5 Ways to Turn CSRD Compliance Into a Competitive Advantage: Insights from HowGood

At first glance, the EU's Corporate Sustainability Reporting Directive (CSRD) might seem like an administrative burden best left to compliance teams to figure out. However, the internal analysis and subsequent reporting can be turned into a competitive advantage with a few strategic shifts.

"The foundation of CSRD compliance is the double materiality assessment, which asks companies to consider the impacts along with the risks and opportunities associated with a range of ESG-related issues," explains Matthew Gardner, Ph.D, managing partner, Sustainserv, a sustainability consultancy.

"Because companies should consider these topics from the perspective of where they have impacts on the world and which of them represent an actual or potential financial impact on their business, companies now have some important ingredients for a solid ESG and business strategy," he adds.

To get the most out of CSRD compliance and act on those uncovered risks and opportunities, consider the following five ways to reframe your approach, as shared in a recent webinar by HowGood, a sustainability research and SaaS provider in the food industry:

From CLO to CFO

The first way to reframe CSRD from a compliance burden into a competitive advantage is to shift who's responsible for leading this reporting initiative. One option is to have the CFO be the person leading the charge, rather than the chief legal officer or chief compliance officer. 

Even though CSRD data might not directly include monetary values the way quarterly earnings reports do, there's overlap in how financial and non-financial data is collected, analyzed, and reported, so the CFO could be well positioned to add this responsibility.

"There's this movement to integrate financial and non-financial data into an integrated annual report that's subject to assurance like financial data is in many aspects," explained João Brites, director of growth and innovation at HowGood, during the webinar.

Companies that do this are much better at seeing how different types of environmental risks impact the bottom line and can improve their ability to operate in the future, he added.

Moreover, putting the CFO in charge makes sense considering the financial risks and opportunities that need to be analyzed based on sustainability information.

For example, investing $1 in disaster preparation saves $13 in economic impact, damages, and cleanup, according to a study by the U.S. Chamber of Commerce, Allstate, and the U.S. Chamber of Commerce Foundation. 

While that applies more so to public sector investments, similar logic applies to private companies. CFOs need to consider issues like the financial impact of climate disasters disrupting their supply chains and analyze the cost/benefit of building out more resilient facilities, for instance.

Bringing Customers Into the Equation

The second way to reframe CSRD compliance into a competitive advantage is to think about using CSRD data to help your customers, not just your own reporting needs. Of course, this varies based on who your customers are, but for many B2B businesses in particular, your customers will need the same data from you as a supplier in order to meet their own compliance needs.

"What we see is that more and more customers are looking for suppliers that are CSRD ready," said Brites. 

For example, HowGood has seen several CPG food companies require Scope 3 emissions data in all of their RFPs, noted Brites.

Even if you're a B2C business, being able to share data and insights uncovered from CSRD compliance can help you more clearly connect with customers who want verifiable sustainability claims, not vague statements about "going green."

Telling a Product-Level Story

Part of connecting with customers more based on CSRD data involves shifting how you report this information. Simply disclosing your overarching corporate metrics and targets might be enough to comply with CSRD, but diving into product-level data and telling more of an impact story can help drive sales.

As Brites pointed out, companies often need product-level data to report the overall numbers, so if you're making the investments in people and technology to determine these metrics, then you might as well tell a deeper story that connects with customers. 

For example, HowGood has worked with Ingredion to quantify sustainability impact. Instead of the company just trying to sell customers on Ingredion overall, they can make the case for specific products — replacing whey protein with Ingredion's pea protein, for instance, can lead to a reduction in blue water usage and carbon footprint, while increasing consumer preference.

Your overall brand story still matters — especially for building awareness and establishing credibility. However, product-level impact stories can help in more nuanced ways, such as justifying premium pricing or encouraging existing customers to expand their purchases.

Integrating Your Data

Part of the challenge of complying with frameworks like CSRD is that it's difficult to get all the data together, let alone cohesively analyze it in a way that helps set strategy in other areas like finance and R&D.

