4 days ago
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ARTICLE AD BOX
Companies need to be alive to the compliance requirements surrounding digital product passports, among other incoming regulations.(Image: Shutterstock)
The Corporate Sustainability Reporting Directive (CSRD) officially entered into force at the beginning of 2023, to strengthen the previous Non-Financial Reporting Directive (NFRD) by making businesses more accountable for the sustainability of their operations and supply chains. Businesses operating within the EU will need to report their sustainability and social data in line with the European Sustainability Reporting Standard (ESRR), information that includes – but is not limited to – greenhouse gas emissions, water usage, and even working conditions.
It is worth noting, that although we are considering the CSRD in relation to UK firms in particular, a range of non-EU companies (including those based in the UK) will also have to report if they generate over €150 million on the EU market. While the deadlines are different depending on the size and type of businesses, the first CSRD reporting deadlines are due towards the beginning of this year for groups such as large enterprises.
Many businesses have already started preparing, including reporting on and reviewing their compliance strategies and beginning the data-gathering exercise internally and with external suppliers. Businesses may be using existing ERP systems or SCM software to support this effort. However, keeping a narrow focus on just this regulation, and only tools that have historically been used to support other processes could create limitations that will become problems down the line. For example, ERP systems and SCM systems may be able to help support part of the data-gathering exercise, but they may not be able to provide information on a product’s entire lifecycle – an element that the CSRD requires.
The CSRD and connecting the EU’s legislative dots
Instead of seeking to ‘plug’ these gaps manually, it’s worth remembering that the legislation has an important broader context that will prove essential in compliance success. The Circular Economy Action Plan (CEAP), which catalysed the reframing of this legislation, is also the driving force behind other regulations that many of the same businesses will need to comply with shortly after or alongside the CSRD. One of these is the Ecodesign for Sustainable Products Regulation (ESPR), which is more focused on how products are designed and managed with sustainability at their core and also applies to UK businesses that sell in the EU marketplace.
Unlike the CSRD, the ESPR will mandate the use of tools such as Digital Product Passports (DPPs): digital records of physical products that can securely keep track of event, transactional, and sustainability-based information across that product’s lifecycle. When furnishing DPPs, typically the data collected comes from the broader supply chain (e.g. suppliers, external manufacturers) in addition to the company itself.
What some businesses may not have realised is that a lot of the preparation required for the ESPR aligns with the preparation needed for the CSRD legislation. For example, as data being collected from the broader supply chain needs to be verifiable and transparent for the ESPR, this has the potential to also support the Scope 3 data reporting requirement of the CSRD by providing a verifiable audit trail necessary for compliance.
The process of implementing a company-wide DPP solution for ESPR compliance will also likely involve a review of the management processes for product data, mapping the sources as well as measuring the quality of this data. This is a critical step that overlaps with CSRD compliance, specifically to be able to generate reports for external auditors, disclosing high levels of sustainability data with both forward-looking and retrospective qualities.
Therefore, businesses that are likely to be impacted by both regulations or any possible future regulations – a likely prospect with the increased focus on sustainability – would benefit from unified strategies that enable efficiencies across the process in preparation for multiple compliance goals. While regulations are being rolled out individually, they are laddering up to the same goal of a more sustainable future.
Different titles, same goals
Many of these new strictures include comprehensive data-gathering exercises, so understanding how tools like DPPs will be mandated can also support multiple compliance efforts is beneficial. Not only will it lead to cost efficiencies, but will undoubtedly cut down the timeline towards compliance, especially important considering the potential fines that may be incurred, and the reputational damage of non-compliance.
The European Commission itself is conscious of the administrative burden of the growing regulatory obligations. One way they are addressing this is to streamline the following legislation into a single omnibus regulation – those being the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy Regulation and Corporate Sustainability Due Diligence Directive (CS3D).
Another way the EC and its funded projects is addressing this is by looking for ways that DPPs can help lower the reporting burden across multiple regulatory requirements to support businesses in their efforts.
Businesses and unifying your EU compliance strategy now
If you’re a business that has already started your compliance journey for the CSRD, consider how the ESPR DPP mandate will also affect your current processes. Pause to conduct a quick check of the data sources already being used for CSRD compliance, which will also be helpful for ESPR DPP compliance. Equally, assess whether any product data that will likely need to be collected for the ESPR will bolster existing CSRD or broader sustainability reporting.
If your business is just starting its compliance journey, consider adopting a more unified approach to address key regulations from the outset. This might involve identifying the necessary data points across various regulations and implementing a DPP solution. Such a solution can store and utilise a comprehensive set of detailed product sustainability data, aligned with required standards and ESG initiatives.
By taking a proactive and unified approach to compliance, businesses can streamline their regulatory efforts and unlock valuable insights to drive sustainability, innovation, and long-term success.
Lars Rensing is the CEO of Protokol
