More than half of in scope UK businesses are currently unlikely to meet the January 2024 deadline for enhanced climate disclosures set by the EU, according to a new survey.
The report, from supply chain management firm, 7bridges, analysed 801 businesses based in the UK, to evaluate the preparedness for the deadline of the enhanced Scope 3 disclosures required by the Corporate Sustainability Reporting Directive (CSRD).
The CSRD, which was officially adopted by the European Commission in November 2022, aims to provide investors, governments, and stakeholders with a more comprehensive understanding of companies’ sustainability performance through broader rules for sustainability disclosures.
Although the CSRD is an EU regulation, UK businesses will still need to comply if they fulfil specific criteria related to their size and presence in EU markets.
Findings from the research indicate that an overwhelming majority of companies (96%) are aware of the CSRD, with three-quarters (71%) having already assessed their carbon footprint across all scopes. Nevertheless, there are apprehensions about meeting the CSRD deadline, expressed by over a quarter (27%) of these companies.
7Bridges’ concluded that just 60% of the businesses will likely not be ready to comply.
“We are now aware that leaders are feeling uneasy about their new responsibility for reporting not only their own emissions but those of partner businesses such as in manufacturing and transport,” said 7bridges’ co-founder and chief executive Philip Ashton.
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Key challenges
Key challenges from the survey included, deciding where responsibility for collecting and reporting emissions data should sit. The study revealed that one-third (33%) of the companies polled are delegating responsibility to the chief sustainability officer (CSO), and a further third (31%) say the task will be down to the chief executive officer (CEO).
The majority of companies will look to outside help to meet their requirements, with almost half (47%) choosing to invest in a software as a service/tech solution (47%), hire an expert to join their team (45%), or involve reputable entities like Big Four accounting firms (41%) or other external auditors (40%).
“We are seeing a huge appetite for external support, most often technological, to assist in these increasingly complex areas which is paving the way for creating smarter supply chains that provide data-driven visibility in real-time,” explains Philip, “In leveraging AI, organisations can firstly review and analyse current operations, before then critically gaining a full overview of the supply chain to identify where improvements can be made. It provides the ability to make decisions quickly to stay ahead of their ESG target, enabling them to meet mandates to improve and reduce their Scope 3 while also driving value.”
There is also the matter of properly financing and resourcing the team responsible for this.
Repercussions for failure to disclose
Should in scope businesses fail to comply with the regulation by disclosing their indirect (Scope 3) emissions in line with the requirements of the new CSRD, they will face potential fines and other penalties.
According to co-founder and chief executive, Philip Ashton, these penalties are “substantial”, with UK firms set to be charged up to £40 per tonne of CO2 emissions misreported under the new regulations.
Ashton also highlighted the reputational damage companies can face from consumers for misrepresenting the companies’ environmental impact, also known as ‘greenwashing’.
More on CSRD
The CSRD directive widens the net on which companies are mandated to report, with almost a fivefold increase in the number of businesses affected, to 50,000+. It sets stricter requirements on the range of issues and quality of data which companies must disclose. A key focus here is Scope 3 emissions, which typically account for the majority of climate impact for a large business.
