Just as the GDPR rewrote the rules for how businesses handle data, new regulations around Environmental, Social, and Governance (ESG) reporting offer similar opportunities and risks.
ESG has long been a nice-to-have, an opportunity for businesses to showcase purpose over profit. Now, a rapidly evolving regulatory landscape means that companies will have to embrace innovation and start implementing, monitoring, and reporting on their ESG efforts—or face penalties down the road.
A game changer for ESG innovation
To date, ESG has largely operated as a catch-all for corporate responsibility, with sustainability, diversity, trust, and privacy all falling under its giant umbrella. Though its impact is well-established—a recent McKinsey report found that products tied to ESG claims averaged higher growth rates than those that weren’t—companies haven’t been held to a rigorous reporting standard to date.
New regulations aim to increase transparency and make it easier for investors, customers, and other stakeholders to make informed business decisions. What’s more, it will require companies to make sustainability a core part of their business strategy, bringing what is traditionally siloed work directly into the boardroom.
California and the European Union are just two economies that have introduced new policies, with the latter’s Corporate Sustainability Reporting Directive (or CSRD) the fastest moving and most robust to date. Reporting for CSRD is set to begin as early as 2024 for some companies, yet a recent survey from KPMG found that 75% of global firms don’t feel ready. So where’s the best place to begin?
Preparing for ESG reporting starts now
At Zendesk, we have already taken a number of steps to prepare for the changes to come. Our annual ESG report, efforts to reduce our own carbon footprint, and setting of science-based targets (SBTs) are just a few ways that we have set a strong foundation for reporting requirements under CSRD. Even so, there’s certainly more we can do to increase data availability, quality, and transparency for reporting purposes, not to mention optimizing our programming for a bigger environmental or societal impact.
No matter where you are in your ESG journey, understanding new compliance rules and whether they impact you is a critical first step. With more regulations to come, it’s time for all companies to rethink their ESG approach. Here are five steps you can take now—not just to meet reporting requirements, but to ultimately build a more sustainable and equitable business for your people, your customers, and the planet.
1- Identify and educate your key stakeholders
ESG work, in general, requires stakeholder support from across the business. A good first step in any ESG journey is to identify and educate your key stakeholders on your current programming and the changes to come, before starting to define your future roadmap.
2- Determine if and when your business is in scope
For CSRD, companies will have different required reporting timelines based on their size of business, their employee count, if they are based in the EU, and if they have any EU entities. Eventually all US-based companies that qualify will be required to report in 2029 on 2028 data.
The first step in ESG-compliance readiness is understanding when and how any upcoming legislation will impact your business. CSRD may be grabbing the headlines, but it’s not the only legislation coming up. The SEC is working on climate legislation, California adopted two new climate disclosure laws, and more are popping up all around the globe.
3- Secure your budget
Getting outside support from consultants and vendors will be key in ensuring that you are CSRD-ready. This includes a vendor for your materiality assessment, third-party validation, and any other software or process needs you may have when it comes to data gathering and management. Figuring out cost estimates and securing that longer-term budget will be essential as you move forward.
4- Conduct a double materiality assessment
To understand which ESG issues are material to your business and thus required reporting, you must undertake a double materiality assessment. This involves working with a third party to understand how the environment impacts your business and how your business impacts the environment. This inside-out and outside-in look will help you determine which issues will have mandatory reporting requirements under CSRD.
5- Start gathering data and take action
Once you know what activities are in scope for reporting, it’s time to start gathering your data and take action. Are there opportunities for your business to be more responsible? Can you make those changes now? And, if not, what steps are needed to get you there?
Ready or not, ESG reporting is here to stay
Whether you’re required to report this year or within the next five, ESG reporting is something that every leader should be monitoring and, if necessary, preparing for. As we continue to move forward in our own ESG journey, we are committed to sharing advice and learnings with our community.
Click here to learn more about ESG initiatives at Zendesk.