Mandatory ESG reporting: CFO must quickly develop strategy

Reporting on the impact of business activities on the environment (Environment), on society (Social) and on governance will become a legal requirement for European companies. The CSRD (Corporate Sustainability Reporting Directive) requires large listed companies to report on these as early as the 2024 financial year. For listed SMEs, the CSRD will apply from 1 January 2026.

ESG reporting becomes part of the annual report and requires auditor approval. The quality demanded for all financial figures is therefore also required for the non-financial figures.

"Reporting is not just limited to the current situation," adds Maarten de Ru, Director Partners & Alliances at ISPnext. "You also have to indicate what measures you will take to improve the situation. So you cannot suffice with mapping your current ecological footprint, for example, but must also indicate how you are going to reduce it."

This involves the entire chain. "Large companies will ask their suppliers how their part of the chain is doing with CO2 emissions, energy consumption and waste disposal, and so on. And they, in turn, will ask their suppliers. So small companies will also have to deal with this. Those questionnaires are going to create a huge administrative burden," he foresees.

"Start with the basics," is his advice to CFOs. "Make sure your supplier management and data are in order." That requires, first of all, knowing which suppliers are all being worked with. "That sounds basic, but believe me, it is not clear within every organisation at the push of a button."

Next, a good strategy for ESG reporting starts with three steps:

1. Segment suppliers
Classify suppliers according to their impact on costs, ESG targets and security of supply, for example, and then determine what you need to know from which parties. "Having the right data is a necessary foundation."

2. One database
Managing data properly requires a single supplier database, in which data is consistently recorded and from which it can be easily accessed. "Keeping data in different applications, e.g. Excel spreadsheets, becomes really unworkable."

3. Reuse data
Especially for the purpose of ESG reporting, ISPnext's BSM platform has a link to IntegrityNext. In this global network, data are available from more than two million suppliers on forty different ESG criteria. "So you don't need to query that data anymore," De Ru concludes. "And for suppliers whose data are not known, you can use the ESG questionnaire that IntegrityNext uses."

In summary, the message is: be prepared for ESG reporting and make sure you have a good digital standard, a platform that can unlock data efficiently. "As a CFO, at the end of the day, you have to be compliant. You have a problem if you don't get auditor approval. Moreover, you want to improve the efficiency in collecting the data and then reporting on it and secure it into the future. You don't want to hire external auditors or consultants for that every time, because that costs a fortune in the long run."

Timely and accurate ESG reporting should not just be seen as an obligation, De Ru believes. "It is literally vital. In public tenders, ESG performance is gaining more and more weight. Investors also look at it with attention. It has an impact on raising capital and thus on your business continuity. Moreover, good reporting is the starting point for improving things. This is necessary not only for the living environment but also for your organisation's reputation. You will be confronted with that again when attracting talent. These are enough arguments to have this in order."

This article was produced in collaboration with CMweb.