Episode 78 - ESG reporting and performance management

Speaker A: Welcome to Sense and Sustainability, your podcast channel for sustainable procurement. We hope you like what you hear. Please go to www.iso2400.org for more information, learning resources, tools and much more.

Speaker B: Hello everybody. Good morning, good afternoon, evening, wherever you are in the world. My name is Sean McCarthy, I'm a director of Action Sustainability, community interest company. I delighted to introduce today's webinar, uh, along with Planet yes and fira. You'll be hearing from speakers from both of those organizations as we go through. What we're talking about today is ESG reporting, sustainability reporting, environmental reporting, social value reporting, whatever you care to call it. We seem to uh, confuse the world with terminology these days, but it is a challenge and it seems to be a challenge for everybody in the world, particularly when we start to think about reporting through deep and complex supply chains. So we've got a great panel of experts here, ah, to uh, talk to

Speaker C: you, to give a view.

Speaker B: So I plan to talk very little and hand over to them. I'll uh, ask each speaker in turn just briefly to introduce themselves first, who they are, what they do, and then to give us a perspective on the issue. Where are you at with this whole issue of ESG reporting? What are the challenges? What are the benefits? Are there differences between small and large organizations? And uh, we'll have a conversation and see how it goes. So without further ado, I'd like to introduce Jurgen, uh, Jurgen, would you like to just introduce yourself and uh, talk to us about the issue from your perspective? Thank you.

Speaker D: I'm Jurgen, uh, Hohle from PlanetJES. I'm the CEO and co founder and at Planet yes we provide both consulting services and software for ESG reporting and we primarily focus on the SME segment of the market, a segment that is specifically uh, uh, challenged with limited resources and have lots of how to questions in the reporting, especially when they are asked by their corporate clients to report. So that just as a short introduction of what our primary focus is, we are based in the Netherlands and we do have clients uh, across borders. When I think about the challenges today, uh, especially in the geopolitical climate that is changing, uh, we see that the expectations of ESG reports are slightly changing and gearing towards also the reliability of the services that they are providing. Uh, so it's not just tell me about your footprint of your uh, carbon footprint basically, but the energy certainty that you can provide, uh, what will happen if certain disruptions happen in the world. I think this is one of the most interesting things that are happening right now, uh, and this SME segment is still, uh, getting used to reporting. Some have been exposed to ESG reporting for a long period of time due to the type of clients or sectors that they work in. But nowadays the focus seems to shift somewhat a little bit and we try to help them in their challenges with meeting those customer expectations from their buyers and organize their ESG reporting in such a way that it is not just becoming a practice of reporting year over year over year, but actually making these companies more resilient in their operational resilience and making those companies more future proof. So that's one of the big things that we have been working on, uh, and see as a tenant or as a trend in the market and of course in the European space. The vsme, the voluntary SME standard, is one of those standards that we hope and little by little see being accepted more and more as a standard for reporting, which helps a ton for the companies that are collecting the data and comparing data in the sense of that there's finally a standard that will help them collect the data in a uniform way. And especially when you are on the other end of the discussion as a buyer, it is a tremendous blessing if more and more of those buyers are adapting, uh, this framework. Uh, many of you are familiar with the CSRD framework and the uh, VSME is for those that are too small to report according to the csrd, uh, standards. Whatever the standard is that our clients use, we help them with workflows to get as efficiently as possible through those processes with workflows and software so they can collect the data and start with the essence of the issues that they have to deal with and then lead them to, uh, a pragmatic way of operating and reporting.

Speaker B: Jurgen, can you just, you've mentioned VSME for our audience. Can you just expand a little on what it is, where it came from? Is it mandatory? Is it voluntary? Can you just talk a little more about the standard so, uh, our audience can understand it?

