Episode Transcript
[00:00:00] Speaker A: Foreign hello and welcome to Activating Sustainability, the Anthesis podcast. I'm your host, Chris Peterson. As you may have heard, on February 26th the EU released its much anticipated omnibus regulation that had significant impacts on the CSRD regulation, EU taxonomy and csdd. And on today's Just in episode, I'm speaking with some of my colleagues who have been monitoring this really closely, engaging with the updated regulations or proposed regulations and working with a number of clients to navigate some of the shifting sands that we're experiencing. Joining me today includes Brett Traynor, who's an Associate Director and ESG Strategy Lead here in North America, and Sandrine Le Biavant, who's an Associate Director for ESG Strategy, leading the French market for compliance and advisory. Welcome to the podcast. Thanks so much for joining.
[00:00:57] Speaker B: Thanks for having us.
[00:00:58] Speaker C: Thank you very much.
[00:01:00] Speaker A: Maybe to get us started, Sandrine, maybe could you just provide an overview of kind of what happened with the omnibus and what has changed?
[00:01:08] Speaker C: Yes, of course. Well, on the 26th of February, the European Commission has proposed a new package which is called Omnibus, which is linking the CSRD Directive together with the CSDD and the taxonomy. The objective is to simplify and streamline the corporate sustainability reporting in the EU for the companies and to create more efficiency and business friendly regulatory framework. And it concerns most particularly the mid sized company. And the objective is to maintain transparency but to consistently and significantly reduce the burden on those small and mid sized companies. So the first thing that has been proposed, because let's consider that there's still a proposition and it's not been voted yet and it will need to be transposed into each of the EU member states. So the first proposal is about increasing the reporting thresholds. This means that 80% of the companies which were initially planned for reporting are falling out of the scope. There were the first threshold was to have 40 million euros turnover with 250 employees.
Now it's 50 million and it goes up to 1,000 employees. So it significantly reduces the companies who would need to report. That's the first level I would say. And when we are considering non EU companies, the net turnover has been raised to 450 million euros in EU and it was initially 150 million. So it means that the reporting obligation has been tripled. So that's the first aspect. Now there are other important propositions that have been made. It is also to limit the assurance to keep it at a limited level and also to remove penalties for the CSDD and to also reduce the number of data points, data points for the CSRD are planned to reduce by 80%. They will be reduced through a delegated act within the next six months that will be proposed by the EU Commission. Taxonomy will also see reduction in the data points and the value chain is also reduced to the tier one. That for CS audience, CSDD in the objective of simplification, alignment of the thresholds between the different directives, but also to look at what other companies being obliged to report on are going to be the main major aspects of consideration and would need to be voted within the next months, most probably by the end of the year. There is an accelerated procedure for everything to be finalized by the end of the year. Let's see if this is happening.
[00:04:20] Speaker A: Sandrine, that's great, thanks. And maybe just to clarify, could you talk through any changes to the timing that come along with the omnibus?
[00:04:28] Speaker C: Of course. There is this stop the clock initiative that has been proposed which is to postpone by two years the companies which were in wave two. And so it means that if the companies were supposed to report in 2006 for the data 2025, then they will have to do it in 2028 for the data of 2027.
[00:04:55] Speaker A: Great. And are there any changes to the like large EU companies?
[00:05:00] Speaker C: No, the large EU companies continue. They have started the process and it continues for them. There is a change for the CST Triple D where the European companies are postponed by a year, whereas the non EU companies have postponed the process by two years.
[00:05:21] Speaker A: Right. That's such a huge change in how like the threshold of those regulations and the scope of them. I'm curious, maybe starting with you Sandrine, for clients in Europe, how are they responding to that shift?
[00:05:36] Speaker C: Well, the first thing is asking a lot of questions. They look for the right information. They look at understanding how this is going to impact their companies and whether there is any signals that they should keep the same speed or they would be able to slow down. Now what they also realize is that there are still the commitments to their stakeholders who are still going to ask the questions about their environmental practices, practices and social practices. They are also still have their investors.
Some of them are keeping keep on pushing the esg, the ESG topics for them. So they are still considering not only the legislative aspect, but also what is important for their companies and looking at the efforts they've put into this over the last years and making sure that they are keeping the benefits. And so a lot of them are thinking about keeping the same rhythm and the ones who were not very serious about it are considering most probably taking more time.
[00:06:48] Speaker A: Maybe Brett, turning to you from a North American perspective, how are you hearing kind of how this is landing with clients or some of the questions they're asking?
