Corporate Sustainability

Sustainability. The magic word for every do-gooder on this, for now, green earth. Especially in Europe, you can get a lot of praise by implementing sustainable practices within your business and personal life. And with good reason; this month saw record-breaking temperatures and unfortunately, big parts of European forests caught fire, with people losing their homes and vacation destinations. So it is safe to say: We need to do better, and fast. And luckily for us, our overly complex, bureaucratic powerhouse (The European Union) has provided us with extensive legislation to ease companies into the magic world of Non-Financial Reporting otherwise known as Sustainability Reporting!

Not-in-my-backyard

Before diving into the different legislations, we first need to tackle the most common counter-argument to sustainability as a whole. The argument follows the same rhetoric as that one uncle at birthday parties that insists on sharing his political opinion: "Europe's Carbon emissions account for 0.00000001% of the total emissions".
Every time this argument is thrown into meeting rooms, you should be happy. After all, ignorance is bliss. Nevertheless, let us convince you why you should care (and not be the uncle).

First of all, sustainability is an umbrella term for a multitude of topics. Carbon reduction is a big part, but we are also talking about broader environmental protection, social fairness and, here is the kicker, long-term economic health. The incentive is quite simple in that sense: if our generation were to completely destroy all the resources on earth, we would cease to exist. Cease to exist in business terms is: there would be no profit.

Now, the above reason requires companies to think long-term and favor strategic decisions over quick-cash grabs. Obviously, there are a lot of companies, and presidents..., that couldn't care less about longevity. But the last 10 years we do note a positive trend. In 2023 for example, sustainable funds outperformed traditional funds. This indicates that companies that include sustainable practices within their business, do in fact perform better. And to be frank, most of our pension funds directly benefit by a growing economy, so sustainability may very well allow you to sip martinis on the Bahamas when you are 80 years of age.

Legislation, directives and more seemingly boring paperwork

Now that we defined why you should care, lets jump into the how. If you are reading this without an AC near you, you are in luck as you probably live in the EU ;). The EU has spent over a decade developing multiple sustainability frameworks to motivate companies and consumers to reduce their environmental and social impact. Let's dig through the most important ones.

• The European Green deal: The EU Green Deal is what you can call the overarching initiative of everything sustainable within Europe. Those annoying bottlecaps? Green Deal. Electric Cars? Green Deal. Sustainability Reporting? You guessed it.
• EU Taxonomy: It was quickly noted that in order to push sustainability, it must first be financially viable. Not only in terms of making investments worthwhile, but also understanding what financial flows are "green". This is why the EU Taxonomy was introduced. It allows for a uniform understanding of sustainable economic activities by means of a classification system.
• CSRD: In order to use and feed the taxonomy, companies must report their non-financial performance in a standardized format. This is the Corporate Sustainability Reporting Directive (CSRD). It mandates companies to report on their environmental, social and governance impact. Think of how many CO2 they emitted or how many workplace accidents. Note: This relies on double materiality and mapping your Scope 1, 2, and 3 emissions—two key concepts we’ll break down in a future post!
• ESRS: For use in the CSRD, the EU developed a set of 12 European Sustainability Reporting Standards (ESRS). These cover three primary topics: environmental, social, and governance, alongside a set of general standards and disclosures.
• VSME: Voluntary Sustainability Reporting Standards (VSME). Focus on the word Voluntary, these are meant for companies that do not strictly fall under the CSRD, but still want to report alongside the ESRS. They are less broad in scope, but allow (very) small enterprises to participate in a greener economy.
• CSDDD: And lastly for today, the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). Alongside reporting, the CSDDD mandates companies to implement screening and concrete plans to limit their environmental and social impact within the value chain. This means performing due diligence on suppliers and clients, and develop targets to reduce impact.

There are many more legislations and directives out there, but these in particular have already impacted a vast amount of European companies. The last few years, businesses were preparing to integrate the reporting standards in their operations, with the first large public-interest companies reporting over fiscal year 2024. Small note from our side, Because these reports now require mandatory auditing (a topic we’ll cover soon!), it has sparked a craze for sustainability reporting software, and yes, we are happy to talk about that :)

Takeaways? Yes!

We can write entire 300 page trilogies about these legislations, and that is ignoring the rapid developments in the field. In the future, we will dig deeper into the specifics of each legislation and how you can tackle them effectively. What we do know for now, if you are starting a business in Europe, you cannot ignore sustainability. And to be fair, you don't want to. Not only is it better for the next generation, it also allows you to better understand what impact your business has, and maybe, just maybe, you even spot a new opportunity!

That is all for now, and we expect to see you when we dive deeper into sustainability!