While sustainability has already become a major concern for the global giants who trade their shares on stock markets, new regulations mean that more and more businesses, from enterprise-level to SMEs, have to understand the social and environmental impact of their operations – and measure it.
Notable among them is the Corporate Sustainability Reporting Directive (CSRD), new EU legislation requiring all large companies whether private or traded publicly, as well as stock-market listed SMEs, to report on their environmental and social impact activities.
“There are more and more businesses who will be falling into the scope of reporting in the next few years,” said Gillian Peters, chief executive of Pragmatica, which provides tailored sustainability services and expertise to help clients meet the challenge.
“Large businesses will have to report under CSRD, but there is also the supply chain. If you are a key supplier to someone then you should be analysing your customer base to see who falls into the reporting requirements. I do think thereare businesses out there that aren’t considering it enough,” she said.
The scope of CSRD goes well beyond ‘green’ issues, too. Key areas and issues that need to be measured include labour, human rights, the environment, and governance, which means that adhering to a sustainability plan will become a major component of business operations.
“The way we look at sustainability is that it is a new business unit. It’s not going anywhere,” Peters said.
As of today, the compliance picture is mixed, she said, with some organisations aware of their responsibilities and readying themselves, while others lag.
“Anyone who is reporting this year or next year, they are on the road. There have been some businesses that have been reporting voluntarily, but ones who are due to report, for the first time next year, are starting to feel the pressure: there are over 1,000 data points for CSRD,” she said.
For the moment, most smaller businesses fall outside of the direct scope of CSRD but the supply chain issue means it is in their interests to collect and provide the information or else they may find contracts more difficult to negotiate.
“Smaller businesses do not have to report on CSRD if they don’t meet the criteria, but if they are in the supply chain their activity will be considered as part of the larger businesses’ supply chain,” Peters said.
“The EU is working on a new set of voluntary reporting standards for SMEs, it would be our recommendation that SMEs do consider reporting under these standards as they may become mandatory in the future,” Peters said.
There have been some businesses reporting voluntarily, but ones who are due to report next year are starting to feel the pressure – there are over 1,000 data points for CSRD
Not only being sustainable but also being able to prove it will be key, she said, when it comes to retention of current customers and winning new business, especially as larger businesses are going to be looking for suppliers that are themselves sustainable.
“Questions businesses need to be thinking about include: do you have all of the relevant policies across E, S & G? OK, what are the metrics backing up your sustainability initiatives such as carbon footprint, and how are you reporting on them? Are you reporting internally to staff or externally to customers and stakeholders,” Peters said.
“I think what people tend to focus on in sustainability is the environmental side, but there is so much more to it than just that. There is also talk of sector-specific standards being introduced,” she said.
Clearly, measuring sustainability has a cost to businesses, but increasingly it will be just a cost of doing business.
“It is either a labour cost or a consultancy cost, but I do genuinely worry about businesses that are not thinking about it,” she said.
Pragmatica’s approach to sustainability was to take a view of an organisation’s entire operations and work from there in a coherent and road-mapped manner.
“Our process starts with a stakeholder analysis: who are your customers, who are your suppliers. Then we go into a situational analysis, asking what you are currently doing, then we create a gap analysis that goes into strategy development. Essentially, we create a roadmap that has actions that need to take place over the three years, and this could involve getting certified in sustainability or education for your team” she said.
“Failing on sustainability is a risk to your business – a compliance and financial risk certainly, but also a risk in terms of customer retention and growing your business.”
Recruitment, too, can be complicated, as potential candidates increasingly want to work for organisations that are in line with their worldview, she said.
“The younger generation want to work in companies that have purpose.”