Speaker D: Definitely, yeah. So the CSRD has been, uh, introduced as a mandatory standard for larger corporations in Europe. And we're looking now at 1,000, uh, people per company and 450 million in revenue on an annual basis. On a group level, it used to be a little different. So I think in the Dutch context, about 92% of the companies that were supposed to report according to the csd, uh, have been, uh, the raising of those standards. They are not falling under the CSD standard anymore. And there seems to be a little bit of a gap there because the VSME was really for SMEs and there are larger companies that um, are neither. Uh, CSD and FSME seems sometimes to be a little bit too small for them. But we found the workaround for that and help them to report according to the VSME standard as a first step. And then obviously those that are in the between space, they will have to report, uh, well they don't have to, but they often report in a more extensive way and add additional data points and stories to uh, the reporting. And for those that don't understand the vsme, the VSME is a very pragmatic, mostly data based, thin standard that ah, is intended to uh, provide a standardized way of reporting on esg. And the benefits of that is that when you are looking for capital or financing with your bank or if you're working with procurement departments, the buyers, it's intended for them to use one standard so you can use one report. And we used to say and rule them all, uh, with that one particular thing. Um, so I'm really excited about the fees and me, I think the truth is that many uh, corporations that are requiring ESG data, including the banks and other institutions, they seem to still work on putting these requirements into practice. So we think it needs a little bit more lead time. Although the standard has been there for quite some time now already.

Speaker B: Because when we think about csrd, of course, although it's an EU regulation, it affects organizations all across the world if

Speaker C: they have clients within the eu.

Speaker B: I mean, for instance, we have a supply chain sustainability school in the United States and Fluor, a uh, massive American construction company. Their director of sustainability is totally obsessed by CSRD at the moment. They're an American company, but they operate in Europe. So I think it's important to recognize the, the impact of EU legislation goes

Speaker D: way beyond the eu and there's much criticism about that from the United States, for example, about uh, if it should be allowed uh, to have legislation that reaches so far. Um, but we do have clients in those parts of the world, um, that do like to work with partners that have a European background specifically because of this issue that you're mentioning.

Speaker C: Yeah, yeah, absolutely.

Speaker B: Okay, thanks very much, Ergon. We'll come back to you obviously, but we'll go around uh, the virtual room if we can. Charles, can I maybe ask you to uh, give us a perspective again? Introduce yourself, tell us who you are, what you do, and give us the perspective from your quite long experience now of dealing with this issue in the uk.

Speaker E: Hi Sean M. Thank you. Yes, so I'm Charles Nord I work for an organization that has two parts to it, Action Sustainability, which uh, is a consultancy organization based in the uk. We uh, do a lot of work in terms of supply chain management and responsible procurement. And then the other arm um, to our business is the Supply Chain Sustainability School, which is an education platform that's present in the UK and Ireland, the USA and Australia. And we uh, have an education platform for anyone working in what's known as the built environment space to go and educate themselves about sustainability and what they can do. And really it's targeted at helping supply chains understand how they can uh, overcome the challenges of sustainability and become more sustainable so that we can upscale the entire industry. My specific role is within those sort of two arms of the organization. I've been heading up our uh, reporting solutions for the past eight years or so. And that sort of segues into I guess the exposure I've had and some thinking around ESG reporting. But essentially the exposure that I've had is overall helping large infrastructure programs and organizations in the UK implement reporting across their supply chain. And in parallel to that I've also been working with groups of organizations to put together standard frameworks for reporting in the supply chain as well, particularly around things like carbon reporting, diversity reporting and so on. So I guess the conclusions to date that I have is that first of all uh, based on the clients and the exposure that I've had, there are uh, two key reasons why organizations want to report and um, want to get involved when it comes from a supply chains perspective. Right. Um, I'm adding that lens to it. One is for what I would call the reporting angle. Right. So you've got financial requirement, you know, investor requirement or you, you, you've got a legal requirement to produce some data and some paperwork and, and to do that you need to go out in your supply chain and collect data from them. So that, that's uh, I'll use the word tick box exercise in a way but, but I do see lots of benefit in doing that. Right. So it's not the negative connotation then. The, the, the other sort of key driver I see is actually to use reporting as a mechanism for improvement for performance management. Right. So you use measurement to manage performance and uh, that becomes very interesting in the supply chain and I think where it works well is when those two things are coupled together and organizations uh, are able to use reporting for some sort of compliance reason with mechanisms that actually help the supply chain to participate and understand how they can get better. And so it sort of almost extends reporting when it comes to the supply chain, uh, as a different type of education mechanism. And I see that happening successfully across clients. And I would just sort of final point say that in terms of the exposure that I've had, there's lots of different, you know, in terms of challenges. Right. There's lots of different ways data is being asked for, there's lots of different requirements. Everyone typically has their own way of going about it. We understand the reasons why. But it's a key barrier. It's a key challenge to adoption and to making reporting not burdensome but something that's really beneficial. And I think that that's the key thing. Right. And can technology play a part? Can Internet of Things for example, can AI play a part? Those are big questions. I started this sort of journey eight years ago and I don't think we've advanced that much on that barrier, um, to be honest. So yeah, it's it, it just, you know, in terms of timescale, I like to think that in 10 years time that challenge would be overcome. But I've been here for eight years already on, on this specific topic and I don't feel we've moved an inch. Right. So yeah, that, that, that is something that we need to consider and think about.