"Sustainability data is very often held in a siloed fashion across multiple teams: procurement holds sourcing details, R&D holds formulation details, account management holds customer reporting, etc.," says Eva Clark, director of marketing and communications at HowGood.

So, as you think about CSRD compliance, it can be helpful to think about breaking down these silos, such as by choosing carbon accounting software that easily integrates with your existing systems. Or there could be opportunities to collect and analyze sustainability data within your current ERP, for instance.

One example of this integration can be seen with HowGood customer Chartwells Higher Education, which provides culinary services to colleges. Using HowGood's software platform, Latis, Chartwells can incorporate sustainability data into product formulations to see how different recipes affect areas such as GHG emissions.

"We’re able to not only influence the recipes, but also our purchasing organization, being able to say, ‘this is what you can buy to drive lower-impact recipes.’ Now we can make these really strong data-informed decisions, whereas before it was difficult to get a picture of our overall impact,” said Monalisa Prasad, director of sustainability at Chartwells Higher Education, in a HowGood case study.

Leveraging Sustainability Data

Lastly, turning CSRD compliance into a competitive advantage requires your company to set goals and strategies beyond using sustainability data to create an annual report. While that may be the baseline for CSRD compliance, applying that same data to other areas of your business can help you get a return on your investment in collecting that data.

For example, climate risks affect financing costs. Research from MSCI shows links between higher ESG ratings and lower costs of capital. So, if you're taking steps like having your CFO lead on CSRD reporting, then you might also set goals like working with lenders to obtain lower interest rates on loans, based on hitting certain sustainability metrics that reduce risk. 

That might also tie into related areas like mitigating supply chain risk based on what your sustainability data shows. If a significant portion of your Scope 3 emissions come from suppliers using fossil fuels, for example, it could be worth paying a premium for suppliers who transition to renewable energy, thereby reducing your emissions while reducing pricing volatility.

Ultimately, CSRD doesn’t have to just mean reporting on sustainability risks and opportunities. With the right reframes, it can equip your company with insights and help you establish processes that provide a competitive edge, such as deeper customer relationships and a more resilient supply chain.

Frequently Asked Questions (FAQs) on CSRD

What does CSRD mean?

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that stems from the European Green Deal, which aims to have the EU become climate-neutral by 2050, with net-zero greenhouse gas emissions. Specifically, the CSRD aims to modernize and strengthen sustainability reporting, replacing the Non-Financial Reporting Directive (NFRD). Companies subject to CSRD will have to report based on the European Sustainability Reporting Standards (ESRS).

Who is subject to CSRD?

Companies subject to CSRD disclosure include large companies in the EU (listed and non-listed) as well as publicly traded small-and-medium enterprises (SMEs), but not micro-enterprises, listed in the EU market. The framework also applies to some businesses not based in EU member states, such as those with large EU subsidiaries or non EU companies that generate over EUR 150 million in the European Union. Altogether, approximately 50,000 companies could be subject to these reporting requirements.

What must be reported under CSRD?

CSRD requirements include having companies report on a variety of sustainability issues, particularly via a double materiality assessment that combines financial and sustainability information. More specifically, companies must report on how climate change and other social and environmental issues have a material affect on their financial performance, while also disclosing what impact their business model has on society and the environment. Through these climate related disclosures, the goal is to more clearly enable stakeholders to assess how sustainability issues affect a company's value chain, strategy, and finances.

What are the challenges of CSRD reporting requirements?

CSRD reporting requirements can be challenging in terms of affected companies being able to engage in comprehensive data collection and integrating sustainability information into financial reporting. However, European sustainability reporting standards are evolving, with the proposed EU omnibus regulation potentially enabling consolidated reporting under CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy. That could ease some challenges, but companies can also make shifts like integrating sustainability data into other software like ERP systems to ideally get more value out of this reporting.

Disclosure: Our parent company, JournoContent LLC, has clients involved in sustainability-related areas, among others. The owner of Carbon Neutral Copy, Jacob (Jake) Safane, has investments in sustainability-related companies, among others.

As such, conflicts of interest related to these and other investments/business relationships, even if unintended, may exist at times. Please email info@carbonneutralcopy.com if you'd like further clarification on any issues.