Understanding sustainability reporting and why it is important
The regulatory and voluntary standard landscape is evolving fast, becoming more demanding and increasingly focusing on Scope 3 emissions and product-level data.
Sustainability reporting is now essential for businesses. As stakeholders and regulations push companies to prove their commitment to environmental sustainability, knowing how to navigate this ever-changing landscape can feel overwhelming. But don’t worry – you’re not alone!
In this blog, we explain what sustainability reporting is, why it’s important and the key EU environmental regulations and voluntary standards to have on your radar. We will also explore the benefits and challenges of reporting, where to start and how Root simplifies reporting for companies.
PUBLISHED: 22 October 2024
WRITTEN BY: Charlie Walter
Table of contents
- What is sustainability reporting?
- Why is sustainability reporting important?
- The EU environmental reporting landscape
- Key regulations and voluntary standards to have on your radar
- What are the benefits of sustainability reporting?
- What are the challenges of sustainability reporting?
- Where to start with sustainability reporting
- How automated LCA can help with reporting
- How we can help
What is sustainability reporting?
Sustainability reporting is how your company showcases its environmental, social and governance performance. It’s about transparently showing your business’s efforts to address key sustainability challenges and demonstrating your commitment to environmental sustainability. By publicly disclosing information like your carbon footprint, you meet regulatory requirements and prove you’re serious about sustainability to key stakeholders like investors, costumes and employees.
There are two types of sustainability reporting: mandatory and voluntary. Mandatory reporting focuses on complying with regulatory requirements, whereas voluntary reporting goes beyond compliance, where companies disclose their sustainability performance to various voluntary frameworks. With increasing stakeholder demand for transparency, reporting is essential to any robust sustainability strategy.
Why is sustainability reporting important?
Sustainability reporting isn’t just important – it’s essential for your company’s future. Complying with regulations like CSRD and the ESPR isn’t just about avoiding fines – it’s about future-proofing your business. These regulations help your company adapt to a world where increasing environmental issues affect business operations, such as the rising number of natural disasters causing supply chain disruptions. Compliance keeps your business resilient to a rapidly changing world.
Disclosing to voluntary standards demonstrates your commitment to sustainability and builds stakeholder trust. Not reporting to voluntary frameworks can make your company appear to lag behind competitors who are prioritising sustainability. Stakeholders like investors are increasingly interested in which voluntary standards companies disclose to, so not engaging with these standards risks damaging vital relationships.
The EU environmental reporting landscape
Europe is leading the way in sustainability reporting, and the landscape is rapidly changing.
Here’s a breakdown of the key environmental EU regulations and voluntary standards you should have on your radar.
Key regulations and voluntary standards to have on your radar
If you are a product company, there are several EU environmental regulations and voluntary standards which will impact your business that you should be aware of:
Key regulations
- Corporate Sustainability Reporting Directive (CSRD): This pivotal regulation improves transparency by ensuring businesses provide detailed reports on their environmental impact and strategies. This includes companies disclosing their carbon footprint, including the crucial and often overlooked Scope 3 emissions.
- European Sustainability Reporting Standards (ESRS): The ESRS sets clear guidelines on what environmental, social and governance topics companies must disclose in the CSRD reports.
- Corporate Sustainability Due Diligence Directive (CSDDD): This regulation requires companies to conduct thorough due diligence across their supply chains to uphold high human rights and environmental practices.
- Ecodesign for Sustainable Products Regulation (ESPR): This regulation sets minimum ecodesign requirements, mandates the creation of Digital Products Passports, prohibits unsold goods from being destroyed and minimises the use of hazardous materials in products.
- Digital Product Passports: A vital part of the ESPR regulation, Digital Product Passports are a digital twin of a physical product, gathering comprehensive data about a product throughout its life cycle. Creating these passports is crucial in providing the data needed to comply with the ESPR.
- Green Claims Directive: This regulation combats greenwashing by ensuring businesses can back up their environmental claims with science-based, verifiable data. It’s designed to protect consumers and help them make informed decisions.
Key voluntary standards
- Science Based Targets Initiative (SBTi): A widely respected voluntary standard that supports companies in setting carbon reduction targets and net-zero pathways which align with the Paris Agreement’s goal of limiting global warming to below 1.5 degrees.
- CDP: CDP provides a platform for companies to disclose their environmental impact, covering topics including climate change, water security and deforestation.
- Environmental Product Declarations (EPDs): Using Life Cycle Assessment (LCA) data, EPDs offer transparent, third-party data on a product’s environmental impact throughout its life cycle. EPDs are mandatory in construction and voluntary in other sectors.
- ISO 14040 and 14044 standards: The ISO 14040 and ISO 14044 standards set out globally recognised guidelines for conducting comprehensive LCAs. These standards ensure consistency in measuring the environmental impacts of a product throughout its life cycle, from raw materials to disposal, helping businesses assess and reduce their environmental footprint effectively.
