CSRD Sustainability – Taking the first steps towards compliance
Supporting CSRD EU Regulation
by Dr Neil Patrick – Director Client Services @ Winterhawk
The Corporate Sustainability Reporting Directive (CSRD) is a European Union legislation, which requires EU businesses — including qualifying EU subsidiaries of non-EU companies — to disclose their environmental and social impacts, and how their environmental, social and governance (ESG) risks and opportunities affect their business. CSRD has several reporting requirements for businesses to demonstrate accuracy and transparency on ESG actions affecting both their business (outside-in) and operating environment (inside-out).
We should include the Task Force on Climate-related Financial Disclosures (TCFD) in this post as (a) businesses might have to deal with both and (b) CSRD has a strong intersection with the 4 TCFD pillars of governance, strategy, risk management, and metrics and targets.
CSRD as an EU directive is mandatory for all relevant businesses. TCFD is mandatory for selected businesses verticals operating in countries that have adopted it (e.g. UK, Brazil, Hong Kong, Japan, New Zealand, Singapore, Switzerland).
This ESG regulatory and reporting landscape is still evolving, and with new regulations in the pipeline (e.g. Human Rights Due Diligence) detailed requirements and scope will continue to change.
What are the timelines? CSRD reporting starts with fiscal years beginning on or after January 1, 2024, with reports due in 2025.
However what is already true, and will continue to be true, is the mandatory requirement for businesses to report on their ESG and financial risk, opportunities and impacts, and how this affects the business. Furthermore businesses will be responsible, and audited, for the accuracy of their reporting. Aside from mandated requirements there is reputation and brand (=share value): no-one wants to be proven or outed in social media for green washing. There is also the ability to attract green-based business financing which is predicated on proof of ESG credentials.
CSRD and TCFD reporting requires supporting information to have been produced – based on business objectives, processes, data and operations. Documenting and managing risks and opportunities also requires supporting information based on business objectives, processes, data and operations. There is a direct overlap between these two reporting necessities, and in many cases it is the same information. Often expressed as Key Performance, Financial, Risk or Control Indicators.
This can be seen as a burden to be business but more valuably can in reality be an opportunity to drive improvement and competitive edge.
The more it can be automated (a) the cheaper it will be, (b) the more it will lead to business improvement and (c) will also support meeting regulatory requirements.
SAP Risk and Assurance Management (RAM) enables businesses to set up (or use predefined out the box content) for automated and manual routines running directly on the business’ SAP ERP financial and ESG data and processes. This will provide the Key Performance, Financial, Risk or Control Indicators needed to populate CSRD and/or TCDF reporting. Final reporting can be achieved either directly with bespoke report creation or via solutions such as SAP Sustainability Control Tower or other third party reporting platforms.
RAM is a public cloud risk and control solution running on SAP Business Technology Platform, with native integration to SAP S/4HANA public and private cloud, and ECC. Because it is a public cloud solution it is very quick to operationalise, and very cost-effective to run. It can be used by mid-market, medium and enterprise businesses, and can be used at a very high level (e.g. entity) or granular detail (e.g. a specific sub process for a particular location and reporting line). In addition to ESG requirements, RAM can simultaneously be used for other operational, financial, legal, and IT application security requirements.
Businesses will therefore be able to report on sustainability, financial, regulator and operational information in their management reports at the same time from the same solution investment.
Note we are not proposing a ‘big bang’ approach. Start small using RAM, get used to ESG reporting requirements which will most likely still have a lot of manual work to start with. Become familiar with what data you have and its completeness and quality. At least though you can digitise and centralise the creation of your key reporting indicators. And take comfort that implementing and running RAM is very light on costs.
CSRD text in full – here
Take a closer look at Winterhawks Packages for SAP RAM here
- No Fee Deployment
- Industry Unique Content
- ESG Content (CSRD, GRI, SASB)
- Up and Running in weeks
- Fast ROI / Low Running Costs
About the Author
Dr Neil Patrick
I should note that for the last 5 years until joining Winterhawk I have been SAP’s Solution Manager for SAP Risk and Assurance Management (SAP Financial Compliance Management when it was first released). I was instrumental in bringing it to market and helping it grow to the innovative solution it is today. I am still passionate about the solution, and I’m very pleased to now be at Winterhawk adding client value to deploying the solution.
