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Brain Circuits
Using integrated reporting as an industry disruptor
Many companies treat sustainability reporting purely as an add-on to financial reporting. Here’s how to use it to disrupt your industry to your advantage.Â
What’s new?
In the wake of enhanced regulatory oversight, mandatory standardized sustainability reporting is driving awareness of the need for change. New ESG rules and regulations include:
- The EU Corporate Sustainability Reporting Directive (CSRD)
- The European Sustainability Reporting Standard (ESRS)
- The Corporate Sustainability Due Diligence Directive (CSDDD)
- The ongoing work of the IFRS’s International Sustainability Standards Board (ISSB)
Allied to these, reasonable assurance targets for external auditing are around the corner.
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Who will be affected?
The developments will impact both large companies, imposing specific new duties on them, and (indirectly) their smaller suppliers.
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Why does it matter?
Mandatory sustainability reporting will have a dramatic effect on how stakeholders perceive companies’ ESG performance. Expect changes in investor attitudes, litigation risks, roles of key corporate executives, incentives in top executives’ compensation packages, and business models.
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What should our ESG reporting look like?
Instead of fulfilling ESG requirements from a compliance perspective and then thinking about how to better integrate these new sustainability metrics and transition plans into your strategy and communication efforts, the ideal output is an integrated report, where the ESG side and the financial side speak to each other.
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Where do we begin?
Because integrated reporting has impacts on many functions within the company, you have to build the governance and the organizational setup with this in mind. This includes determining who oversees reporting: is it the CFO, another person who manages the ESG dimensions of the company, the sustainability officer, or another custom setting that suits the company best? You also need to collect and make sense of data that concerns your whole supply chain and distribution of your products, and use-phase impacts such as emissions.
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Key takeawayÂ
The new regulatory frameworks provide an opportunity to innovate new products and services, and to deliver them within “planetary boundaries.” By embracing strong narratives on material topics, supported by relevant data, you can use tighter regulation and reporting to disrupt your industry on the most important ESG dimensions.Â
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