Challenges of the retail industry due to the CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a European regulation introduced in December 2022 that obligates companies operating in the European Union to report information such as sustainability data. What is the CSRD’s importance in the retail industry? What challenges does it bring?

CSRD in retail – what should you know at the start?

The CSRD was published on December 16, 2022, and applied to large companies and small and medium-sized listed companies. These companies will have to report information on their operations’ environmental, social and governance (ESG) impacts, in line with the European Sustainability Reporting Standards (ESRS). The CSRD is coming into force gradually, and full implementation for the retail sector is planned for 2026.

The biggest challenges for the retail industry, or how CSRD affects retail

Now, let’s move on to the challenges of CSRD in retail.

The need to integrate data from different stages of the business

You know that the retail industry has a complex and diverse supply chain. This makes collecting and reporting ESG data challenging. These data must include CO2 emissions, energy and water consumption, and social issues like employment policies. Verifying how all these aspects look at suppliers will not be easy.

Verification of data by third parties

The CSRD requires external entities to verify ESG data. Companies must adapt their data control systems to high standards, similar to financial reporting. For many companies, this may mean investing in new technologies, processes, or entire departments to ensure data accuracy and consistency.

High turnover of employees in retail

In the case of the retail industry, employee retention is quite low – therefore, monitoring and reporting indicators on social issues will be a bit more complicated. In this light, tools for analyzing and monitoring employment, salaries, satisfaction and employee structure, especially in large companies, are even more important.

Decisions on the selection of business partners

Retail companies will be required to source ESG data from suppliers and partners, and as we mentioned earlier, there are many of these sources in complex supply chains. Maintaining adequate transparency and reliability of this data can be difficult, especially in international supply chains or those involving countries not covered by the CSRD directive. There is a good chance that this will affect which business partner brands from the retail industry will choose.

Lack of proper tools and systems

The problem is the lack of IT systems to monitor this data – according to research, only 3% of companies have an integrated system dedicated to collecting ESG data, and 47% still use spreadsheets. Needless to say, this significantly limits their effectiveness and credibility. So, let’s talk a little more about the technology. Undoubtedly, the retail industry is facing the challenge of integrating advanced tools for managing and reporting ESG data (which the CSRD obliges). What can be done to solve this problem? Cloud platforms may be a good idea (they enable flexibility, scalability and automation), but at the same time, companies must take care of the level of security of the data included in these clouds. Monitoring progress in achieving sustainable development goals will also be important, so we can expect the development of BI systems for the retail industry that will allow for data analysis and visualization, preferably in real-time.

CSRD in the retail industry – what will it change?

We have no doubts that introducing the CSRD will not be easy for the retail industry. It comes with many challenges, especially in ESG data management and reporting. It should be remembered that data is essential not only to a given unit but also to companies that are part of the supply chain. Perhaps it is a good time to invest in modern IT/BI systems and implement CSRD requirements continuously.