Are you prepared for the CSRD?

The upcoming Corporate Sustainability Reporting Directive (CSRD), the most expansive reporting standard seen to date, is set to push boundaries and usher in an era of double materiality, where companies are mandated not only to account for their environmental and social footprints, but also to identify potential sustainability threats to their operations. Yet, evidence indicates a significant portion of the firms are not sufficiently prepared for this change, which could potentially result in regulatory penalties.

Scope 3 contraversy

An important aspect of the new directive is the requirement for Scope 3 disclosures. Scope 3 emissions include all the indirect emissions that occur in a company’s value chain, like those resulting from business travel, transportation, distribution, and waste generation. These disclosures, while vital to understanding a company’s full environmental impact, have been met with a degree of skepticism due to concerns about accuracy and how the emissions are computed.

A considerable number of asset managers, including the influential “Big Three” U.S. index funds – BlackRock, State Street, and Vanguard, are calling for a less rigid approach to disclosure. These managers advocate for a focus on financial impacts on companies. It seems their apprehension rests on potential inconsistencies in calculation methods, and resulting discrepancies around the reliability of data.

Prepare to engage

Beginning January 2024, the CSRD will have far-reaching implications. Approximately 50,000 companies worldwide, inclusive of UK-based companies trading in the EU, will fall under its purview. However, support from asset managers to companies in adjusting to these new rules appears to be relatively subdued. This lack of support could leave many firms inadequately equipped to handle the impending changes, potentially risking non-compliance fines and creating barriers to their sustainability journey.

The implementation of the CSRD will undeniably present challenges. However, it’s important to remember that its fundamental aim is to bring about a higher level of transparency and to motivate companies to adopt sustainable practices more seriously. In the long run, such practices will not only improve environmental and social conditions but could also bolster the companies’ resilience against sustainability-related risks.

Introducing SI Engage

SI Engage has an important role at this pivotal juncture. Our cutting-edge system is designed to bridge the gap between investment teams and portfolio companies. This system streamlines engagement and aids in the effective navigation of the new requirements brought on by the CSRD. By fostering meaningful dialogue, SI Engage allows for better understanding and collaboration, helping businesses prepare for and adjust to these impending changes.

It is crucial for asset managers to rally behind this directive and leverage the capabilities of platforms like SI Engage to help firms grapple with the complexities of these new rules. While the transition may seem daunting, it also presents an opportunity to reshape businesses in a way that’s profitable, sustainable, and accountable.

As we edge closer to 2024, the readiness of asset managers to pressure firms into aligning with the CSRD regulations may well dictate the effectiveness of these efforts to combat climate change and create a more sustainable global economy. So, don’t hesitate to get in touch and let SI Engage guide your firm in managing this vital transition.

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