There’s not a lot of time to prepare for the new Corporate Sustainability Reporting Directive (CSRD), which was given final approval by the European Union in November 2022. Fully applicable for many businesses beginning in January 2024, affected companies now have less than 12 months to provide significantly more detail on their environmental impact and their progress towards net-zero emissions.
The EU is working towards its goal of net-zero emissions of greenhouse gases (GHG) by 2050. To meet this goal, though, both the environmental accountability of businesses and the headway toward reducing their emissions must increase.
The CSRD aims to ensure that larger companies — including international firms with operations in the EU, as the largest contributors to emissions, implement aggressive sustainability strategies and increase transparency on positive environmental impact and performance against sustainability goals. Many companies are aiming to “go green,” by 2030. To stay on track for net-zero emissions by 2050, net emissions must reduce to 45% of their 1990 levels by 2030.
It’s safe to say that for the EU and for society as a whole, we are significantly adrift of this target.
The scope of the CSRD
Adoption of the CSRD was announced in April 2021 and given the final go-ahead to amend and substantially strengthen the existing Non-Financial Reporting Directive (NFRD) of 2014. Put simply, the legislation requires companies to report on the impact their activities have on their environmental, social, and governance (ESG) efforts. This reporting now needs to be in the form of detailed, accurate document submissions and will be heavily audited, with non-compliance and transgressions subject to hefty fines.
The CSRD will affect companies in the EU, UK, US, and beyond. All listed companies in the EU, from small- and medium-sized enterprises (SMEs) to large corporations, must comply. Companies outside of the EU must provide this detailed sustainability reporting if they generate a net turnover of €150 million in the EU and if they have a subsidiary or branch in the EU that exceeds a certain turnover threshold.
Application of the CSRD will be staggered. For companies already subject to the existing NFRD, the CSRD will apply to reporting in 2025 for the financial year commencing January 2024. In short, the directive will apply from 1 January 2024. For larger companies not currently subject to the NFRD, the new legislation will apply to reporting in 2026 for the 2025 financial year. SMEs and third-country undertakings will need to be fully compliant by 2026 and 2028, respectively.
The takeaway here for companies outside the EU and for smaller companies should be that these regulations will set the precedent for corporate sustainability globally. They will almost certainly be expanded and compounded upon at pace as society moves to protect the environment while mitigating and preventing climate change. Not only do companies need to assess, action, and report on the activities of their subsidiaries — they will also need to drill down into the employee and supplier impacts to their overall sustainability performance.
Ayelet Elstein is VP for EMEA at Lakeside Software.
The main challenge?
Companies are only at the beginning of sustainability discussions.
Technology giants have been working on sustainability for a while. Microsoft, for example, became carbon net zero in 2012. It’s also set to be carbon negative by 2030 and has committed to removing the carbon Microsoft has emitted directly and by electrical consumption since its creation in 1975.
Most companies are nowhere near achieving Microsoft’s lofty ambitions, though. Many are just beginning to consider and discuss sustainable practices. Business leaders are only now assessing carbon footprints, fossil fuel consumption, and the supply chain journey of their products and services.
As an illustration of this global gap, research by Spring discovered the UK produced 1.6 million tons of e-waste in 2019. The UK is also set to become the biggest producer of e-waste by capita in the European region, surpassing Norway as the largest producer.
Less than 12 months for technology companies to comply? Where to begin?
Technology companies will be somewhere on the CSRD compliance spectrum. At the most critical point are those companies required to be fully transparent and accountable in 2024. Given that the CSRD will directly and indirectly affect all technology firms, it’s time for everyone to get ready. To achieve the substantial shift in sustainable practices required, both for CSRD compliance and for the environment we inhabit, a two-part approach must be adopted.
First, companies must begin by collecting detailed data on their environmental impact across the entirety of their infrastructure. Understanding their carbon footprint accurately will produce a steer-point for monitoring and reducing emissions. Second, companies should set realistic targets based on an accurate understanding of their overall performance and impact to achieve net zero in line with government goals.
Robust carbon footprint data collection for technology companies
How many companies realize that truly robust carbon footprint data collection means drilling right down to the individual electricity and device consumption of every employee? To truly achieve net-zero emissions and limit energy consumption, sustainable goals must permeate every level of the business infrastructure. It’s at these distant, perhaps even remote levels of operation some of the greatest and quickest savings might be found. When considering energy waste, for example, a major enterprise has thousands of employees running laptops and desktops that never shut down completely. What difference would sensible device energy consumption management make?
We’re looking at a micro-management approach, but this is the same approach and goal of the CSRD. Collecting end-user metrics from across the entire technology landscape — including hardware, software, virtual machines, networks, and more — is essential in measuring an accurate carbon footprint.
The advantage for technology companies, in contrast to say manufacturing, is that they also have the infrastructure to adopt methods for comprehensive data collection, implement targets, and automate monitoring for improvement and compliance. These companies can easily implement cloud-based software into the back end of technology stacks to analyze energy waste and consumption.
In addition to easy adjustments to reduce waste, like shutting down employee devices at lunch and at the end of the day, device life cycles must be considered. Insights into a device and other hardware life cycles, as well as their performance, are essential for sustainability.
Gone are the days when a painfully slow piece of hardware is immediately replaced with something new. This is not sustainable nor is it viable given electronic supply chain constraints. Can the device be fixed? Repurposed? Recycled? Monitoring actual device performance, with maintenance based on need rather than standard, scheduled upgrades and replacements, is more sustainable.
Leveraging metrics down to the level of end-user device experience monitoring will accurately project carbon footprint and assist in implementing and managing improvements. Encompassing infrastructure right down to employee end-user pushes sustainability through the entire product supply chain. Opportunities to reduce consumption and waste can be identified and hardware investments optimized.
The penalty for non-compliance
The direct cost of non-compliance to CSRD legislation will at least begin with substantial fines. Non-compliance, however, equates to not operating a sustainable and environment-positive business. Monitoring and reporting are essential for companies to understand their carbon footprint and GHG emissions, and ultimately improve them. Even without the CSRD, it needs to happen.
All companies must demonstrate they take sustainability seriously. As a vendor, you must provide assurance of compliance to clients who could be subject to penalties for your non-compliance, or else they won’t risk it. B2B customers, as with investors and consumers, are more likely to choose companies that are achieving their ESG goals going forward.
As the EU and wider society move to net-zero emissions, all choices must be sustainable. The clock is ticking and the CSRD is only the beginning. The time to act is now. For technology companies, success will begin with choosing a cloud-based approach that provides detailed data on energy usage, device performance, and business activities, from the top level down to individual end users. Sustainability reporting can become as ingrained as financial reporting as sustainability becomes a core part of company culture.
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