What remains of the EU sustainability reporting legislation – and why is it still exciting?
By Rebecca Oliver
In these uncertain days following the Omnibus Proposal—which promises to ease regulatory pressure on 80% of companies—we advise: Let’s keep the goal in sight.
Gaining control over your sustainability reporting timeline might feel like a win in the short term, but let’s not throw out the good with the bad.
In light of all the uncertainty, we wanted to serve up a reminder of what’s valuable in the EU’s erstwhile ground-breaking regulations and why it’s in everyone’s interest to keep the momentum going.
Value Chain Innovation – the golden egg that sustainability reporting might lay!
Reporting is not about data; it’s about dialogue.
It’s not about whether your data is absolutely correct; it’s about whether you can tell your story in an evidence-based way.
This story is needed by stakeholders in your value chain because they are also involved in the transition – and you will achieve greater results by working and innovating together.
The most valuable effect of detailed reporting of sustainability metrics is the dialogue generated by the cascade of data, requests for data, and attempts to find data between the companies that make up the value chains in our dynamic, global economy.
The EU CSRD and CSDDD legislation asks companies to map their value chain and define their place among the multitude of businesses that act as supplier and customer to each other, ultimately delivering the product or service to the end user.
Regardless of whether companies now fall under these rules, this process is highly valuable and should be part of management systems and ultimately, strategy discussions. These businesses together provide jobs, define how we all meet our needs and trigger innovation that can change pretty much everything for the better.
As a society, we need a coherent economy.
The low-hanging fruit will soon all be plucked – It’s time for a step change.
If the most urgent goal of the economy today is to create a sustainable future for our kids, we desperately need new ways of doing many things, from making things to inspiring sustainable lifestyles. The “low-hanging fruit” of lean and efficient business practices is largely plucked and, therefore, the idea that cost savings will drive all investments in sustainability is increasingly less certain.
Step changes are much easier to set in motion when innovation happens all along the value chain. Consumer-facing companies spark trends, passions and behaviour changes in society. Technology companies bring research breakthroughs to the table. Logistics, packaging, digitalisation and other enablers define entirely new solutions to age-old challenges that make it all possible.
But this is only possible if companies are asking each other the right questions and sharing challenges – and data – transparently.
New insights from the CSRD – collaborative solutions in focus
So how does the CSRD help this process? It guides you through the relevant points in the value chain where sustainability can be improved. And as you comb through the data, you might identify areas with no obvious solutions- for example, dealing with higher-than-expected Scope 3 emissions, or understanding why water is used so much in places where there is geographical water scarcity.
In these situations, product design needs supply chain input – or customer behavioural change. You need collaborative solutions to achieve the goal of having a significantly lower impact on the planet as you develop your products or services for the future – in a way that makes business sense to everyone – from raw material supplier to customer.
The same applies to questions of social issues. If you are asking each other, “Who’s making your components? Who’s using your product? Is everything okay there? Are we safe? Are we respecting human rights?”, then you are beginning to address potential issues that are being pulled into focus by the CSRD.
When you find problems, it’s not just about recording the data somewhere. It’s the beginning of a dialogue about how to do things differently – responding to the consequences of how it looks today and finding a better way to proceed.
How can this be done?
In some value chains, this process can happen during existing customer/supplier dialogues – assuming they can take a long-term perspective and go beyond the usual cost/quality/delivery conversation.
Sometimes, however, the challenge – or the value chain itself – is so complex that it requires several parties to come together around the table – possibly involving civil society too.
These moments of dialogue—of innovative sharing, questioning, exploration, and honest discussion—take time. And time is money, which means that collaboration across value chains is seldom part of the budget.
This must change, and it is…
The leaders have already started
Some sectors realised early that innovating across the value chain is going to be not only essential but also very exciting.
For example, customers for virgin metals are discovering that their Scope 3 emissions are extensive, from a carbon-intensive mining industry upstream. By demanding a reduction so that they can deliver low-carbon products to the end consumer, they are supporting the mining industry in innovating business models that allow them to make changes. These could be as fundamental as smelter chemistry, which is currently carbon dependent, or more obvious areas such as logistics.
Working together with manufacturers of heavy mining vehicles and equipment, these companies are also developing electrical alternatives that emit significantly less greenhouse gas emissions. Overall, this kind of value chain innovation aims at a step change in the sustainability of metals, from recycling to ore extraction and smelting.
Similarly, in highly complex value chains like real estate and construction, exciting dialogues have emerged. Downstream stakeholders such as buyers or renters of commercial buildings and construction managers are engaging with ideas, as are the multitude of manufacturers producing and installing more sustainable building materials.
Outcomes range from how to make buildings smarter and more energy-efficient to how to construct them using materials that contain less embodied carbon, such as timber, green steel and alternatives to cement. These outcomes require the dialogue and involvement of many actors in the value chain, and they are ultimately changing the shape of our cities.
Transparency lights up new possibilities
Every sector can benefit from the transparency and cascade of data being generated through initiatives like the CSRD. These frameworks create opportunities to start dialogues within the value chain about how to achieve transformational changes, rather than just small, incremental improvements within individual companies.
In many cases, the incremental improvements in efficiency have been done already, the cost savings absorbed, and company growth cancelling out the efficiencies through the rebound effect. Step changes are now the only way to make credible progress.
The damaging effects of our economic activities need to be removed through innovation – but that is not something a single company can do on its own – it needs the knowledge and ideas from suppliers, and insights, commitments and passion from customers.
Through collaboration and challenge, companies along the same value chain can co-create robust and regenerative solutions that can transform their industry.