Speaker B: Charles, you mentioned briefly about groups of businesses coming together to report. Do you see benefits? Is this a thing that uh, organizations need to do in isolation or are there benefits of organizations coming together to take a common approach?

Speaker E: Obviously there are lots of benefits to taking a common approach. I think just to be um, very clear, the work that I've done is groups of organizations coming together to create a standardized reporting frameworks for their supply chain. So the ask to the supply chain becomes the same. And that's really beneficial because we know that in certain sectors the majority of the impact is in the supply chain. And therefore being able to not only engage the supply chain on them, understanding their own impact and uh, being able to then actually accurately get that data is really beneficial. It helps everyone to understand where are the hotspots, what should we be focusing on. And absolutely everyone being aware of that. You've got to remember that a lot of when we talk about supply chain, we might be talking about massive organizations like Microsoft.

Speaker F: Right.

Speaker E: Or we might be talking about bricklayers limited that uh, are down the road. Right. And so there's a massive variety there. So if we can find standardized way, I think it really benefits that sort of more of an SME and.

Speaker D: Right.

Speaker E: Uh, it goes back to what Jurgen was Saying benefits for the sort of the SME end who don't necessarily have the knowledge, the resources, the time etc. If we can have a common ask and also if we can get them to report once and then we be creative. I say we on the client side, we be creative with the data that they've given us and we interpret it in different ways that suit our needs as opposed to asking them. No, you're going to report about me and about my project and about what you're specifically doing for me. That's a burden. Right. So you know, if we can agree and um, that's the work that we do is we try and get organizations on the asking side to agree that they're going to be pragmatic about this and they're going to therefore lose a little bit of uh, uh, data, uh, precision. But it's worthwhile doing for the greater good for reducing that reporting burden and so on. Hopefully that answers your question, Sean.

Speaker B: Yes, it certainly does. Thanks very much Charles. Lots of things that we can kind of get into there and hopefully we will as the uh, conversation goes on, if I can switch now. So you've heard from two organizations, one

Speaker C: in the uk, one in the Netherlands,

Speaker B: more from the sort of consultancy, advisory side and uh, provision of software and

Speaker C: the ability for organizations to report.

Speaker B: So I'd like to flip a little bit now to the client side organizations

Speaker C: that need their supply chains to report for a perspective.

Speaker B: So Joy, would you like to introduce yourself and talk a little about the topic?

Speaker C: Thank you.

