April 24th saw approval of the latest iteration of Corporate Sustainability EU legislation (The Corporate Sustainability Due Diligence Directive or CS3D) requiring organisations to evidence the work they are doing to reduce the environmental and social impact of both their own operations and throughout their supply chain. 

Whilst the scope for both CS3D and the CSRD (Corporate Sustainability Reporting Directive) mostly covers companies operating within the European Union, there is a strong argument that organisations based in the UK who do business in, or have subsidies in the EU should be looking to conform to guidelines in order to avoid being left behind their competitors, as well as maintain their place in the European Supply Chain.  

A rundown of the CSRD 

As it stands, the line is drawn in the sand for any company in the EU by the Non-Financial Reporting Directive (NFRD) standard: Businesses with over 500 employees and a turnover exceeding €150 million are to report their impacts. This threshold is reduced to 250 employees and €40 million for companies deemed to operate in “high risk industries” such as mining or fast fashion. However – businesses outside Europe can still fall into scope if they generate enough revenue in the EU to put them into the above categories.  

On top of this, while UK legislation is still catching up it can only be a few years behind: in late 2023 UK government announced intentions to push ahead with rules forcing companies to conduct supply chain checks concerning products such as cocoa, palm and soy, as well as tabling a UK equivalent of CS3D. 

The main purpose of ESG reporting at large is that companies must disclose information on how their activities affect both people and the environment. All

Sustainability frameworks set the standards that need to be reported on across Environmental (Climate change and resource use) Social (Workforce and Consumers) and Governance (Business conduct) themes. The shape this takes ultimately looks different by platform: Ecovadis, for example split their rating across four ESG categories – Environment, Labour and Human Rights, Ethics and Sustainable Procurement. 

Find out about Techbuyer’s Ecovadis rating here. 

When reporting on these issues CSRD mandates that “double materiality” should be considered – this has two meanings: firstly, that both the environmental and financial impacts are considered and secondly that you consider how these impacts affect you and are in turn affected by you. For example: how could emissions from your operations contribute to climate change, and how could climate change affect your operations?  

Understanding double materiality and upskilling your workforce can help to drive Sustainable change throughout your organisation. Techbuyer for example, offer IEMA certified courses in Sustainability Skills and Environmental Management to all staff. Upskilling your workforce this way has the dual benefit of both proving to ESG agencies that you are willing to invest in staff training, but also give your employees the tools to engage in projects that further enhance the sustainability of your company. 

Action in addition to accountability 

CS3D overlaps with CSRD in that both cover the reporting of Environmental, Social and Governance themes. However, it has a different focus: where CSRD focuses on expanding ESG reporting, CS3D sets targets based around action – identifying adverse impacts in both operations and supply chain, and setting an action plan with timetable to focus on mitigating these effects.  

A good way to understand the difference is the purpose of each framework: CSRD encourages data-driven reporting in order to compare sustainability data of companies within the same sector – for example: what are the scope one, two and three emissions of 3 separate logistics suppliers? 

CS3D on the other hand, requires evidence of due diligence processes and accountability for your supply chain with clear policies, targets and procedures: do you have a whistleblowing policy for your staff to report suspected modern slavery and are you asking your suppliers the right questions before procuring their services? 

Communicating your ESG Savvy 

There are a myriad of agencies available for collecting and communicating data that shows how well you are performing against ESG benchmarks. The suitability of each agency depends on everything from company size, location and sector. Publicly listed companies that fall into scope are usually contacted by the Carbon Disclosure Project (CDP) directly requesting them to report, Kinder,Lyndenbery and Domini (KLD) focuses more on social impacts of US based companies, and Ecovadis offer a customised approach allowing organisations to compare with others under a twenty one category scoring system. 

Once scored, agencies will provide companies with a scorecard and listing, these can be used as both a promotional tool and as a competitive advantage: if you are a smaller business in the supply chain of a larger, in-scope organisation you can communicate your suitability as easily as posting a badge on your website. 

Getting a recognised ESG rating has benefits beyond benchmarking and marketing; statistics show that 91% of companies take sustainability into account in purchasing decisions and 75% use CSR data when picking new suppliers. New measures provided by banks such as HSBC are offering financial initiatives for customers with strong ESG ratings such as preferential borrowing rates.