What are the benefits of sustainability reporting?
Increasingly, companies see sustainability reporting as a value-creation opportunity rather than a compliance tick-box exercise.
Let’s explore some of the key ways it benefits your business:
Future-proofs your business
Sustainability reporting prepares your business for a rapidly changing world. Ensuring your operations and supply chains meet environmental standards builds resilience against disruptions and ensures your business is adaptable and competitive in the long run.
Drives innovation
Sustainability reporting encourages product innovation by highlighting opportunities for improvement, such as using sustainable materials or refining production processes. You ensure your products are compliant and competitive in a rapidly evolving market by reporting to regulations and voluntary standards.
Make trustworthy green claims
Reporting to regulations like the Green Claims Directive makes sure your sustainability claims are accurate and verifiable. This builds consumer trust and protects your business from greenwashing accusations. Your marketing team can confidently promote your products, knowing they meet strict environmental standards.
Builds trust with stakeholders
Sustainability reporting strengthens relationships with key stakeholders such as customers, investors and employees. By providing transparent, accurate data, you demonstrate your commitment to sustainability.
Strengthen supplier relationships
Regulations like CSRD and CSDDD are pushing for greater supply chain transparency. Collaborating with suppliers to understand and improve their environmental performance deepens relationships and builds long-term partnerships.
What are the challenges of sustainability reporting?
Reporting to environmental regulations and voluntary standards presents numerous challenges for companies. Below are some of the most significant hurdles companies face:
Navigating evolving regulations
Keeping up with ever-changing sustainability regulations and voluntary standards is time-consuming but essential. Non-compliance can lead to fines and damage to your reputation, making it crucial for your company to stay informed and adapt quickly.
Data collection complexities
Data collection is one of the biggest hurdles, especially for companies with global supply chains. With regulations like CSRD requiring companies to report on their Scope 3 emissions, gathering accurate and comprehensive data on your supply chain can be resource-intensive, especially for smaller companies.
Untransparent supply chains
One of the biggest challenges to sustainability reporting is companies gathering data on their supply chain. Measuring and disclosing their value chain’s sustainability performance is challenging when companies have untransparent supply chains.
Resource-intensive process
Sustainability teams already manage a wide range of initiatives and balancing these with reporting responsibilities can be overwhelming. Without efficient data management and reporting systems, gathering data and reporting on various regulations and voluntary standards with different reporting requirements becomes time-consuming.
Where to start with sustainability reporting
So, where should you begin with sustainability reporting? Here are the key steps to get started:
Understand your reporting obligations
Identify which sustainability regulations apply to your business. Not all will be relevant, so focus on the ones you must comply with to avoid unnecessary work. For voluntary standards, prioritise those valued by your stakeholders to ensure your reporting aligns with their expectations and adds value to your business.
Conduct LCAs on your product portfolio
LCAs provide robust data that you can use to comply with mandatory regulations and disclose to voluntary standards. By analysing your product portfolio, LCAs generate accurate, comprehensive data for sustainability reporting. This product-level data will also help you comply with new regulations which require detailed product footprints, such as Digital Product Passports.
Collaborate with your suppliers
You can’t manage sustainability reporting alone, especially when disclosing Scope 3 emissions, which mainly occur within your supply chain. Early collaboration with suppliers is crucial. Set clear expectations for data collection and work closely with your suppliers to gather accurate information for reporting. Reporting is an excellent opportunity to gain visibility into your supply chain and strengthen supplier relationships.
Create a centralised data system
Streamline your reporting by using a centralised data system. Having one data system ensures all your data is organised and accessible, allowing you to use data to report on multiple regulations or voluntary standards efficiently. This will keep your sustainability data accurate, easily accessible and ready for reporting.
How automated LCA can help with reporting
Automated LCA platforms like Root simplify reporting by providing detailed company-wide and product-level data for regulations and voluntary standards.
Here’s how we can help:
- Company and product-level footprints: Root’s platform creates detailed LCAs for your company and your entire product portfolio, ensuring you comply with regulations and disclose to voluntary standards using accurate, verifiable data.
- Holistic data: Root’s platform creates comprehensive data on a wide range of environmental metrics, including carbon emissions, water usage and waste. This holistic data allows you to report on various sustainability topics.
- Quick data export: With Root’s Snapshot function, you can download all the necessary data in just a few clicks. The Snapshot function, combined with Root collating all your data in one central place, enables you to quickly access the correct information for reporting without delays or complications.
We can help
At Root, we aim to redefine the norm by making company and product footprints universal. Our platform conducts automated LCAs for entire product portfolios – helping businesses report effectively on regulations, avoid greenwashing and become industry leaders in sustainability.
Root creates thousands of comprehensive LCAs at once, providing you with the detailed, holistic environmental data needed to comply with the ESPR.
Interested to learn more? Get in touch with our team to discover how Root can help you achieve compliance and drive sustainable growth.