Speaker F: Yes, of course. Thank you. Well my name is uh, Joy Diekmaier. I work uh, as a sustainability manager at Arboini. Arboini is a national occupational health and safety service in the Netherlands. We guide employers and employees uh towards safe uh, and healthy working with a focus on prevention and also good working conditions for the employers, employees uh, both physically and mentally. Arboini we are a steward, uh owned company and therefore we seek to maximize the social profit and contribute to society uh in this field of safe and healthy work environments. We are currently in the top three of all the branch in the Netherlands and also leading our branch I can say on the uh, subject of today the ESG reporting and uh, also the ESG initiatives. So for me personally I have a background in project uh management and um, I've been working in this role of sustainability manager now for four or five years and at our company I'm leading a team of five professionals um, who work together on our program sustainability program and of course also the sustainability reporting as we currently work it on using the vsme. And today I will be sharing with you, uh, from this perspective from our company, from our journey that uh, we made on um, ESG reporting in the last few years. So I think it started maybe three or four years ago, well, when Arba Uni was in a project, a project creating a new strategy for 2030. Of course we were aware of the um, well, the development of the CSRD in Europe and we were thinking, okay, what are the implications for our company in the coming years? So we decided to include this development in our strategy and we decided that well, we should develop our current annual reporting was financially based and it was, of course, yeah, we were doing it for years. But we need to add more ESG aspects to our uh, annual reports. Uh, so we decided to start a project on that. And this process in the last few years has also learned us a lot uh, on the value of uh, ESG reporting for our company and also for our stakeholders. So I believe that for almost all companies and organizations it is important to start uh, working on ESG reporting because every company or organization has a story to tell to the outside world and it's a story about their projects, maybe their services, their contribution to society, uh, the impact that they have on their surroundings, on um, people, uh, on the planet, also on society. So ESG reporting I think is a very good way to tell that story. And there are uh, already many organizations, especially large companies, I think also some smaller ones that do this, this ESG reporting because they are intrinsically, had to say, intrinsic motivation to share their story, to show their impact. And also we know that there are a lot of companies that don't, not yet. So uh, that's what I see in the market also that I think it's important for all small and also medium sized organizations start ESG reporting because it's important for, to tell your story and also it becomes more and more important uh, for stakeholders, shareholders, but also all stakeholders to hear this story and to report on the ESG impact.

Speaker C: Yeah.

