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Commentary

Digital Transformation is Key to CFOs’ CSRD Compliance

Maria Grazia Cafagna, Director, ESG & Regulatory Solutions, for Wolters Kluwer CCH Tagetik, says accurate, timely, and consistent CSRD disclosures demand efficient, reliable data collection processes.

Starting in 2025, large EU-based companies will be required to disclose more sustainability information than ever before – and they’ll have to report that data from a ‘double materiality’ perspective. For the first time, key stakeholders will be able to see how a company’s sustainability performance affects its finances and operations; and how a company’s finances and operations impact people, communities, and the environment.

With an ultimate goal of driving transparency and comparability in ESG reporting, the European Commission will require approximately 11,700 large, EU-based companies to comply with the 12 European Sustainability Reporting Standards, by 2025. However, starting in 2026, these new standards will also impact US companies that are publicly traded in the EU. And starting in 2028, small- and medium-sized enterprises based in the EU, and large US-based companies that have EU operations, will also be required to comply with the Corporate Sustainability Reporting Directive (CSRD).

CRSD will, in essence, require impacted companies to start collecting and assuring the accuracy of additional, detailed, standardised ESG data – so they digitally tag and report that data by 2025.

Make no mistake, this requirement represents a true sea change in regulatory reporting, as impacted companies will be required to provide forward-looking and retrospective; qualitative and quantitative; short, medium, and long versions of key ESG data, from their entire value chain.

CRSD represents another opportunity for CFOs to lead

In most cases, corporate finance teams will be responsible for executing this monumental reporting requirement – in deep collaboration with partners across their organisations. This means finance leaders will need to collect more complex data, from more internal stakeholders, than ever before. They’ll have more questions to ask and answer. And they’ll be more focused than ever before on demonstrating that their companies can effectively fuel commerce and make a profit, while driving corporate responsibility, improving workplace safety, enabling global sustainability, and easing regulatory compliance, too.

Patchwork systems and spreadsheets aren’t up to the challenge

Unfortunately, despite the looming CSRD compliance deadline, a recent EY study found that 60% of finance executives said their ESG data resides in a patchwork of software applications – many of which don’t connect with each other. Fifty-five percent said their ESG data resides in spreadsheets.  For most finance leaders, the idea of centralising, standardising, and assuring the accuracy of ESG data – from a multitude of internal and third-party sources – can be overwhelming. But savvy finance leaders are already asking how technology can help.

CSRD compliance requires a digital-first mindset

CFOs and finance leaders who are navigating the complexities of CSRD compliance must work quickly to implement efficient, reliable data collection processes, so they can ensure accurate, timely, and consistent disclosures. And they simply won’t be able to do that, unless they lead with a digital-first mindset. That requires investing in, and optimising the use of, cloud-based technologies that can empower their organisations to leverage integrated financial and ESG reporting as a true competitive advantage.

Indeed, the right cloud-based technology can cut through the complexity of CSRD reporting by:

  1. Enabling cross-functional, cross-departmental, cross-business-unit reporting collaboration. For businesses to have a chance at complying with CRSD requirements, they must first make it easy for multiple departments, functional and teams to upload required data. CFOs should seek out cloud-based tech solutions that enable them to efficiently and reliably collect CRSD-required data, from a myriad of geographically dispersed teams and sources, so they can eliminate the need for time-intensive, error-prone, manual data gathering processes.
  2. Collecting CRSD data in a way that aligns, from the start, with CSRD standards. Look for tech solutions that lead with a built-in reporting framework that aligns with CSRD requirements, complete with predefined templates and reporting structures. This approach will ensure standardization and minimize the risk of data omissions or inconsistencies, while ensuring finance and sustainability leaders can identify, assess, and mitigate ESG and climate risks and opportunities across the enterprise.
  3. Leveraging robust analytics to deliver actionable insights from your CRSD reporting data. Scores of data are useless without expert analysis. And expert analysis is impossible without robust analytics, which can make it easier to track your performance against targets, while identifying and prioritising economic, environmental, and social programmes that are important to your stakeholders.
  4. Empowering you to visually tell your integrated ESG-financial performance story in a clear, compelling way. As key stakeholders are bombarded with an ever-increasing volume of financial and ESG data sets, the ability of tech solutions to provide visual dashboards and reports becomes all-the-more essential to your ability to present complex, integrated financial and CSRD reporting data in a way that drives engagement and transparency. These capabilities are also essential to enabling stakeholders to quickly grasp enterprise-wide interconnections between ESG, business and operational factors and decisions.
  5. Assuring that your CRSD data is audit-ready. Just like manual data collection processes can lead to errors and omissions, manual data audits can run the risk of missing inaccuracies or discrepancies, too. Built-in auditing technology, that assures you’re providing traceable, investor-grade data, is key to ensuring your CRSD data integrity.
  1. Empowering you to keep up with constant change. Change is the only constant when it comes to the new world of integrated financial and ESG reporting. That’s why it’s key to seek out automated reporting technology that is continuously updated to reflect the latest regulatory changes, to ensure you stay in line with evolving reporting requirements.

CRSD may mark a sea change in reporting, but it’s only the beginning. Organisations that win the confidence and trust of investors, employees, consumers, and regulatory agencies will have one thing in common: They’ll harness the power of advanced technology to digitally transform the way they collect, report, analyse and assure the accuracy of their financial and ESG data. And they’ll leverage both as a true, competitive advantage.

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