Redefining your reporting operating model for sustainability 

The arrival of the Corporate Sustainability Reporting Directive (CSRD) brings with it the need for greater accuracy and reliability of sustainability reporting for many more companies, not least because reporting will be subject to audit. With the EU’s ambition to bring sustainability reporting on an equal footing with financial reporting over time, it’s expected that the finance department will often be tasked with the sustainability reporting function. Yet, this raises several questions that organisations need to consider if the levels of accuracy and reliability that sustainability reporting now demands are to be achieved. 

For some organisations, it will require redefining the target operating model to cope with the additional challenges sustainability reporting brings. As a first step, asking pertinent questions to assess the impact of sustainability reporting on the finance and sustainability functions will help kickstart a process that takes organisations from the planning stage to transformation and on to the run phase.  

What is the finance function’s role and how can it add value? 

The EU taxonomy for sustainable activities has triggered interest for the finance function to take on the role of sustainability reporting. At the same time, this expands the scope from working with financial data within clearly defined company parameters to a broader range of financial and non-financial data across an organisation’s entire value chain. While this may make the role more interesting, it presents challenges to developing a reporting operating model that shows precise alignment and progress on sustainability targets set as required by CSRD. How much the finance function needs to adapt will depend on the level of sustainability reporting maturity already attained. Still, it is essential to reevaluate the finance function’s role to ensure the right metrics, monitoring processes and expertise are all in place. 

With current metrics heavily relying on sector averages and proxies, developing metrics specific to a company’s sustainability requirements also adds value to the finance function as it allows more accurate measurement of return on transformational investments made to, for example, reduce carbon emissions or improve biodiversity. On a broader scale, the ability of the finance function to give strategic support to sustainability initiatives through accurate key performance indicators (KPIs) will be an invaluable tool at managerial and board levels, particularly in aligning pay and bonuses with sustainable objectives. 

What’s going to be the future role of the sustainability department? 

Companies, particularly larger organisations, may have a chief sustainability officer or department responsible for most sustainability functions. Just as with the finance function, the role of the sustainability department also needs reviewing in light of CSRD. There’s a strong argument for shifting the emphasis on sustainability responsibilities to a more strategic level where expertise can be used to influence strategy at a deeper level.  

This makes sense when considering that organisations are now under pressure to transition their entire business model to more sustainable foundations. The sustainability department needs to sit at the core of strategic development, where it can guide and support those more holistic sustainable objectives.  

Creating a dynamic roadmap 

At a practical level, companies will need to conduct a CSRD gap analysis as a minimum to know how far they are from the target operating model. Organisations can then embark on designing and rolling out the CSRD roadmap that will typically include steps such as materiality assessments, definition of carbon trajectory, setup of formal due diligence processes along the value chain, and changes to the procurement strategy and documentation. 

At a higher level, moving forward successfully with CSRD will be about separating the concept of sustainability reporting and strategy. By doing this through the lens of the finance function and sustainability department, organisations can better understand how they can develop a more CSRD-appropriate reporting operating model. It will no doubt require organisational change. But by looking carefully at the internal structure, organisations can begin extracting real value from finance and sustainability functions, so they work dynamically and harmoniously to apply meaningful metrics, monitor performance accurately and support change more effectively. 

Once the groundwork has been completed, organisations have a clearer view of what controls and processes they need to put in place that better reflect their company and meet the requirements of CSRD. It starts with asking the right questions.