As policymakers increase efforts to accelerate the transition to a more sustainable economy, the role that companies assume in this transition is becoming more and more crucial. Indeed, a sustainable economy requires joint efforts by all stakeholders involved, which is why corporate sustainability has become an issue of primary importance. Corporate sustainability refers to a management model that differs from the "traditional", driven by the values of growth and profit. In corporate sustainability these values remain important - since sustainability also has an economic dimension - but the company’s growth strategy is implemented according to sustainable development principles and goals, and thus aims to create added value not only for the company, but also for the environment and the society.
As the current economic system is not sustainable by design, many companies are required to change some of the ways in which they operate in order to be sustainable: from the way the source the materials needed for their operations up to how the manage waste and the end of cycle of their products. So, why should a company make this transition? Apart from complying with regulatory requirements, sustainability brings many benefits to a company, such as:
In addition, as society moves towards a circular economy, sustainability will soon become more than a matter of competitiveness: companies that do not adapt to these challenges will first be excluded from market opportunities and eventually, from the market itself.
The increased awareness of the importance of companies’ roles in this transition, as well as the accelerated government efforts, has driven the evolution of the regulatory scenario on corporate sustainability at the European level.
The European policy framework to accelerate sustainable transition and promote responsible business behaviour includes several instruments. Among these there is the Carbon Border Adjustment Mechanism, or C.B.A.M. It is a tool promoted by the European Union to tackle the relocation of carbon emissions and is one of the central pillars of the EU's ambitious "Fit for 55%" agenda.
Its aim is to align the carbon price of domestic products with imports, to ensure that EU climate policies are not undermined by production shifting to countries with less ambitious environmental standards or by the substitution of EU products with higher carbon intensity imports. The CBAM is WTO-compatible, and encourages the global industry to adopt greener and more sustainable technologies.
As in the case of other sustainability policies, this instrument (and the obligations it entails) will apply to companies in several stages. The first phase of its application, which has been labelled “transitional phase”, began on 1 October 2023.
During this phase, the C.B.A.M will only apply to imports of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. EU importers of these goods will be required to report the volume of their imports and the greenhouse gas emissions embedded in their production, without any financial adjustment in this initial stage.
The first report must be submitted by January 31, 2024, although importers are encouraged to collect data from the fourth quarter of 2023 onwards. The CBAM includes flexibility in the first year of implementation, allowing the use of default values for reporting embedded emissions and the possibility to use the monitoring, reporting, and verification rules of the country of production.
The transitional phase will serve as a learning period for importers, producers, and authorities, enabling the European Commission to gather useful information on embedded emissions to refine the methodology for the definitive period, starting in 2026. From that date onwards, importers will be required to purchase and surrender the corresponding number of "C.B.A.M certificates" for the greenhouse gas emissions embedded in the CBAM-covered imported goods.
The functioning and scope of the CBAM will be subject to a review during the transitional phase, which will be completed before the start of the definitive period, including an assessment of the possibility to expand the scope of the CBAM to other goods produced in the ETS sectors (Emissions Trading System).
The EU Taxonomy regulation is another cornerstone of the EU’s sustainable finance framework and an important market transparency tool. Its introduction follows a process of reviewing European policies in support of sustainable transformation, which emphasised the need to provide companies and investors with a common language on which activities can be considered “sustainable”. This will enable to target efforts and investments on these activities, which are strategic for achieving the EU's 2030 climate goals.
Specifically, the new regulation, which entered into force on July 12th, 2020 aims to:
The regulation also provides a list of criteria to help financial market participants (asset managers, insurance companies, pension funds, etc.) and financial advisers to establish if an activity or a product can be classified as “sustainable”.
According to these criteria, activities and products can be considered sustainable if they:
The regulation sets out the steps that an economic activity must take in order to make a substantial contribution or to do no significant harm to any of these objectives.
The Corporate Sustainability Due Diligence Directive (CSDD) is another pillar of the European sustainability framework. It was adopted by the Commission in February 2022 to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance.
