The risks of greenwashing lurk. With the introduction of the CSRD, each organization can choose which path to take: toward compliance only or toward promoting a more sustainable world. Choose and communicate your choices consciously. After two introductory pieces on the CSRD, in this blog we cover the project and change management aspects of the CSRD. What steps should you follow to report and act appropriately according to it? What is special about this, is it an "ordinary project" or a complex change program?  

When thinking about sustainability you may have doubts about the position to take: cynical, optimistic, pragmatic... When I heard that Philip Morris International, the cigarette giant, is leading the way on sustainability, the cynic in me had to laugh internally.

Another reason to view the new regulations with suspicion: they are still under development ... and European elections are coming up in June 2024. Will the CSRD be updated after that? When you see what headaches the Sustainable Finance Disclosure Regulation (SFDR) is causing then you can come to the conclusion that it may be better to wait and see rather than be ahead of the curve. 

How does your organization view the CSRD? Purely with a focus on compliancy and minimal reporting? After all, the organization has more than enough on its plate, you can miss this extra obligation like a toothache. Or is it seizing this moment to establish a robust ESG strategy? 

My advice: be pragmatic as well as proactive. Yes, legislation is changing, but you can prepare for anything, and every little bit helps. As Bloomberg writes it in relation to Philip Morris "Thank You for Smoking and Saving the Planet", "How do you measure a good company? (...) Robert Eccles believes in the possibility that a good company can be one that does less of something bad, and he uses data to prove it." 

Whatever starting point you choose, hopefully this piece is going to help you take the first steps. And you'll understand: you better start early because there's a lot coming your way. 

Just a project? Or is the journey to CSRD special? 

Depending on your perspective - conservative or ambitious, reactive or proactive - you can take different approaches. Create a large-scale purpose-driven program or a modest business IT project. A CSRD compliance journey is not a linear or one-off project, but a continuous and iterative process that requires flexibility and adaptability. Also given the uncertainties, you seem to recommend an Agile approach over a waterfall approach.  

These are normal considerations when you start a new initiative. Together with my Change Makers colleagues, we are happy to guide you to make the best choice for your situation.

What does make CSRD special are the following two aspects:  

• The number of stakeholders, their involvement in the process; 
• The complexity of the information to be reported, due in part to the scope of the chain. 

Before we explain our proposed process, let's take a close look at these two aspects. 

Multidisciplinary and chain approach 

The CSRD is about sustainability in relation to your organization's direct - and indirect - impact on the environment, socially and in terms of good governance. By "direct and indirect impact," think about how long your supply chain is. Where do the raw materials in your production process come from from your "upstream activities"? And where do the impacts of your primary processes end up in the "downstream activities," such as recycling your products when consumers want to get rid of them? The CSRD puts no limits on this so you need to be very honest about how big your impact is. Determining the scope of your organizational supply chain will determine who you involve in the CSRD compliance process. 

The CSRD goes beyond reporting on your organization's performance. You need to develop a strategy, define objectives and link action plans to them. So you have to agree on who in the organization is going to deal with what consequences of the CSRD. Indeed, the CSRD indicates that you need to interact with your stakeholders, at least in the context of the materiality test. And then those responsible individuals need to know how to convince their internal and external stakeholders to cooperate with the reporting requirements of the CSRD.

Consider, for example:

• Environmental impact, such as greenhouse gas emissions: procurement, sales, production... needing to interact with suppliers, distribution partners and customers; 
• Social impact: HR, all layers of management, all functions where people play a role, including people who work in your supply chain or feel impact from your products or services; 
• Corporate governance impact: management, supervisory board, shareholders, banks ... and also again your supply chain partners;
• Reporting and compliance process: finance, control, audit, communications;
• Data and information management: IT, functional management, information security and privacy. 

In terms of setup, a CSRD project or program is "ordinary" because you have to identify who the stakeholders are, but also special because of the scope of the subject.  

Complex reporting requirements, unforeseen consequences 

As mentioned in the second blog in this series, "Keep in mind that "CSRD data" also involves text." And so for this very reason, you also need to have a clear record of program and project management and how they concretely contribute to the business strategy and resulting concrete goals.  

Plus what these targets are based on, such as an estimate of an industry average. For example, you might indicate that the strategy for the next three years is to reduce CO2 emissions by 20%. So you must first have a concrete picture of what it is now. The estimate you make today of what your emissions are will probably be very different in a few years. Because then you will know much better exactly what your emissions are and which parts of your processes all affect these figures.  

