Report of 4th NaLiBau Research Project Stakeholder Meeting
The meeting at 16th January 2023 on "Supply Chain in the Construction Sector: CSR and Industry Reporting" was held online and contained impulse lectures of Dr Eike Messow, Head of Sustainability, Sto Group, and Christoph Töpfer from German Federal Environment Agency (UBA).
Tilmann Kramolisch, Managing Director of natureplus Association, introduced and pointed out that the German Supply Chain Due Diligence Law (LkSG) has been in force since 1 January. Nevertheless, the companies are little prepared for this. Approximately 1,300 companies fall under the new law but the competent Federal Office of Economics and Export Control (BAFA) sent first respective handout only in Aug. A study by BME (German Association of Materials Management, Purchasing and Logistics) and Integrity Next stated: "Only 13 percent of companies with more than 1,000 employees have full transparency when it comes to risks such as possible human rights violations among their direct business partners." So far, there has also been purely little awareness of the problem. To the question, “What is your motivation for looking at human rights and environmental risks along supply chains?” answered 56 percent: "Compliance with the law."
The example of Sto
Dr Eike Messow from natureplus member Sto SE explains that CSR used to be a voluntary task, but unfortunately only a minority of (large) companies took it on, especially in the construction sector, because it is not so much in the public eye as far as human rights and environmental issues are concerned. However, this has changed significantly and CSR is now a "must have" for companies such as Sto SE. This is not only due to the aforementioned law from Germany, but also to a plethora of initiatives on the part of the UN and the EU, not least the taxonomy. Sto has implemented a wealth of standards and labels in its own CSR reports, which are published every 2 years, including natureplus. In the meantime, more and more indicators are also being taken into account in the reporting, for example waste management and water consumption are now included. Nevertheless, he has to admit that he is only at the beginning of a complete CSR reporting. Accordingly, he does not expect the new reporting obligation under the German CSR Act to change so much in the industry, because other companies are not really doing any better with their lack of information. All in all, Messow sees a lot of work and the commitment of many resources for the companies with the binding CSR reports, it is not enough to just show awareness, you also have to improve the conditions and pursue violations, but the Sto company is committed to this because "this is the world we want to live in".
The UBA point of view
Next, Christoph Töpfer from the UBA, Federal Environment Agency, who is responsible there for economic and social environmental issues, and sustainable consumption, gave further insight. From his point of view Europe’s answer to the multiple crisis is the European Green Deal, driving the transformance of EU’s economy for a sustainable future by CSRD, Corporate Sustainability Reporting Directive, the new Taxonomy and the Corporate Sustainability Due Diligence Directive. The German Supply Chain Due Diligence Act, addressing human rights and selected environmental issues, the Industrial Emissions Directive, addressing pollutants and industrial emissions, are steps in this way. So, Töpfer states, “what was formally nice to have is now becoming a must have” by regulation. He sees CSRD, which focuses on both the supply chain and the value chain, as being of particular importance. The target groups are financial investors, market participants of all kinds but also consumers, NGOs and public procurement. It is important for him to point out that we are talking about external audits that are carried out by accredited auditors. The timeline foresees that in June 2023 the adoption of the cross-sectoral EU reporting standards as a delegated act is planned, by the end of June 2024 the adoption of the sector-specific EU reporting standards, as well as the standard for SMEs and non-EU companies shall be released, and from January 2026 all companies with more than 250 employees will have the obligation to report, but SMEs only if they are listed on the Stock Exchange. In total, this reporting obligation will affect about 50,000 companies across Europe.
The standards, according to which the reports are to be drawn up, form a pretty comprehensive system in which, among other things, both cross-cutting standards, environmental and social standards, and also good governance standards are summarised, are listed in ESRS 1-58. The standard-setting is carried out by EFRAG, which thus goes beyond its former mandate of taxonomy. The EFRAG identified 41 industrial sectors www.efrag.org/Lab6 of which 10 are considered priorities. Although the construction sector is not among the priorities, it is addressed at least once via sectors 13-15. There is currently the possibility for NGOs such as natureplus to influence the formulation of standards via EFRAG.