[00:06:56] Speaker B: Yeah, thanks Chris. I think similarly to those who are based in the EU in North America, there's many organizations who have significant operations in the EU and globally who are grappling with these same questions of whether to keep the same PA or potentially slow down. And as we've been speaking to them in the past few weeks, it's of course been and Thesis's recommendation to consider that these are just proposals. Nothing has actually been finalized or translated into into law. And so I think what we've been noticing is that many companies are now needing new language to communicate the value of the investments in this CSRD and ESRs reporting exercises so that they can continue to make the case for continued effort and investment in this space when it can be suddenly and seemingly maybe unsure about whether that's it's worth that investment. And so we've been supporting organizations to frame previously compliance driven actions as potentially more about value creation or risk mitigation. And I think that's been really useful to our clients who need to quickly scramble to continue to secure their budget or headcount that they work so hard to obtain based on kind of original CSRD reporting timelines. And so I think in terms of what we're hearing is that ultimately sustainability investments are really about increasing an organization's resiliency. And that continues to be important. But the specific kind of language and framing of many of these investments and actions may be needing to change. And I think what we've heard from folks who have been in the industry for a long time and probably even longer than me, is that this kind of need to right size, the framing and language has always been important. We moved from kind of corporate social responsibility to ESG and maybe now towards resiliency and risk mitigation. But I think ultimately, as Sandrine said, it depends on the level of ambition and belief of the organization. So we've been seeing a lot of varied responses.
[00:08:57] Speaker A: Yeah. So maybe shifting to that kind of path forward. I know that collectively we talked about kind of three big buckets of scenarios. So one is you are a EU listed large company where it sounds like maybe very little has changed kind of scenario. Two is that you are a company that was due to report on fiscal year 2025 data and now maybe have a two year delay. To your point Brett, still a little bit tbd, but maybe feeling a little bit more comfortable. But that's a likely scenario. And then the third one is assuming that this goes forward in some version of these reductions of thresholds, you just kind of fall out. And I'd be interested to hear from each of you as you think about those buckets, how are people responding to that or moving through that, maybe? Sandrine, do you want to start with the kind of large listed EU companies?
[00:09:48] Speaker C: Yes. Those companies have made a huge effort to comply to the CSRD in a short period of time with the largest number of ESRs and they've managed. We have, I think, more than 90 reports who have been published already and we are only on the 13th of March. So that's remarkable. And this has been a big investment for them in time in manpower and mostly I would say, and most important in thoughts. So they have generated a lot of new knowledge about themselves, about their strategies and they have a good framework in place. There are also leaders in sustainability in terms of reporting. So they're going to be watched by a lot of companies on how they have done this exercise. Anyway, they still have every year to report on their sustainability practices. What's the next step is what I see is more to engage with top management to make sure we could see that there are companies who want to make CEO onboarding trainings so that they can see that the whole work that they have done is now completely embedded with the company risk management system and that all the initiatives can be and still will manage to get investments for implementation. Because reporting is one thing, but the next thing for them is progress on report is report on progress. Sorry. And then being able to show that they have a significant changes happening year on year.
[00:11:27] Speaker A: Right, yeah. No, that's great. That makes a lot of sense and fascinating to think about what's next after CSRD if you are required to do it? Maybe for those companies they feel like they've got a little bit of a reprieve where they were scrambling to get the reports done on fiscal year 25 data and maybe now have a two year delay around that, an assumed two year delay. How do you kind of advise them in terms of a path for.
[00:11:51] Speaker C: Well, we have quite a large number of them in this status at the moment and fortunately a lot of them want to keep the pace. They see it as an opportunity to breathe a bit because the timeline was very tight and it was putting a lot of pressure, I have to say, on the involvement that they would have and putting aside some pieces of the work that they would have to do otherwise. They see it as a breather. But Also an opportunity to do things more on a more structured way and to take time to engage more the people internally as well. So we have seen as well that some of the companies were starting the process by DMA ESRs, but they didn't have the time to necessarily work on the strategy. ESG strategy as such was who they want to be, what's the ambition they have. And they will take time now, as the SRs are going to be lighter, to transfer this budget into more ESG strategy.
[00:12:55] Speaker B: I think maybe to build on that.
These companies that are part of Scenario two for the most part have likely completed a double materiality assessment and we're working hard to identify their ESRs reporting gaps and then disclose them in their CSRD statement. And so I think given that, yes, there may be a delay of up to two years and in publishing this statement, there is time now to not only think about strategy integration, but also potentially to even continue with this kind of ESRS gap assessment, but to use a wider aperture around how we're prioritizing closing these actions, again, taking that strategic angle. There's likely other drivers for these sorts of actions and closing these sorts of gaps beyond just compliance. And so I think first understanding what are those other drivers for sustainability within your organization, whether it's investors, customers, consumers, and then overlaying those various drivers onto your ESRS gaps, you can start to again still make incremental progress towards including or improving your performance without making this kind of action planning solely driven by the csrd. And then it's, I think, potentially even less complex to communicate the ROI or the benefit of those sorts of initiatives. And then you can say exactly how it's reducing a risk or creating an opportunity to drive value within your organizations.
