CSRD and the need for good data management

04 June 2024 Consultancy.eu 7 min. read

Ensuring an effective implementation of CSRD within the organisation requires companies to have a robust data management in place.

Starting this year, it is mandatory for large, listed companies to disclose relevant and transparent information on their Environmental, Social, and Governance (ESG) performance in line with the Corporate Sustainability Reporting Directive (CSRD) guidelines.

A crucial aspect of the CSRD guidelines is the EU taxonomy for sustainable activities. This taxonomy outlines which economic activities are environmentally sustainable, guiding companies in their sustainability reporting.

CSRD and the need for good data management

However, implementing the EU taxonomy for sustainable activities requires several prerequisites, with data management high on the list. So, what needs to be done to ensure data is accurate and complete? To find out, we asked Shreenidhi Raghavendra Rao and Olivier Stulp from Dutch consultancy firm Semmtech.

To start with, what exactly is the EU taxonomy for sustainable activities?

The European Union’s taxonomy for sustainable activities is part of the EU Green Deal and marks a significant step forward in standardizing green finance and promoting environmental sustainability. Its purpose is to classify economic activities based on their ecological sustainability, providing clarity on what is considered environmentally sustainable and what is not.

This classification system imposes new reporting requirements for companies falling under its scope, from disclosing environmental impact metrics to assessing the alignment with sustainability criteria. It is evident that complying with the regulations will place an emphasis on the quality of data management and its governance.

The importance of data management is highlighted. What issues could companies face?

Based on our know-how and experience in the information management domain, we have identified four main types of issues:

Data collection challenges
Collecting accurate and comprehensive data to evaluate the environmental impact of various activities can be a daunting task. Companies may face difficulty gathering data from disparate sources within their organizations, suppliers, and other stakeholders. The challenge gets further complicated due to inconsistent formats, varying definitions, different levels of granularity, and data silos.

Data quality and integrity
Even if data is collected, ensuring its quality and integrity is another hurdle. Inaccurate, incomplete, or outdated data can skew assessments and undermine the credibility of reported information. Maintaining data accuracy over time, especially in dynamic business environments, requires robust governance frameworks and monitoring mechanisms.

Interpretation and classification
The EU taxonomy employs specific criteria to classify activities as environmentally sustainable. However, interpreting and applying these criteria to diverse business operations can be complex. Companies must navigate its nuances and ambiguities to categorize their activities correctly, avoiding misclassification that could lead to compliance issues and/or reputational damage.

Integration with existing systems
Many companies have already implemented established data management systems and processes. However, integrating the EU taxonomy reporting requirements seamlessly into their existing frameworks without disrupting day-to-day operations presents a considerable integration challenge. Compatibility issues, data migration complexities, and interoperability concerns may arise during this process.

On top of that, some challenges will arise beyond organizational boundaries, at a sectoral level or in broader ecosystems where data sharing is critical for the business:

  • From a sector perspective, each sector faces its unique set of data challenges when implementing the EU taxonomy. For instance, industries like construction may encounter specific difficulties in quantifying and reporting their environmental impacts due to the complexity of their operations and supply chains.
  • Comparing sustainability performance across industries without standardized methodologies and benchmarks tailored to specific sectors becomes difficult, hindering investors’ ability to make informed decisions.
  • In interlinked chains of activities, inconsistencies in data management (formats, reporting frameworks, and disclosure requirements) can create barriers to interoperability and transparency. As a result, investors may face challenges in comparing sustainability data while assessing their investment opportunities.
  • Similar situations can occur when taxonomy criteria are interpreted differently across country borders as a result of divergent regulatory approaches across jurisdictions. This can exacerbate compliance burdens and deter sustainable finance initiatives, especially for multinational corporations operating in multiple markets and pan-European investors.

How should organizations ensure their data management principles are up the standard?

At the core is ensuring robust governance for the data behind the EU taxonomy classifications. This is crucial to ensure the accuracy, reliability, and consistency of sustainability reporting. From what we see in the market, there is still a long way to go. Many organizations still lack a comprehensive approach to data collection and verification.

One big step forward is to define and organize central ownership and responsibility. This central body can oversee the impact of the EU taxonomy on an organization-wide level and ensure that the delivery model's pillars function smoothly.

Pillars include the setup of a Data Governance Committee tasked with:

  • Overseeing the entire data lifecycle (comprising a cross-functional team of stakeholders);
  • Setting up and maintaining data management frameworks (encompassing methodologies, tools, and best practices for data collection, validation, enrichment, and analysis);
  • Data privacy and security policies (to ensure data management is compliant and safe).

Semmtech has developed and launched its own Linked Data platform. What does this platform do?

We started developing our data platform, Laces, based on the Open Standard of Linked Data. We did not intend to manage CSRD reporting for our clients but rather as an enabler for seamlessly integrating disparate data sources, formats, and structures, allowing companies to aggregate, harmonize, and share data across their organization and supply chain.

The Laces suite offers quite a comprehensive suite of tools and functionalities that help streamline the EU taxonomy reporting process. For instance, by standardizing data formats and vocabularies, Laces facilitates data exchange between stakeholders, promoting transparency and consistency in EU taxonomy reporting:

1) Interoperability
The Laces suite is built on Linked Data principles, which helps establish master data libraries for describing and categorizing sustainability concepts and indicators. This drives data interoperability and interconnectivity, facilitating seamless data exchange and collaboration between companies, investment platforms, and regulators.

2) Semantic layer
Using the power of ontologies and Linked Data, Laces enables companies to capture rich contextual information and derive actionable insights from their sustainability data. This semantic layer enhances data discoverability, relevance, and usability, empowering decision-makers to make informed choices and drive positive environmental outcomes.

3) Collaboration
By establishing common data standards and protocols, Laces fosters a collaborative ecosystem where stakeholders can share insights, best practices, and lessons learned, driving collective action towards sustainable finance goals.

Of course, the EU taxonomy itself is available in different formats via the EU website, but not yet in an Open Standard format such as Linked Data. Semmtech has taken the initiative to publish the EU taxonomy as Linked Data, made available in our data marketplace as an open-source product. Additionally, it is available in our Linked Data viewer.