Starting in 2025, the European Union will mandate that large companies disclose their progress towards sustainability targets, under the guidelines of the Corporate Sustainability Reporting Directive (CSRD). Compared to prior sustainability regulations, the CSRD reporting process will be more complex, comprehensive, and rigorous.
To help our customers navigate these new restrictions, Worldly has put together a series of resources to help apparel and consumer goods brands understand what’s expected. In this article, we outline how your business can set performance improvement targets as required by CSRD.
Overview of Targets and Metrics
In a related blog post, we explain how a business can determine which sustainability topics are material to their business. Once a sustainability matter is deemed material, companies must define metrics, set targets, and track the impacts of their actions towards meeting their targets.
It’s worth taking a minute to clarify this terminology within CSRD:
- Metrics: “qualitative and quantitative indicators … to measure and report on the effectiveness of … sustainability-related policies.” Simply put, metrics are the numbers attached to specific sustainability topic. Businesses are required to disclose methodologies and assumptions behind the metrics they choose.
- Targets: Metrics must ladder up to targets, which are defined as “measurable, outcome-oriented, and time-bound goals that (a business) aims to achieve in relation to material impacts, risks, or opportunities.” These targets can be voluntarily set by the company or may be derived from other legal requirements.
What’s important to remember is that targets and metrics are ultimately a means to an end. By requiring impact improvement targets, CSRD is demanding insight into how companies assess their own effectiveness. When it comes to their sustainability objectives, are they ahead of expectations or falling behind? Are they investing the right resources to curb emissions, manage their water usage, protect biodiversity, and treat affected communities responsibly? Or are they spending time and money without seeing the progress they set for themselves?
CSRD will require businesses to provide a clear assessment of what’s working and what isn’t.
How Value Chain Data Helps Set Accurate Targets
To explain how to set effective targets and monitor performance over time, we’re choosing the example of water consumption in high-risk areas, which is included in the Water and Marine Resources section of the CSRD (section ESRS E3).
The general disclosure section for ESRS E3 specifies that businesses must “identify physical risk including water quantity (water scarcity, water stress) [and] water quality.” Because issues related to water withdrawal and discharge are material in upstream apparel value chains, apparel brands need ways to identify and monitor such water-related impacts and risks among their suppliers. For example, upstream value chain partners performing chemically-intensive processes like tanning that are located adjacent to a freshwater body may be considered material water-related risks.
How might a brand go about determining which, if any, of its facilities present such risks? The Higg Facility Environmental Module (FEM) provides the tooling needed to assess these facilities. By requiring manufacturers to complete Level 1 of the Higg FEM Water and Wastewater sections and factoring in the manufacturers’ location, brands can determine which (if any) of its facilities’ activities present material water-related risks.
Let’s presume a facility is determined to present risks. How can a business use data on Worldly to set targets for improvement?
Using Data from the Higg Index to Set Targets
The Water and Wastewater sections in Higg FEM can help a brand track metrics such as a ‘quantity of wastewater generated,’ ‘source-specific volumes of water consumed,’ and whether water is reused or recycled. Each of these metrics would be relevant to CSRD reporting in section ESRS E3.
Once a brand has deployed the Higg FEM across its Tier 1–3 facility base, the FEM analytics tool can aggregate these metrics across facilities — outputting the total volume consumed by your Tier 1–3 value chain. We recommend that a brand use its prior or first year of reporting to establish a baseline for performance under CSRD, and to then set performance improvement targets for future years.
Specifically for water consumption in high risk areas, data from the Higg FEM can be used to identify facilities located in “high risk” or “very high risk” water zones that are also increasing year-over-year withdrawal of surface water or groundwater. By pinpointing such hotspots, a brand can identify specific regions or facilities that need assistance or intervention in improving their water usage.
We’re Here to Help
And that’s just a single example of how one tool supports a single ESG standard. Similar to the Higg FEM, the Higg Facility Social and Labor Module (FSLM) can be used to collect information about workforces within one’s supply chain, which can help set targets related to the Social metrics required by CSRD.
In cases where primary data is not available through FEM, the Higg MSI (Materials Sustainability Index) and Higg PM (Product Module) offer industry-leading databases for ‘average’ environmental impact data — encompassing topics such as water usage, water quality, greenhouse gas emissions, and chemicals that can be applied at the product-level.
Together, these tools can be used to establish a baseline for impact in your company’s supply chain, and to compare data from the current year to previous years. We believe that this will be a valuable input when target-setting under CSRD.
For sustainability teams with limited resources and time, a trusted technology partner will be essential for successful CSRD compliance. With industry-leading assessments and tools that can support accurate goal-setting, Worldly is here to help support your business’s compliance efforts.
Get in touch with your customer support representative today to learn more about CSRD, get a copy of our CSRD white paper, and learn how Worldly can support your compliance efforts.