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The developments in the area of ESG are challenging for many companies. Due to the CSRD*, ESG reporting obligations will become more extensive for many companies, or they will be required to report for the first time. This results in significant additional burdens for many companies. This is reason enough for DIRK – with the support of Deloitte – to take a closer look at the organizational implementation required to meet these current or future obligations.
* CSRD – Corporate Sustainability Reporting Directive – aims to introduce European standards for companies’ sustainability reports.
Responsibilities
The first question is where in the company these new obligations should be anchored. Which department, for example, is responsible for the collection, aggregation, and validation of ESG metrics? And which department is responsible for drafting the reports?
In most companies, this obligation falls under the “Sustainability” unit, both for the collection of ESG metrics (58%) and for the drafting of the reports (56%). Surprisingly, Investor Relations (IR) is responsible for drafting the reports in 46% of cases. The authors of the study see this as evidence that a number of companies view ESG as a capital market issue. Interestingly, according to the study, the Corporate Communications department is barely involved in the preparation of the reports.
Personnel Requirements
How many people are needed for the collection, aggregation, and validation of ESG metrics? How many people are necessary for drafting the reports? The study arrives at very different results on this matter:
72% of companies rely on 1-5 full-time employees for the collection, aggregation, and validation of ESG metrics. Even more, 86% of companies employ 1-5 full-time employees for drafting the reports. The authors of the study speculate that this wide range in personnel requirements is due to the ambitious ESG goals of some companies, while others focus only on the essentials.
Most companies anticipate additional personnel needs as a result of the CSRD. Companies with prior experience in ESG reporting, in particular, estimate a higher future personnel requirement. Experts suspect that companies without previous ESG experience are systematically underestimating the scope of the new ESG reporting obligations.
Challenges posed by the CSRD
What are the biggest challenges posed by the CSRD? The majority of already reporting companies – namely 82% – consider the timely and accurate collection of metrics to be the biggest hurdle. Another difficulty: defining the metrics to be reported, which 76% of companies regard as challenging.
Interestingly, companies that were already subject to reporting obligations rate the challenges posed by the CSRD almost universally higher than those that have yet to become subject to reporting. Here also, one can suspect that companies that will be required to report due to the CSRD are underestimating the requirements significantly.
Implications for ESG Officers
The study by DIRK and Deloitte makes it clear that the implementation of the new ESG reporting obligations is decidedly challenging and usually requires more manpower than initially assumed. Therefore, it is advisable – if not already done – to begin implementation early.