Novotek Column

The Hidden Benefits of CSRD Compliance

The Corporate Sustainability Reporting Directive (CSRD) sets new environmental impact reporting standards for companies operating within the EU.  

The new directive builds on the Non-Financial Reporting Directive (NFRD), the reports from which were found lacking in detail and accountability. 

“Reports often omit information that investors and other stakeholders think is important. Reported information can be hard to compare from company to company, and users of the information are often unsure whether they can trust it.” – The European Commission.

The CSRD mandates more detailed information on how operations meet sustainability goals and provide consumer traceability. With greater transparency, consumers and investors will have the required information to make informed decisions, while the companies subject to the regulations will be held more accountable for their impact. 

What will companies be required to report under CSRD?

CSRD reporting will extend to the previously unrequired Scope 3 – but what does each scope mean? 

Scope 1 Emissions – Direct output from an organisation’s processes and assets. Digitalising manufacturing processes and energy-efficient upgrades can monitor, report on, and improve these emissions as a primary area of influence for manufacturers. 

Scope 2 Emissions – Resulting from the energy purchased and consumed by an organisation, such as electricity or heating, not produced on-site but contributing to its greenhouse gas (GHG) footprint. The GHG Protocol’s Scope 2 Guidance aids companies in accurately assessing these indirect emissions, facilitating informed decisions on energy sourcing and sustainable energy investments.

Scope 3 Emissions – Encapsulating all other indirect emissions linked to a company’s value chain, including upstream goods and services and downstream to goods and services sold. This category offers an all-encompassing view of a company’s carbon footprint.

But that is not the end of the story. Manufacturers can benefit from gaining the capabilities to enable compliant reporting across all three scopes. New regulations could initially sound taxing, especially if you are at the beginning of your digitalisation journey. But here’s the good news—the tools required to evaluate resource utilisation, energy consumption, waste management, and overall environmental impact are the same tools that will allow you to achieve continuous operational improvement. 

Furthermore, the CSRD fosters greater transparency in supply chains, requiring manufacturers to scrutinise and disclose their suppliers’ sustainability credentials, thus promoting ethical sourcing and responsible supply chain management.

What are the other benefits of complying with CSRD? 

By improving energy efficiency and reducing carbon emissions, companies can gain a positive reputation among eco-conscious consumers, surprisingly significant cost savings and crucial operational efficiencies. Manufacturers must scrutinise and disclose their suppliers’ sustainability credentials, leading to greater transparency in supply chains and, therefore, the promotion of traceability, ethical sourcing and responsible supply chain management.

Enhance brand reputation, unlock operational improvements, and gain a stronger market position.

Meeting the challenges

The first step in meeting the requirements is understanding your operation’s environmental, social, and governance (ESG) impacts. Integrating the right capabilities is challenging. Selecting the right toolset to gather, monitor, and analyse the required data points and weaving that new knowledge into existing processes and operational practices requires careful consideration. 

Collecting, managing, and formatting data for reporting purposes can be challenging. Depending on how far along your digitalisation journey you are, several options can present themselves. At Novotek, we can help you develop an understanding of the required capabilities and the solutions that provide the most significant and most far-reaching return on investment. 

Further Opportunities & Advantages of Capability-Based Compliance 

Companies that demonstrate transparency, traceability, and a commitment to sustainability in an increasingly eco-conscious society can leverage and promote these attributes as a competitive advantage. 

While it is possible to meet the requirements without investing in a cohesive solution, at a significant increase in workload and opportunity cost, to do so would be to miss out on the benefits of the legislation change. 

A journey toward CSRD compliance is innovation and efficiency improvements powered by granular data. Granularity refers to the nuanced capability of observing and analysing variations within a trend, even when these fluctuations don’t breach predefined thresholds. It embodies the pursuit of discovering insights that remain consistent over various timeframes—insights that overarching totals or averages might obscure. Moreover, granularity enables the simultaneous recognition of diverse truths by integrating and considering the context of multiple factors, such as product codes, material characteristics, process setpoints, and energy consumption rates, all in unison. This detailed approach facilitates a deeper understanding of underlying patterns and relationships, which is crucial for informed decision-making and strategic planning.

How to become CSRD-compliant 

Aligning manufacturing operations with the Corporate Sustainability Reporting Directive (CSRD) involves a strategic blend of operational adjustments, technological integration, collaborative efforts, and workforce empowerment. Manufacturers can adopt several best practices to ensure compliance and leverage the benefits of sustainability reporting.

1. Steps for Alignment: Conduct a comprehensive sustainability practices and metrics audit. This audit will identify gaps in compliance with CSRD requirements and highlight areas for improvement. Manufacturers should then develop a detailed action plan to address these gaps, focusing on enhancing sustainability across all operations. Integrating sustainability goals into the company’s strategic objectives ensures that efforts align with business growth and operational efficiency.

2. Technologies and Systems: Digitalisation helps manufacturers accurately track and report sustainability metrics. These technologies also enable real-time emissions monitoring, energy use, and waste management, providing actionable insights for continuous improvement. Data on utility usage can tell you when you’ve used more or less, but this aggregated data doesn’t have the granularity to explain why. While this is fine for quantifying and reporting on consumption to participate in a carbon exchange, this approach offers no mechanisms to improve these figures. But it doesn’t have to be this way – read more on this topic! 

3. Collaboration with Suppliers and Partners: Establishing sustainability criteria for suppliers and engaging in partnerships focused on sustainable practices is essential for extending CSRD compliance across the supply chain. By collaborating with suppliers on sustainability goals and sharing best practices, manufacturers can ensure consistency and transparency in reporting while encouraging broader adoption of sustainable practices in the industry.

4. Employee Engagement and Training: Engaging employees at all levels in sustainability initiatives is crucial for successful CSRD compliance. Providing training on sustainable practices, setting up cross-functional sustainability teams, and encouraging employee participation in sustainability projects fosters a culture of environmental responsibility. Recognising and rewarding contributions to sustainability efforts can motivate employees to adopt and champion sustainable practices.

By adopting these best practices, manufacturers can comply with CSRD, drive operational efficiencies, foster innovation, and enhance their corporate reputation in a competitive marketplace.

The Corporate Sustainability Reporting Directive (CSRD) is pivotal in steering the manufacturing industry towards a more sustainable and transparent future. By mandating comprehensive sustainability reporting, the CSRD ensures accountability and catalyses the integration of environmental, social, and governance (ESG) considerations into core business operations. The long-term impact of this directive promises a transformation in how manufacturers operate, fostering innovation and efficiency while promoting a greener economy. To make the most of compliance, manufacturers must not simply view CSRD as just a regulatory requirement but as an opportunity to lead in sustainability, gain capabilities to understand their processes better and enhance their competitive edge. 

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