Speaker F: So considering that, I think ESG reporting is an important way to be transparent about uh, your impact on people, planet, uh, and environment, society. And transparency I think is one of the core values also in this, in this field today. More and more this, this transparency is expected from companies. As I, as I said stakeholders, they are asking for it. We also uh, at our company we can see that our suppliers or clients, customers, they all want to hear the story to want to see, okay, show me your impact. Also I think every company is expected to be accountable for the impact that they have and both directly from their company self but also in their value chain as was mentioned before today. And we see that uh, most of our suppliers that we are always, of course we are uh, asking questions to our suppliers. So okay, uh, help us on our ESG report, give us the data, uh, tell us what you're doing, tell us your story. And as of today uh, we can see that our suppliers, the most of them are not ready. I think maybe 80 or 90% when I go to them and I ask the questions, they have no answer. So they cannot help me in my ESG reporting. And luckily There are also 10 to 20% of our suppliers that do have data, do have ESG reports. They can provide uh, to me and I can use it in our, in our own ESG report. But for this 80% of the companies that don't have it yet, we keep asking them every year, please give us the data, please give us. And so we are pushing them and pulling them to better uh, ESG reporting and uh, thinking about this process and also helping them as we are uh, as I said leading our branch. We also try to take other companies on this journey. We also see that our customers asking us for our data and our ESG reports more and more. And at this point uh, we are happy that we are ready for them to ask uh, to answer these questions and can share our ESG scorecards, share with them our ESG reports. And it also helps us doing business and also growing our business. It's important uh, I think um, to mention that. So while the CSRD has given, I think many companies in Europe an external push is compliance to start working on ESG reporting. And I think that was one of the good things of CSRD to give this kickstart. Although there was also some downsides to the CSRD and the complexity of it all I think was um, too much especially for our company. So we are very happy with the VSME at this point. But it was at the start a helpful push in the right direction. And at the same time I think it was a wise decision to reduce the, the regulatory burden that the CSRD also uh, uh, brought to us. And the VSME currently offers a very practical and usable uh, alternative also was mentioned before today, very practical, um, and useful for SME M companies that want to start today with ESG reporting. And personally I would think that it would be a better idea, a good development if the VSME would be come like mandatory for a special certain companies or Certain uh, market parts. Parts of the market. Because it's a very practical tool and yeah, would be good for the company itself to take their steps on this journey of ESG reporting. So now at Arbooni we have been working on uh, sustainability reporting for several years. So we first started with only a small uh, paragraph in our annual report on sustainability. And over time it developed and growed into a page, into a chapter, into uh, a currently uh, separate uh sustainability report. And uh, a few years ago we started the process also with the help of Planet Yes. And uh, we started with this uh, this materiality m analysis to, to determine our material uh, uh, themes, the uh, most important themes to report on. And this analysis came the basis for our sustainability uh reporting process and uh, also for yeah reporting on this uh, the impact that we have on these material topics. So in the months after that we worked together to align this CSRD guidelines and processes into our company because at that time we were mandatory to report, confirm this uh, the CSRD and we were implementing it in our company. And this process has given us a strong foundation for future sustainability reporting. Although at this today we are not forced by the uh, CSRD to report on our ESG subject, we still chose to continue the process and to keep reporting on our sustainability because we discovered the value that it has for our company. So I think more companies made this decision to continue voluntary on this journey and I think that's a very good um, development. Ah. So at this moment we are working on our first PSME compliant report for 2025 which will be published on our website very soon. And um, we do this uh, with an internal uh, working group and colleagues from different department also. Yeah, it's, it's a clear learning process for our organization. We keep improving this report every year by year. So um, it's based on the feedback that we get from our stakeholders inside, outside company on our ESG reporting. Yeah, we want to improve every year, uh, step by step. And I think that would be one of my tips, uh, and advices for people listening today. Just so, so get started, start uh today and keep improving step by step. I think that's a uh, useful strategy to use to uh, ESG reporting if you want to start with that. So I believe also that companies can help each other making step in this journey on ESG reporting. I've seen it in my network of sustainability managers. People are willing to help share good examples of very good ESG reports that are in the market from other companies. You can learn from uh, share them with each other and also sharing knowledge on the process to create a nice ESG report. I think that is important to do that and it's also useful to use these. To use each other to you. Yeah, to um, help each other in this journey. I think it's an important point. I would like also to stress that the real impact that you make as a company in the end is more important than the reporting on the impact. And that was one of the findings that we had in the early years of the csrd. Like all of our money, our time, uh, uh, all of our attention was going to this reporting process and it was uh, you have to choose right, you can't give your time to both process. So in the end we discovered that, okay, the real impact that we make in the end is more important. Of course reporting is important because of transparency. But we also have to use our time and money and attention to improve the impact that we're making. Because that's the way, uh, the reason that we're here on earth. So I think a uh, good ESG reporting strategy helps you with that to keep focus on the things that really matter and also be transparent about that. When we were talking about ESG reporting I can, I think that transparency, one of the key aspects that's very important. Some companies, they are, what I said before, intrinsic motivated to give this transparency to tell you the story. But there are also some companies that don't. And what we see now in the society is that uh, more and more stakeholders, they are demanding this transparency from other companies. And I think that's a good, like um, how do you say, good way that we should uh, demand this transparency uh, from each other for the impact that we have in the surroundings. So for us personally at Arba Uni, uh, ESG reporting has moved from this compliancy. Having to do it, we had to do the csrd. Now we look different to it. We said okay, it's useful, it has value. We use it to steer the organization like Charles also said, to improve operational excellence. So we have targets on our material topics that we were working to, to make more impact for our customers and clients. So that's very useful for our company. Also on this journey we started building uh, processes internal for like data collection, data management, all necessary uh, to in the end create a nice and beautiful ESG report. But at the end we use ESG reporting as a management tool also to improve our organization and to increase our impact. So in the beginning, uh, when we made this material, uh, uh, analysis of material Topics we uh, deliberately chose not to have too many material topics. We said, okay, we want to have maximum of five maybe topics that we are focusing on to not lose all our time and money on the different topics and we have to bring this focus. I think that's also um, a good tip for other companies starting this journey. In the beginning of the process you have to focus on a few topics and later on you can add other topics to increase the scope of your reporting. And I think it's also a wise thing to use this strategy. It is possible for organizations to define their own threshold on what they consider as material topics, as we know. So it's like um, on, I can give an example on maybe carbon footprinting. We chose to um, report on that because we had the data. So of course we can be transparent. And in the beginning, in the first few years we had only little data on our carbon footprint. So we said, okay, this is not enough. It is not like the quality of the data is not uh, good enough. But still we choose to be transparent on it. We report it and we tell the story also on the quality of the data. And then the following years we use to improve the quality of the data. We do more measurements, we report uh, about our goals on carbon footprint, the actions that we take to working towards these goals, and also the actions that we take to improve the data quality. And in the end this is useful for all different aspects of ESG reporting. Another tip, maybe start with the data that you have, be transparent on the quality of this data, uh, and improve the quality of the data in the following years and keep reporting uh, towards your goals. So when our journey started in I think was 20, 23 or something, using a roadmap is another tip, maybe for ESG reporting. We made a roadmap. We said, okay, we are now here, we want to start today, uh, with this analysis of material topics. What are the next steps? When are we going to take them? Um, who is responsible? Um, so I think it's important to make this plan, ESG reporting also for your company to uh, make these steps, of course with support from external advisors and today also of course with the help of AI, um, using to uh, improve your ESG reporting process. And um, yeah, so this is also, I think part of my advice to you all listeners will be to do not start with all the data points, focus on a few, make your choices, uh, improve your data process, be transparent on it and from there build it step by step, improve your report and tell the world the uh, story that they need to hear about your organization and uh, be proud of it. So I think it's uh, in the end, ESG reporting a very useful tool, uh, for that joy.

