Donal Daly: Firms should stay focused on the benefits of sustainability
Last week, the EU Commission brought forward a proposal which, if fully adopted, could radically undermine the Green Deal.
For decades, the EU has set the global benchmark for sustainability policy, and Ireland has been a willing supporter. As we see increasing impacts of climate change on our shores, these policies take on real meaning for Irish citizens and their counterparts across Europe.
To address the impending challenges, the European Green Deal outlined a transformative vision for a climate-neutral Europe. It was supported in legislation by the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD).
The CSRD was a cornerstone of the deal. It required companies to disclose detailed environmental, social, and governance (ESG) data, including greenhouse gas emissions (GHGs), biodiversity impacts, and supply chain risks.
Similarly, the CSDDD asked companies to identify and mitigate human rights abuses and environmental risks within their supply chains; that is, everywhere they do business.
However, because these directives required companies to be more transparent about their businesses and report on their activities, there was a lot of pushback from some large companies and some EU member states. Recent developments in the United States — where climate and other socially responsible regulations were swept aside —
increased the pressure on the EU Commission to reduce the reporting burden.
Last week, the EU caved under the pressure and through the Omnibus Simplification Proposal which, if fully adopted, could radically undermine the Green Deal, or at least allow bad actors to continue to damage our planet.
The revenue threshold for the corporate sustainability reporting directive compliance remained at €50m, but the employee threshold has risen from 250 to 1,000.
This means that of the 50,000 who were due to comply with the regulation, only 6,000 remain — and the timeline was pushed back two years — so many companies do not have to report until 2028.
The scope of the CSDDD has been significantly narrowed. It now applies only to companies with more than 5,000 employees, effectively excluding many medium-sized enterprises from due diligence obligations.
My company, Future Planet, has been working in sustainability for many years. Over recent years, many were spending a lot of time on preparing for the CSRD, either because they have legal compliance obligations (a smaller number), or because they see the strategic benefit of the CSRD framework.
Most of the companies we work with are using the CSRD process to examine the state of the changing world and the strategic considerations that emerge from understanding how climate change and social evolutions are forces for change in their businesses. These companies understand risk and have always considered risk in their strategic planning.
These winning companies are further considering the impacts, risks, and opportunities that emerge from a structured analysis of their businesses.
Investment in strategic initiatives wins over investment in compliance every time. If you are on this path, congratulate yourself for your vision, continue the journey while keeping an eye on the reporting and compliance obligations. The eventual reporting obligations which emerge should be a consequence and output of your sustainability strategy and activity.
Your purpose should remain focused on the strategic benefits to all your stakeholders of improved sustainable performance. You will gain competitive advantage as customers choose you over less responsible performers.
Your investors will be reassured knowing that you have a handle on the impact, risks, and opportunities in your business, and your employees will be happier and proud to be working in a company that has a holistic perspective on its purpose and its sustainability in the medium and long term.
CLIMATE & SUSTAINABILITY HUB