Imagine looking at the amount of greenhouse gases your company emits. In 2029, however, you discover that your industry average does not apply to you. In fact, by 2024, your emissions were already lower than that average! Each year you had neatly reported that you were getting closer to your goal compared to the average. But in those five years, you measured more and more accurately instead of estimating. After taking all sorts of measures, you come to the conclusion in 2029 that you actually only improved 10% over the average. In the latest annual report, you now have to explain why the numbers have changed. How will this go in with shareholders, customers and employees? 

Transparency: bad news, good news? 

The CSRD's goal is to promote transparency so that the organization and its stakeholders are clear about ESG performance. Transparency is socially desirable. However, the consequences are not always in your control. Your approach should take this into account.  

That sustainability reality is recalcitrant has recently been experienced by Lego. The manufacturer of the beloved toy is a big user of fossil resources: the Lego and Duplo bricks are made of ABS, an oil-based plastic. This material remains intact in the sea for 100 to 1,300 years as litter. Lego has long been looking for alternatives to its fossil plastic, biobased or recycled materials. Recently, they were in the news with the announcement that they were discontinuing their attempt to use recycled plastic bottles. So what is bad news for the environment may be good news for the transparency envisioned by the CSRD.  

Concrete and realistic figures 

The CSRD helps you identify what ESG goals you are pursuing. The twelve European Sustainability Reporting Standards (ESRS) are partly obligations and also very useful to help you with this. See our first blog for an overview of the twelve ESRS. For each ESRS topic, cq 'topic', sub-topics and sub-sub-topics have been developed. Below is a fictitious example of how to translate a strategy into concrete KPIs and objectives. 

We explained in the previous blog that a challenge of the CSRD lies in translating certain numbers, such as your electricity bill into new numbers, such as your scope 1 "metric tons of carbon dioxide equivalent" (mtCO2e). In the table you will find two other examples: "absenteeism rate" and "number of confirmed incidents of corruption or bribery among business partners." The first one you can probably provide in a moment. The second as well?  

Materiality Assessment as a first step 

To determine which targets and KPIs are material to your organization, you will have to overcome the hurdle of the double materiality test ("materiality assessment"). The outcome will determine the scope and ESG topics that are material to your organization.  

Then you examine what relevant data you can export from which source systems, what data you need to transform, and what information is still missing. Only after you have performed a complete gap analysis can you get fully into setting goals and plans to meet them. You can think of data collection as a parallel process to improving your performance. 

See to it that you capture every step of the process. As with any auditable process, it is equally important to record, in addition to the final results, how you do what you do and why you make which choice. You can initiate the "external assurance" step at several times. It seems wise to me (I have also heard this advice from sustainability managers) to involve your auditor, your accountant for example, during the materiality assessment test. After all, your organization's auditor is extremely capable of assessing what is material and what is not. 

PDCA and change management 

Compliance with CSRD is not a one-time project. It is an ongoing process that requires continuous improvement. Hence, a PDCA cycle is represented over almost the whole picture. 

In addition to the necessary program or project management qualities, change management will become essential for CSRD compliance. It helps to: 

• Effectively communicate and align the vision, goals and benefits of change with sponsors and stakeholders, both internal and external;
• Increase engagement and ownership within your organization and in your value chain as trust in each other's intentions becomes a big issue. Risks around resistance will occur, you will need to act on this;
• Develop and maintain the capabilities, competencies and culture necessary to integrate sustainability into organizational decision-making, processes, systems and people;
• Measure, evaluate and improve CSRD progress and outcomes through monitoring, reporting and feedback loops;
• Adapting to changing circumstances and insights. Taking actions when you fall behind. But certainly also celebrating successes. 

It's nice if your organization already uses a proven method around change management. If you don't already have one and are looking for help, let me know: my Change Makers colleagues are happy to share their experience in this area. 

Getting started!

The CSRD is an important step toward a more sustainable and transparent economy, but it also brings significant challenges and changes. Complying with the CSRD requires not only collecting, analyzing and reporting large amounts of data, but also developing or adjusting your ESG strategy. Your organization will need to integrate sustainability into the core of its operations. This is no easy task, and its success depends largely on how the change is guided and managed. 

Don't make it too big too fast. Start with the materiality assessment test. This is already a small project in itself, a good way to get acquainted and engage your stakeholders. And adopt an agile approach, given the many uncertainties it seems the best way to get started with the CSRD.