Can new technology ease the pain of sustainability reporting? As of 31st July 2023, the EU Commission announced that it was adopting the new final CSRD Sustainability Reporting rules. We find ourselves at the forefront of a transformative era where environmental, social, and governance (ESG) factors play an increasingly vital role in business strategy. Amidst this dynamic landscape, the European Union has been actively shaping the future of corporate sustainability reporting through two key regulatory frameworks - the Corporate Sustainability Reporting Directive (CSRD) and the Non-Financial Reporting Directive (NFRD).  Today, we will unravel the differences between these two directives and share the five most crucial considerations for sustainability managers.

1. CSRD and NFRD - Key Differences

The NFRD, adopted in 2014, paved the way for large public-interest entities to report non-financial information, such as environmental and social impacts. However, the CSRD, which builds upon the NFRD, represents a major step forward. Proposed in 2021, the CSRD aims to replace NFRD and expand the reporting scope to encompass all large companies, listed entities, and certain SMEs, driving more extensive ESG disclosures. Moreover, the CSRD seeks to ensure consistency and comparability of sustainability reporting by introducing an EU Sustainability Reporting Standard and mandating external assurance for reported information.

2. Enhanced Reporting Scope

Under the CSRD, sustainability managers will face the challenge of expanded reporting requirements. Companies that were previously exempt will now need to disclose ESG information, necessitating a robust framework to gather, monitor, and report on a wider range of data. As sustainability becomes more integrated with core business functions, it's essential to ensure seamless coordination across various departments.

3. Embracing Digital Reporting

The CSRD proposes digital reporting using the European Single Electronic Format (ESEF). This shift toward digital disclosure streamlines data accessibility, facilitating data analysis and comparison across entities. Sustainability managers must invest in the right tools and technologies to ensure smooth and accurate digital reporting, while considering data security and privacy.

4. External Assurance

One of the game-changing aspects of the CSRD is the introduction of mandatory external assurance or auditing for sustainability disclosures. This enhances the credibility of reported information, fostering trust among stakeholders and investors. Sustainability managers should engage experienced assurance providers to evaluate and verify their ESG data, adhering to internationally recognized standards.

5. Materiality Assessments Needed

Food companies will need to conduct a materiality assessment to identify and prioritize the most significant sustainability issues that are relevant to their business. The concept of double materiality refers to considering both the financial materiality and the sustainability materiality of a company's activities and impacts. This requires companies to evaluate the financial materiality of sustainability factors and disclose their impact on the company's financial performance. It also encourages companies to disclose how their financial performance and decision-making processes are influenced by sustainability-related risks and opportunities.

Proactive change with new technologies

The transition from NFRD to CSRD represents a landmark shift in sustainability reporting, demanding greater transparency, consistency, and reliability from businesses across the EU. Sustainability managers must embrace these changes proactively, leveraging technology, fostering cross-functional collaboration, and aligning their efforts with global sustainability agendas such as the United Nations' Sustainable Development Goals (SDGs). Identifying the most relevant SDGs and integrating them into the reporting framework not only bolsters the company's positive impact but also resonates with investors and customers who value responsible business practices.

Implications for food companies...

Although the details of ESRS for food companies are still under development, it is clear that climate impact will be in a front-row seat, and for many major food companies, this will be dominated by a very fragmented supply chain (Scope 3) impact, i.e. the CO2 footprints from a large number of products. Without doing a full lifecycle analysis, estimating the CO2 emissions of products can be very tricky. Food production relies on ingredients that can come from suppliers on the other side of the planet and vary with seasons. This adds a lot of complexity. And full LCAs for large portfolios are both costly and take a lot of time. 

FoodFacts has just launched a fully automated CO2 estimator for the entire food market in Sweden, with a methodology and proprietary algorithms that are easily expandable for all EU markets. You can read more here about the methodology using proprietary AI technology, data from RISE Research Institutes of Sweden and an algorithm developed with expertise from the Stockholm Resilience Centre. The result is an instant CO2 calculation for any category of food products which can be refined with further information from producers. This enables retailers, or food producers with large portfolios to digitalize and automate a large number of their estimations, with a science-based and transparent methodology to reduce time, complexity and costs in new sustainability reporting.