According to the directive, companies are required to identify, end, prevent, mitigate and account for negative human rights and environmental impacts (such as, for example, child labour and exploitation of workers and pollution and biodiversity loss) in the company’s own operations, their subsidiaries and their value chains.
The directive applies to:
The obligations do not extend directly to SMEs, but they could be indirectly affected if they are part of the supply chain of an organisation that falls under the obligations of the directive.
In order to comply with the corporate due diligence duty, companies need to:
integrate due diligence into policies;
In addition, group 1 companies need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement. The directive also introduced directors' duties to set up and oversee the implementation of due diligence and to integrate it into the corporate strategy.
In 2014 the EU introduced the Non-Financial Reporting Directive (NFRD) which made it mandatory for large companies and public interest entities to publicly present non-financial information from the year 2017.
The legislation aimed to promote more transparency on how companies were positioning themselves with respect to certain issues, such as:
Delve more into the obligations required by the Non-Financial Reporting Directive
The 2014 European Non-Financial Reporting Directive ("NFRD") has prompted many companies, even those not covered by the sustainability reporting requirement, to communicate their business initiatives, partly to attract a growing base of consumers focused on sustainability issues. The need to accelerate the sustainable transition and to combat the so-called greenwashing (the practice in which a company communicates non-genuine sustainability initiatives) prompted European lawmakers to revise the NFRD and eventually replace it, in 2021, with the Corporate Sustainability Reporting Directive (CSRD).
Take a more in-depth look at the guidelines for sustainability reporting introduced by the CSRD
Corporate Sustainability Reporting Directive: which are the obligations for businesses?
The directive extended the obligation to disclose non-financial information from 11,000 companies with a minimum of 500 employees, under the NFRD, to 50,000 companies in Europe, with a minimum of 250 employees (which are expected to report from fiscal year 2023).
In addition, the Commission proposes to extend the scope to listed SMEs, with the exception of listed microenterprises.
The roadmap for the implementation of the Corporate Sustainability Reporting Directive envisions the implementation of the new rules as follows:
When it comes to sustainability reporting, data shows that companies struggle with two key elements of the process: governance (and, therefore, accountability within the company) and measurement.
In fact, sustainability is not a one-time goal that a company can achieve, but rather a daily commitment that requires careful measurement of strategic indicators (or KPIs) that help the company understand whether it is moving in the right direction.
To understand the nature of the challenge, it is sufficient to look in brief at the information to be included in the Corporate Sustainability Report, which includes:
As we can see, sustainability KPIs are important not only because they help calculate a company's sustainability performance, but also because they must be listed in the reporting itself. Therefore, getting them right is imperative. But where should a company start?
In this journey, ESG (Environmental, Social and Governance) plays a primary role, as it refers to sets of measurement criteria and standards (in many cases still under development) of an organization's environmental, social and governance activities.
These criteria help companies to identify the issues and areas they need to focus on, in order to monitor current performance and develop strategies for improvement.
ESG indicators relate to standards developed by internationally recognized bodies or organizations, such as the Global Reporting Initiative (GRI), an international non-profit body established for the purpose of setting sustainable performance reporting standards for companies and organizations of any size, belonging to any sector and country in the world.
When it comes to writing a Corporate Sustainability Report, GRI standards provide a detailed guide for companies, as they contain valuable information, such as:
These standards also help us to understand the nature of one of the necessary steps for companies to properly report on corporate sustainability policies: the Materiality Assessment.
This assessment is used by companies to identify the pertinent topics for the Corporate Sustainability Report. It is a strategic and hierarchical mapping of the most relevant sustainability issues for a company that the company identifies together with its stakeholders such as: shareholders, financial communities, employees, suppliers, business partners, customers, trade associations, public administrations, regulatory or supervisory bodies, the media, the territory, and the population.
Mapping these issues, in addition to being instrumental in drafting the sustainability report, also promotes the measurement of the company's sustainability actions, as well as greater accountability.
