In less than six months, tens of thousands of companies will need to start publishing annual sustainability reports under a new EU directive, putting more pressure on businesses to collect and understand their ESG data.
The Corporate Sustainability Reporting Directive (CSRD), which comes into effect on 1 January 2024, will require around 50,000 European companies to detail both their impact on the environment and the climate-related risks they face.
While this is an EU directive, the CSRD is expected to require at least 10,000 additional non-EU companies to also publish this sustainability information. Of these, 31% will be US-based, 13% Canadian and 11% UK.
For those companies not affected by the new EU rules, the SEC is proposing its own climate-related disclosure rules. This would require publicly traded companies to disclose their greenhouse gas emissions and any climate-related risks to their operations. Although the SEC has delayed publishing the rule, from December 2022 to it now being expected this Autumn, the fact that around 50,000 investors commented on the proposal, almost all in favor, indicates it will come into force from 2024.
The introduction of new EU and US rules will put more pressure on companies already struggling to gather and understand their sustainability data. According to a 2022 EY survey, 60% of organizations admitted that their ESG information is held in a patchwork of software applications, while 55% are storing it in spreadsheets.
This is not ideal at a time when businesses need to keep on top of ever-changing and additional regulations around the environment, as Tim Christophersen, VP, Climate Action at Salesforce notes:
Salesforce has some of the best people in the world on our sustainability team, on our compliance team, and it even makes our head spin, the alphabet soup, the constantly emerging standards, the difference between regional standards. We have the EU Corporate Sustainability Reporting Directive, we have SEC, Australia, [and] the UK is no longer part of EU. It's mind blowing.
While companies understand that the shift to compliance means they have to follow these new rules, they're not necessarily well prepared for their introduction. This is something Christophersen hears even from big enterprise customers, with large digital departments and CFO teams that work on compliance.
For the CSRD, nobody's well prepared, with very few exceptions.
And this isn’t an area where UK businesses can celebrate a supposed Brexit benefit, hoping the EU rules automatically won’t apply to them. Christophersen notes:
If you’re a Barclays and you have substantial operations in the EU, it also applies to you. It applies to everybody with substantial operations in the EU.
Christophersen says the International Sustainability Standard Board, aiming to create a global baseline of sustainability disclosures, will offer some harmonization of the rules, which Salesforce advocates.
Despite the current complexity of regulations, Salesforce is a strong advocate for mandatory global climate disclosure and nature disclosure, due to its belief that to engender strong action across the private sector, everybody has to be engaged. Christophersen adds:
This is no longer about leadership and great voluntary commitments of individual companies. This has to reach everybody, but it's very complicated.
To support its customers trying to manage their requirements, Salesforce has updated Net Zero Cloud with the SASB Report Builder. The tool is designed to help organizations automate the disclosure of environmental, social and governance (ESG) data in alignment with Sustainability Accounting Standards Board Standards.
While Net Zero Cloud won’t necessarily make the process of sustainability reporting simple, Salesforce can make it simpler for customers, Christophersen pitches: .
We hear that they desperately need a tool, and in our perspective, that tool should be more than a fancy pocket calculator. It should tell you not only what your emissions are, but where and how you can best and fastest reduce them. That's the additional value of Net Zero Cloud. It's not only a tool that tells you where are my emissions, but you can then link your operational excellence to emission reductions and pick all the low hanging fruit for emission reduction.
Following on from the SASB Report Builder launch, the company is also building tools to cover nature biodiversity, which is its current focus. Christophersen explains:
We just launched a Nature Positive Strategy for Salesforce, and to build Net Zero Cloud into a full ESG toolkit, that journey is not complete yet, but we got a step closer to that today.
Generative AI could play a part in driving further ESG reporting efficiencies in the coming years. Most Salesforce customers are not at the level yet of being able to use a large language model or GenAI for their sustainability reporting because the data is so dispersed. The first step of collecting all the data still needs to be achieved, Christophersen notes:
Once you've done that with MuleSoft or other tools into something like Net Zero Cloud, then you can start to apply both generative and predictive AI. But for most customers, we're not there. It's not that you could dump all your Excel sheets into it and they would make sense of how that relates to corporate sustainability reporting. There needs to be a step in between, but AI definitely will be able to accelerate that shift at some point.”
It's not just on the reporting side that AI could offer sustainability-related benefits. Christophersen cited the 50,000 NGOs worldwide that Salesforce supports with their CRM and other needs. These organizations are usually very cash-strapped and understaffed with small teams, he notes:
I used to work for an NGO and you spend a lot of time filling out grant applications, and they’re usually slightly different. We'll have a tool that pre-fills about 80% of those application forms for NGOs, which frees up enormous amounts of time. These kinds of applications will be very useful to free up people's time to spend more time on implementation, instead of just fundraising.