Is sustain­ability measurable

AluReport: The European Union’s Corporate Sustainability Reporting Directive (CSRD) will soon come into effect. What exactly is behind this legislation?

CT: By adopting its Green Deal, the EU is aiming to become climate neutral by 2050 and, ultimately, promote sustainable business practices. This includes issuing requirements for banks to move their capital into sustainable financing, thereby supporting companies that work sustainably. Achieving this requires defined criteria. The CSRD defines reporting obligations in relation to sustainability aspects and specifies a framework. It aims to increase transparency regarding companies’ environmental impacts and facilitate comparisons. In addition, the European Sustainability Reporting Standards (ESRS) has been established to define exactly what companies have to report. What this creates, however, is an exceptionally detailed reporting catalog, as different industries have different focuses.

AluReport: Do you think the CSRD will actually make it easier to compare reports and elevate sustainability reporting to the same level as financial reporting?

CT: Elevating sustainability reporting to the same level as financial reporting is a good idea. Ensuring comparability is difficult, though, precisely because of the differences in activities between industries. Analyses often only consider an indicator that is easily measurable - such as CO₂ emissions - which creates a false impression of comparability. To my mind, this is where the problem starts: this simplification, reducing analysis to a handful of indicators, does not provide an accurate picture of companies’ complexities. A manufacturing enterprise inherently emits more CO₂ than a service provider; for other companies, water pollution might be a more relevant topic. It’s even harder to compare social and qualitative aspects. In my opinion, though, improving sustainability reporting will definitely lead to improvements in the quality of recorded and reported figures. No longer restricted to solely internal use, they have to be more reliable if they are made publicly available. This applies above all when stakeholders rely on the information provided as the basis for their decision making, such as when aluminium should contain a specific proportion of scrap.

AluReport: AMAG started producing sustainability reports long before it became a legal requirement. How might this experience benefit you in implementing the CSRD?

CT: Sustainability has been part of our company strategy for years. We started to report on our strategic, sustainable approaches (e.g. in relation to recycling) at an early stage and have built up a wealth of internal knowledge. This expertise, combined with established knowledge of processes from financial reporting and the corresponding internal control system, has now helped us to implement the CSRD. Nevertheless, the additional reporting obligations are very challenging, as they focus not only on collecting figures but also on the quality of the report. We still aim to inform readers about what we’re doing as effectively as possible.

AluReport: That sounds like an enormous task. What resources does AMAG need to manage it?

CT: We strive to build knowledge within the company rather than calling on external consultants. This way, we remain flexible and can react quickly to new requirements. External stakeholder engagement is such an important topic that we can’t outsource it. It’s also important that we implement streamlined processes to take the load off our employees. With this in mind, we used existing structures and integrated our reporting activities in existing systems, which reduces our susceptibility to errors and avoids creating additional interfaces.

AluReport: How do you ensure that your reports meet legal requirements while also remaining relevant and readable for stakeholders, especially investors?

CT: We’ve carried the high quality standards we apply in financial reporting over to our sustainability reporting. The biggest challenge is making sure that reports are readable and comprehensible despite the vast amount of mandatory information. Last year, our Group’s annual report was 230 pages long, including 90 pages for the non-financial report. The report’s size makes it harder for readers to maintain an overview. But if we look at how reporting obligations have developed, the aim doesn’t appear to be a readable overall publication but rather a collection of relevant information, from which each reader can extract the figures relevant to them. A machine-readable format is mandatory for certain parts of financial reports, and this will soon apply to sustainability reports, too.However, this wealth of information also leads to many stakeholders - such as banks and suppliers - requesting specific, customized reports, which involves additional work. At the same time, we have to ensure that data is globally consistent and correct in order to ensure the usual high quality of our reporting.

AluReport: That sounds suspiciously like a bureaucratic nightmare! Hand on heart, given these reporting requirements, is Europe as a business location a blessing or a curse?

CT: I believe the fundamental idea is good. But it’s asking far too much all at once. A slower pace of change and more targeted selection of criteria would have been preferable. A further complicating factor is that new EU requirements have not yet been implemented at national level in Austria, even though the EU Directive requires companies to report on the 2024 business year.What’s more, the requirements only apply to the EU. I’ll give you an example: the smelter in Canada in which we hold a stake has five owners. Our co-owners are based in Canada, Japan and Norway. I can assure you we’re required to report in far greater detail than any of the others. While this applies to sustainability reporting, it also goes for topics like the EU taxonomy, the Corporate Sustainability Due Diligence Directive (CSDDD) and carbon taxes. That means we incur additional costs that aren’t an issue in other highly developed countries.

AluReport: Let’s look to the future. What would you like to happen in terms of sustainability reporting?

CT: One of the primary tasks of external reporting is to give stakeholders information about the company so that they can make well-founded decisions - what type of financing to choose, whether to buy shares, and whether to enter into a new business relationship or maintain an existing one. I think that, overall, we need more quality and less quantity. At present, reporting obligations are only growing; there’s no evaluation of existing obligations.So, I’d like to see sensible development rather than a constant increase in required information. The end result should be integrated financial and sustainability reporting that informs readers as effectively as possible and offers added value for all involved.