Companies are grappling with the challenge of balancing the extensive disclosure requirements of the EU’s CSRD rule with their need to communicate their sustainability efforts in an engaging and impactful way
“Disclosure is not communication,” is a common phrase heard among sustainability professionals; and companies face a significant challenge in creating an engaging narrative that reflects their sustainability efforts while grappling with the extensive disclosure requirements of the European Union’s Corporate Sustainability Reporting Directive (CSRD).
To document how communications and sustainability professionals are handling this challenge, sustainability strategy consulting firm SB+CO recently conducted research that revealed that companies are struggling to balance mandatory CSRD disclosure requirements with their sustainability storytelling. As a result, these challenges are leading organizations to take different approaches to sustainability reporting and communications as they grapple with stakeholder expectations, legal risks, and the challenge of prioritizing material topics.
“Universally almost, the conclusion practitioners have come to is that it’s impossible to draw out and communicate a story of priorities from CSRD disclosures,” says Phoebe Whittome, Sustainability Strategy Director at SB+CO.
Key challenges in sustainability reporting under CSRD
One of the main challenges in sustainability reporting under CSRD is reconciling the extensive mandatory disclosure requirements with maintaining engaging messaging tactics on sustainability. “What was really clear, both from reviewing those early reports and speaking to people going through the process now, is that practitioners are finding it really difficult to reconcile the disclosure obligations, because there’s hundreds and hundreds of disclosure requirements that a lot of companies are having to address in their reporting — with maintaining a focused, positive, engaging narrative on sustainability,” Whittome explains.
Another key challenge is managing different stakeholder expectations and priorities, says Tom Carr, Sustainability Strategy Director at SB+CO. “While the idea of CSRD has been to try and create some alignment in the market, at the moment we’re seeing quite different practices emerging from early reporters and a lot of that is really driven by the different stakeholders across businesses having quite different priorities as they approach the CSRD,” Carr says, adding that the CSRD’s double-materiality process may result in disclosures that don’t necessarily align with what certain stakeholders consider most important.
“Universally almost, the conclusion practitioners have come to is that it’s impossible to draw out and communicate a story of priorities from CSRD disclosures.”
That makes this issue is something company leaders are having to navigate as they think about their wider sustainability communications.
Additionally, there are concerns about CSRD inflating risks around environmental, social & governance (ESG) activities relative to other business risks in company reporting. Finance and legal teams worry that the extensive ESG disclosures may present a disproportionate view of their significance compared to traditional financial risks.
“There are these really quite significant financial risks that [companies] already report with very limited information and then [they]’re providing CSRD disclosures, which have much more information and context – and this presents a potentially unbalanced picture of actual risk to a business,” says Carr.
Emerging practices for CSRD reporting
The SB+CO research indicates that best practices for companies reporting in the scope of CSRD are still emerging, as many are in the early stages of aligning with the new requirements. However, some key trends — set out in the form of reporting scenarios in the research — are starting to take shape.
Many companies are investing heavily in data collection infrastructure and reporting platforms to ensure they can gather robust, auditable data to meet the extensive disclosure requirements. And in many cases, they are focused on developing minimum viable compliant disclosures. The data collection infrastructure is seen by many as a critical foundation for CSRD compliance.
On the other hand, a small number of leading companies are beginning to view CSRD not just as a disclosure exercise, but as a strategic tool to understand their business from a sustainability perspective, drive transformation, and focus their communications accordingly. Indeed, some forward-thinking organizations are using the CSRD reporting process and resulting data to reassess their business models, identify risks and opportunities, and inform future strategy.
A small number of leading companies are beginning to view CSRD not just as a disclosure exercise, but as a strategic tool to understand their business from a sustainability perspective.
Some even are considering separating their CSRD reporting from broader sustainability communications to allow for more targeted messaging. Others are looking at ways to integrate CSRD disclosures into existing reporting frameworks while still highlighting key priorities and narratives.
Of course, it can be hard to cut through the noise and focus on powerful messages, but to do so, companies would be wise to focus on these key actions:
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- Understand your audience’s needs and expectations to effectively tailor your messages accordingly. Use measurable facts and transparent reporting to support your narrative while acknowledging areas for improvement.
- Connect your initiatives to human experiences by making them relatable and inspiring. Use specific examples and emotive messaging to bring your efforts to life.
- Ensure integration of your company’s ESG strategy into its brand’s core identity and continuously adapt that identity to remain relevant.
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Overall, sustainability leaders recognize the need to evolve their reporting and communications approach to meet both regulatory requirements and stakeholder expectations in this new era of mandatory ESG disclosure.
The right formula for balance is dependent upon the organization and how it is treating CSRD as a compliance exercise, a driver of strategic transformation, or something in between. In any case, cutting through the complexity and volume of data points is necessary to integrate business performance and ESG outcomes and communication.
You can find out more about how corporate leaders are managing issues of sustainability here.
