More and more companies will gradually have to deal with the ESG (= Environmental, Social, Governance) regulations of the EU Corporate Sustainability Reporting Directive (CSRD) in the coming years. In our new four-part series, we look at all aspects of the topic.
Part one: Master data management as a basis.
The CSRD obliges companies to publicly report on their level of sustainability in the areas of environmental protection, social justice and governance. To prove this, they must officially report so-called sustainability metrics. Companies that achieve good results here are considered “ESG-compliant” and sustainable. The CSRD was underpinned with indicators for this purpose: The European Sustainability Reporting Standards (ESRS) provide the EU with standardized reports that are also comparable. In concrete terms, this also makes it possible to check whether measures taken by companies are effective.
Who has to report?
According to the CSRD, all large listed companies, banks and insurance companies must prepare such ESG reports, as well as limited liability companies that meet two of the following three size criteria:
at least 250 employees on an annual average
Balance sheet total over €20 million
Net turnover over €40 million
The following limits apply to listed SMEs (reporting obligation from 2026)
over ten employees
Balance sheet total over € 350,000
Net turnover over €700,000
Every company that meets the above criteria should ask itself whether it is prepared for the reporting obligation. The ESRS contain many metrics that are not yet included in the financial figures. In addition, the amount of data to be reported is extensive. If you do not think about this early on, you will incur horrendous costs if the data has to be obtained at short notice.
„ESG reporting is not a political exercise. Anyone who has set up a clean master data management system has a good data basis that enables far more than just reporting: process optimization, identification of weaknesses and feedback on measures.“
– Tobias Sattler, Senior Consultant at SIRIUS
Measures are generally measured on the basis of figures and data. Sustainability data is master data that must be collected regularly. What these are in detail depends on the size of the company and the sector; there is no general EU regulation for everyone.
Which KPIs are relevant?
Companies can use a materiality analysis to find out which metrics they need to report (SIRIUS will offer consulting services for this in the future). Two factors are important here: What impact does my company have on the KPI (Key Performance Indicator) and what impact does the KPI have on me. As soon as one of the two factors has an impact, it must be reported. Example: For the software manufacturer, the KPI on water pollution is less relevant and therefore not worth reporting. On the other hand, the EU has selected some metrics that must always be reported by everyone (e.g. greenhouse gas emissions).
The figures on which the measures are based must therefore be compiled and aggregated from a wide variety of IT systems. You can either assign a person who is constantly busy collecting reportable business data – a disproportionate effort. It would be much easier to generate all data from the systems at the touch of a button. The prerequisite for this is comprehensive and process-oriented master data management, in which the data is stored centrally and is always up-to-date. This makes subsequent reporting more efficient and saves costs because the effort required to update and collect data is minimized.
Increasing efficiency through clean master data management
For the ESG criteria, KPIs from various areas of the company and therefore IT systems must be used. Master data management must therefore follow a holistic, interdisciplinary approach and be tackled as a cross-cutting issue across all departments. This is the only way to create the transparency required for ESG reporting that meets EU requirements. In addition to reporting, good master data management can also be used to create analyses by selectively measuring performance in the individual areas with a view to ESG certificates.
Who still has an overview of the supply chain?
Part one of our ESG series dealt with the basics of ESG reporting and a plea for clean master data management as a foundation. In future episodes, we will look at reporting as such and the legal requirements for the supply chain. In the future, smaller companies in particular are likely to have difficulties meeting all the requirements of the Supply Chain Duty of Care Act (LkSG).
Finally, we will look at the so-called Sustainability Network Effects: What are the benefits of mandatory ESG reporting for (especially smaller) companies beyond the mandatory part of reporting? What impetus can be derived from this in terms of innovativeness, turnover or increased efficiency?
Cover image: © Shutthiphong Chandaeng & Suebsiri /Getty Images
