @Labarador teams during the annual transparency trophies. In short, have words, sentences with a common meaning, that everyone can understand, and not hide behind completely esoteric financial, legal verbiage, the nuances of which even professionals sometimes no longer understand.
2. Comprehensiveness: Address relevant topics regarding sustainability, environmental, social and governance impacts.
3. Reliability and verifiability: The information provided must be reliable and verifiable. They are subject to independent external verification to ensure accuracy.
4. Relevance: Relevance is determined by the importance of the impacts to the business and its stakeholders.
5. Accessibility: Information should be easily accessible and understandable to report users. This means that reports should be written clearly and concisely, with explanations of the methodologies used to collect and present the data.
The CSRD standards apply to a wide range of companies, both large listed companies and unlisted companies, but also small and medium-sized companies (SMEs) that exceed certain size thresholds.
Sustainability information must be integrated into company annual reports, thus ensuring a holistic view of company performance.
The CSRD has been in place since 01/01/2024.
The implementation of CSRD standards will be done gradually. Large listed companies will be the first to have to comply with the new requirements, followed by the others in the following years.
The CSRD standards represent a significant change in the way companies report their sustainability performance.
It should be noted that in the digital age, its data becomes much more dynamic. The time when all data was frozen until the publication of the next report (N+1) is therefore over. All reports are interactive, with links, and gradually become more dynamic. Hence, the great need to inventory, list and store this information appropriately.
Moreover, Bloomberg has just announced that CSRD data is now available on their platform.
As a reminder, the IFRS standards, which I mentioned in the previous issue of this newsletter, are dedicated to financial information, whereas here, we are in the ESG / sustainability register.
These two approaches are complementary and aim for greater transparency.
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Around 1200 KPIs defined, but companies choose those that are most relevant to them.
Anticipation is key.
Companies must absolutely anticipate, even if they are not obliged to do so in 2024, or even 2025.
You need to start taking inventory of the KPIs relevant to the company and organize yourself accordingly to measure them and implement action plans.
CSR / ESG is a fundamental element of the transformation of companies and adds a structuring and coherence element to their transformation plans.
We need to have a TopDown project with Excom, put governance in place and above all mobilize mid-management, which is a major challenge. It is absolutely necessary to generate buy-in and commitment from the start, but on a daily basis. This is never simple, because it is also added to their everyday operations.
Employees will easily buy in if it is a company project, but middle management will make a strong contribution and will play a critical role in the adoption and implementation of the plans.
There is no other solution than to incentivize them on a significant part of the variable remuneration.
It is above all a transversal project for the different departments of the company.
Certainly, the Finance department will play a vital role. On the one hand, it is the guarantor of the figures and their comparability over time, but also of their accuracy.
Through Investor Relations, Finance must take ownership of ESG content, because they must answer all kinds of questions from investors live.
This therefore considerably changes the profile and recruitment of new finance employees, who must have CSR as a second background to their initial finance training.
CSR/ESG topics represent 25% of investor meetings.
Analysis of investor behaviour:
ESG investment funds work together, in groups or pools, and manage meetings together, while traditional investors are on more archaic schemes, having individual interviews, to seek to obtain the little bit of information for differentiation.
American investors are completely different from European investors, with regard to their interests in ESG aspects / commitments / KPIs. For example, the vision of CSR / ESG is seen as a risk in the US. They consider, for example, that the indexation of ESG criteria on manager remuneration is not desirable.
Approach and management
CSR / SRG (Greenhouse Gas Reduction Strategy) and therefore the legal obligation to communicate via the CSRD, generates a need to align risks with the various stakeholders. To ensure consistency, it is therefore necessary to carry out a double materiality analysis.
Communication issues
All rules and good communication practices apply in the same way:
Control the content and defined scope,
Anticipate what is outside the scope, because it will be requested by investors,
Align messages to your audiences,
Have a communication strategy and clear objectives,
Be authentic, say what is working, but also what is not going well with the progress to improve,
Engage your ambassadors, because they will be more authentic, more convincing (employee advocacy programs)...
In the previous newsletter, I referred to an ESG/SBF120 study from Epsilon Technologies, which measured ESG topics at 10% of communications on social networks, for only 5.7% of views and just 3% of interactions (like & comments).
Which is, all in all, very little in the eyes of end consumers present every day on the various media. There is still a lot of work to be done to improve efficiency.
I had the opportunity to participate in a very good quality conference, organized by Notified at the end of June in Paris. Some of the speakers will find in the comments above some of their testimonies and confirmations…
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