The Corporate Sustainability Reporting Directive (CSRD) marks the start of an ESG shift and retailers need to become sustainable organizations to survive.
It seems to be far away still, but simultaneously approaching swiftly – the Corporate Sustainability Reporting Directive (CSRD). Between 2025 and 2028 nearly 50,000 European organizations will need to start reporting their ESG impact in line with the directive. By now, most of you will have read the articles, listened to the podcasts and watched the news items on the enormous amount of work that is coming organizations’ way. However, it is not the amount of work that forms the largest risk. We are standing on the brink of a shift towards sustainability and only those being able to show progress will survive.
Until now, most retailers have gotten away with scratching the surface on sustainability due to the multitude of certificates, terms and measures, making comparison tough. With the introduction of CSRD, companies are forced to report on their ESG impact in a much more uniform way, facilitating being able to separate the wheat from the chaff when it comes to impact reduction efforts. Hence, rather than treating CSRD as just a paper exercise, it needs to be a report about true efforts for change. For retailers who can achieve this, CSRD will be a value-bringing blessing, rather than a resource-hijacking burden.
Sustainability as a prerequisite
ESG efforts are of increasing importance to several retail stakeholders. With CSRD, well-performing retailers will have a chance to use their ESG achievements as a competitive advantage.
Consumers are increasingly demanding from retailers to limit their environmental impact. With consumer trust being a key element for success, reputation damage when reports do not show enough progress is a true risk. Even more so when they do not confirm progress that has been suggested in the past and thus expose greenwashing. With CSRD, consumers can more easily select where they shop not only on sustainability intentions but on actual delivery, giving an advantage to retailers doing well.
For investors, ESG topics are increasingly important in risk assessments and valuations. Being able to show ESG progress therefore will affect organization’s ease or even ability to (re)finance. CSRD will again facilitate the comparison, making well-performing firms stand out and putting those who perform less well at risk of losing investors and therefore restricting growth.
In the board room, the required identification of material ESG risks within the value chain will lead to better-informed decision-making and hence, organizational performance. Due to its large upstream value chain, retail is one of the sectors most at risk from the effects of climate change. Therefore, making the upstream value chain more transparent gives vital information to make retailers’ supply chains more resilient and cover risks. In addition, impact reduction through improving efficiencies will also lead to lower costs.
Achieving progress and showing it
Key to grasping the opportunity CSRD is posing, and reducing the risk, is being able to show progress and achievements. This requires (1) an organization that is committed to sustainability improvement, (2) realistic, measurable and verifiable goals and (3) data, data, data.
1) Sustainability commitment throughout the organization
Transformational change will not be reached by one sustainability team performing some activities on the side and having little to do with daily operations. For proper ESG improvement, sustainability goals need to be part of the Corporate Strategy and embedded in the organization end-to-end.
2) Realistic, measurable and verifiable goals
Some brands and retailers have been forced to revisit their sustainability claims as they were considered too vague and not substantiated by evidence. To avoid the reputational damage of such interventions, retailers better start small with relatively easily attainable, but verifiable goals and claims. Meanwhile, they need to work on increasing the transparency of the value chain. Thereby, insight into what can be reached becomes clearer. Goals can be recalibrated from there.
3) Data, data, data
Based on the sustainability goals in the corporate strategy and the increasingly transparent value chain, retailers need to start building their data foundation and the IT architecture to support this. Disclosing the required data and being able to bring it together is complex, but essential to form a solid baseline and consequently report progress.
It’s not just the introduction of CSRD that is mandating the increased focus on sustainability. Under the European Green Deal, other legislation is around the corner. An example is ESPR, a regulation aimed to improve EU products’ circularity, which will be accompanied by an obligatory Digital Product Passport for each product that includes information on its environmental sustainability. For retailers shifting to becoming a sustainable company now, these regulations will be a blessing. For those that do not, an insurmountable burden.
Anouk Duivenvoorden
Manager Retail
T: +31 621655706