[00:14:29] Speaker A: That seems to maybe apply directly to that Scenario three group as well. But is there anything you would add for scenario three where they're confident they're going to drop out, assuming that these kind of thresholds hold or just more blanketly across all scenarios?
[00:14:45] Speaker B: Yeah, what I would say is, and we have an example of this, one of our clients, a large pharmaceutical company in the US currently predicting that they will drop out of scope, but have already completed a double materiality assessment, an ES or S GAAP assessment. It was in that getting towards that implementation and reporting phase. And I think given their relatively high risk aversion as an organization, they continued to see the value to integrate the risks identified in their dma, their double materiality assessment, into their wider organizational strategy. And so what we supported them in doing again was to add additional kind of categories to prioritize filling the gaps that were identified. Not just what was required from an ESRS reporting perspective, but also what are these kind of large risks that we've identified as part of this process that can again create a more resilient organization. And then again, I think for those companies who are falling out of scope, and that's clear, there continue to be, and again, especially speaking from the North American perspective, many other in the U.S. state level regulations related to climate risk disclosures in California and New York, Illinois, Washington as well as in Canada, there's the definition of a Canadian taxonomy that defines green Activities and Canadian sustainability Disclosure standard that also aligns with ISSB and the ifrs. And so I think that what we can see from these companies that are falling out of scope is that investments in climate still make business sense. I think there's various kind of pieces we could point to, but in a recent survey conducted by PwC, a third of CEOs are still seeing increase revenue from climate friendly investments. And so I think again what we can see from these organizations is continued progress, but potentially framed and contextualized in new ways beyond simply a compliance driver or I shouldn't say there's nothing simple really about the csvd, but beyond solely a compliance driver and we're continuing to support our clients along those journeys.
[00:16:50] Speaker A: Yeah, that's great. The mandatory reporting definitely is a focusing function for everybody. Right. Of like how do we keep everybody out of jail with that? And Sandrine, any thoughts from you from a European perspective on those?
[00:17:02] Speaker C: Yes, because those companies that are we're planning to report have started a movement, an internal process and they came up already with a mindset that they would have to report. They start to see the benefits of reporting and though they may not follow the CSRD process, that will come up because there's no obligation for them. They need to decide what level of communication do I now want to have for my stakeholders requirements. So do I want to go for a certification? We have a lot of companies looking at certifications labels, but they don't necessarily mention what you do. Right. You know, that's just a stamp. Some of them are going to look at the voluntary reporting and there is a new VSME standard that is available from FRAG but is going to be reviewed by the EU commission. So at the moment what we do is we already onboard some of our customers on what are the requirements of these standards, which is much lighter than the CSRD but still has good framework for them to be prepared and Maybe, you know, in one or two or three years have something that is going to be very consistent and regular. And then some of the companies who may be at the level of the 1,000 employees may still consider to go for a CSRD ahead of the requirements because maybe in one or two years there'll be around 1,000 employees. So these are those different levels. How often do they want to report? Do they want to start from next year? Do they want to take a bit more time? Again, this is all about understanding how the reporting is going to serve them and be beneficial for them.
[00:18:54] Speaker A: Yeah. And I know we're coming up on time, so maybe just any kind of final thoughts or key action or advice for listeners around this.
[00:19:04] Speaker C: For me I would say that it's a good moment to really think through and to take a pose and really put a strategy in place for the where they want to be in the next two years. And it's a good conversation to have with top management and to re engage with them. And the Director of Sustainability may be surprised by the answers that they would have from their management. So they need to take all the benefits of what they've done so far.
[00:19:33] Speaker B: Yeah, maybe I would just say as well that what we have gotten through a double materiality assessment through this whole process is a really rigorous way of addressing and scoring and incorporating sustainability related risks into kind of core business function. And I think that's a lesson that all can agree is beneficial for an organization's kind of success and performance. And so I think we can take that lens and incorporate it into strategy. And I think maybe I would just say that it provide yes, it provides an opportunity to focus on what matters for your organizations, potentially simplify the approach and maybe right size investments on kind of strategies and actions versus solely reporting as well and drive really meaningful work. So I think to me it feels actually exciting and despite the fact that it's overwhelming but hopeful to where things go. And yeah, I really appreciate you creating the space for this conversation, Chris.
[00:20:30] Speaker A: Yeah, thank you both so much. Really appreciate that insight. I think that hopeful note is a great spot to leave off. I think that's the way I'm feeling in a lot of our intro and conversations. Lots of challenges but also lots of excitement and hope going forward. So thank you both so much and thank you all for listening as always. We love to hear from you on your feedback and can be reached through the anthesisgroup.com website where you'll also find past episodes and lots of valuable resources. Thanks again and take care.