Group work phase based on three topic tables on MIRO Board
The first working table, moderated by Thomas Schmitz, former Managing Director of natureplus Association, looked at “Best practice examples for CSR reports”. The most important question is from his view, how do CSR reports become meaningful? He said a third party assessment shall be mandatory and the companies must provide data not declarations ! Another hurdle was stated by the stakeholders: The reports are always at company level, not at product level and thus cannot serve as means of information for public procurement. There is even no common understanding of what is green and what is not. Then the involvement of 3rd parties is not mandatory, it is possible for companies to file own CSR reports without involvement of independent parties by now. But from 2024 on the report has to be proven by an external auditor. At least, digital tools are important, in future the information must be more concretely detailed and transparent and the anonymity of digital tools helps with this. Larger assessment companies do not only look at their own sustainability reports, they check and screen media and eventually confront the company with this additional information.
The 2nd Table on "Challenges and (regulatory) Hurdles for Corporate Reporting" was moderated by Felix Konrad, Executive Board of natureplus INSTITUTE Cooperative. He states different scopes: The scope on environment, climate, social, land, water impact etc. on company level is important for national and European governments: they need to look down on company level. But also product level is important: Which are the best products and technologies to follow? There is no common scope by now. Directives and definitions and common interpretations will have to push in the future. Asking for the responsibility for CSR reporting within the companies departments, many of them have a legal dept in place, because a lot of sustainable issues are compliance issues today (because of its legal character). But a lot of companies take it from their communication department. When it comes to Supply Chain we need a coalition with procurement, they are experts within. The R&D departments are also important; they know the suppliers and know raw materials. So, to cover sustainability issues profoundly, we need 5, 6, 7 departments to work together! Sustainability is a cross department topic. The next crucial question is the impartiality. Of course, there is a need for external verification, but how is a tax auditor capable to work through thousands of documents and do this at 50.000 companies in Europe? We need institutions to guarantee correctness and comparability, a standardization process is necessary! Also we need a simplification process! Complex framework (like EPD) is a good opportunity to hide within complexity for companies.
The question of SME's
Controlling is difficult – not only but especially for SMEs. The repetitive nature of CSR reporting is a problem, then shifting suppliers is also a problem. The examination is far too demanding for SMEs. The supplier finding issue is quite complex as we can see right now therefor we found out a trend to more regional supply chains because of the lower effort. Because big trading companies are forced to report about their suppliers and products, that means that SME’s are affected also in terms of reports and nearly every product is affected by law due to “trickle-down effect”. But our question is: Would it be also be good for SME’s to issue green bonds and to shift from conventional to green production?
The 3rd Table “Benefits and added value of corporate reporting e.g. for EU-Taxonomy” was led by Rolf Buschmann, chairman of the Board of natureplus Association and Leading Project Manager. He prepared in his presentation some information on existing Rules and regulations on EU level: Environmental Social Governance – ESG – means, that in future all companies will have to account for their social and environmental footprint. There are still EU regulations in context of European Green Deal and Sustainable Finance Strategy such as EU Taxonomy, a standardized transparency classification system for the EU economic area. It controls which activities are considered environmentally sustainable. The already mentioned Corporate Sustainability Reporting Directive (CSRD) is an obligation for companies to publish sustainability information about their business activities in their management reports. The Sustainable Finance Disclosure Regulation (SFDR) specifies that financial companies incorporate sustainability factors into the decision-making process for their financial products and disclose adverse sustainability impacts of their financial products. Sustainable Finance means Green bonds, Climate bonds and Social Bonds as possibility for financing sustainability projects in companies. Talking about the benefits of CSR reporting Buschmann claims the benefits of all those new reporting and ESG standards: “It is difficult but there might be benefits for you as a company.” Because in the future companies will have to account for their environmental responsibilities. This has already become a big topic in the financial sector, credits and investments will depend on adherence to green and climate issues. Other benefits: Civil society and customers are also going to profit from social and environmental reporting. Acknowledgements by customers and society can be used by company’s marketing.
It is crucial for companies to do such reporting and to understand what is the footprint of their product and company. CSR reporting will spread very quickly in the near future. With the large number of reports, we will get much more data in the future. This will make CSR much easier - also for SMEs. This results in the summary of this workshop: The tool we are developing in the NaLiBau project must be easy to use, start at the product level and be usable in databases like WECOBIS.