To tackle this complexity, more and more companies are adopting ESG solutions to manage and report on corporate sustainability actions and performances. These solutions, in fact, allow companies to automate the monitoring of ESG indicators and give back a clear picture of the businesses’ performance in relation to these indicators. Choosing the right solution is crucial, as there is no value in measuring and reporting on ESG-related aspects if it is not done based on reliable data that refer to recognized and shared standards.
This standardized approach must be combined with an expanded focus and know-how on ESG criteria and obligations related to specific industries and countries where the company operates, precisely because the Corporate Sustainability Report must include an account of the company's impact on ESG issues relevant to the organization, an understanding of that impact, and any necessary corrective strategies.
Find out what is the role of ESG solutions in sustainability management
All these steps and documents (from the Materiality Assessment to the ESG analysis) are not only necessary to fulfil regulatory obligations, but also to identify the areas of interest for the company regarding sustainability (in all its dimensions) and provide a snapshot of how the company is positioned in relation to them. This analysis is fundamental to a company's sustainability strategy, as it helps identify the critical areas on which efforts should focus, the inefficiencies (or errors) that need to be corrected, but also good practices and progress.
This last point is particularly relevant for companies, as sustainability is not a goal that once achieved can be “forgotten”, but rather an ongoing effort that must lead to constant research and optimisation of how to operate in an increasingly sustainable manner. And this is where the corporate sustainability plan comes in, a strategy with which the company outlines (and puts on the ground) the actions necessary to reduce and mitigate this impact.
As such, the corporate sustainability plan outlines the company's objectives, setting clear targets both in terms of time and results that the company intends to achieve. It is an indispensable strategy, because it not only outlines the company's future course in terms of sustainability, but also serves as benchmarks against which to measure the success (or ineffectiveness) of the efforts put into place.
To enable companies to tackle this complexity, Synesgy has developed an ESG platform and a framework that allow organizations to assess and certify their sustainability performances.
The Synesgy score model developed by CRIF Ratings - the authorized credit rating agency - allows an easy visualization of the score obtained in the 5 macro sections of the questionnaire (Business, Environment, Social, Governance, and Sector). The areas are synthesized in an "overall" score that summarizes them and, therefore, gives a general evaluation.
The entire journey is simplified: it all starts with Synesgy’s questionnaires, which are developed according to internationally recognised standards, such as: UNGC, GRI, UN 17 SDGs, EBA LOM, and EU Taxonomy for Sustainable Activities.
The questionnaires follow a two-tiered approach. They start with a core version, which contains questions referring to the Global Reporting Initiative (GRI) and focusing on the Business side and the Environment, Social, Governance principles.
Secondly, based on the sector to which the company belongs, an industry-specific section is provided. In addition, the Synesgy questionnaire is certified by the CRIF Rating Agency (CRA), which is recognized at the European level.
With Synesgy’s approach to corporate sustainability companies can rely on a certified process based on trusted ESG data. The platform is set up on an Alert system that, based on the CRIF information assets, performs an automatic check on the appropriateness and consistency of what is reported in the questionnaire.
If the Alert system detects inconsistencies, a team of experienced analysts check the documentation and, if necessary, contact the compiler directly.
Therefore, the process gives trusted, certified, and up-to-date results.
Synesgy’s consulting experts are available in each country in which it has a presence. Customer care is geared toward working with the client at every stage of the process from understanding the ESG principles, to filling out the questionnaire, to obtaining the certificate.
The approach followed by Synesgy allows for a clear and certified result thanks to the platform's intuitive dashboard that provides the company's overall score in relation to ESG performance, but also the score for each area examined.
In addition, the platform allows users to easily download the ESG performance certification and the report which provides insights into the areas of the business where action is needed with suggestions from Synesgy's experts on the action plan to implement.
Synesgy’s approach to ESG assessment also enables companies to access strategic information they can use to boost their competitiveness: the diverse nature of the benefits associated with adopting a strategy based on ESG performance measurement is related precisely to the heterogeneity of the KPIs monitored by companies. The visibility gained helps to detect inefficiencies in various aspects of the business, starting from the economic sustainability of the business model itself, of the business practices related to the use of resources and of the company’s Supply Chain.