Speaker B: Thanks very much for that and thanks for those practical tips. I think our audience are going to laugh. Wrap that up because so many people are starting on this journey. Can I pick up on something that you, you said earlier, 80% of your suppliers were not ready and uh, Charles was nodding vigorously at that point because I know you felt that pain as well. And Jurgen, I suspect you also had those challenges. So if I can maybe bring Charles and Jurgen in to this conversation. How do you get suppliers to actually report? Charles, do you want to. And then we'll go to, then we'll go to Jurgen.

Speaker E: I'm happy to jump in. It's very simple in a way, right? It's tell them why, what's in it for them, you know, make them interested and understand the driver. So, uh, that they actually put a bit of heart, ah, and soul into it.

Speaker F: Right.

Speaker E: I think that's the first step. Don't just go, uh, hey, complete this and no explanation, no background. Give them, make them feel like it's easier said than done because of resources, right? But if you've got the resources, make them feel like they can come and ask questions and they can come and meet you in person or come to a forum and ask questions together and you've got help desk or whatever all of those things might be to help them on that journey. And remember that some organizations say, well, uh, it's their job, they need to do it, but if you actually want them to do it, you need to invest a little bit, right? And then you'll get the outcome that you want. Uh, you can't sort of get off lightly or cheaply on this if you're serious about it. So how much of a problem is it for you? I would sort of turn back and ask. Um, and then I think there's just regular mechanisms like how can you incentivize, how can you reward, how can you, um, give them the opportunity to feed into what you're asking as well upfront and just make sure that they've got the correct education and understanding around that. I see examples where clients are asking for apprentices in fte, for example, and companies come back and go, well, they come back and report headcount, right? And it's just a slight, sorry, FTE full time equivalent, apologies for using that acronym M. And so it's just a slight difference, but actually it makes a Difference in the end data, right? So just having those conversations and going to the supplier, well, what's easy for you? What, what do you have available and where can we find, can we find a middle ground? So there's, there's lots of little things that you can, that you can, that you can put in place and they're not technically difficult, they're just about putting the resources into making that happen properly. I would say one last thing though, is you might set up everything correctly, do all the right training, get your stakeholders, your supply chain stakeholders involved, etc. Once you get them to report, make sure that then first of all, you hold them to account. So too often I've seen sort of all these grand plans get put in place and then all the training done, all the education done, ticking all the right boxes along the way. And then month one happens, reporting happens, great. Month two starts to slip off, month three, no one's reporting and the client doesn't hold them to account, there's no impact. So then suddenly you're given the message of, uh, I can get away with this, right? And so you're back to square one. So, you know, if you're going to enforce it, be really kind, be positive, supportive, but then also know when to be professional and go, no, right, you, you said you would and you haven't. And so there are consequences and, you know, that's just the way it goes. And then at the end of, at the end of, you know, or regularly depending on, on your reporting cycles, but make sure you, you say what you've done with the data and you give that back and you get a bit of insight back, you know, that's really important. So then they see, oh, uh, yeah, this is taken seriously and stuff does happen with it. I've got, uh, quite a few clients who will do the, get the data, but then they don't, they don't give anything back. And then when we do surveys to understand, right, what's going well, what's not going well, etc. One of the key things that we, like, nine times out of 10 we get back is we've reported, don't know what's, don't know what's happening with the data, we don't know what they're doing. So some will go, yeah, I guess I'll carry on reporting because they've got a compliance mindset and saying, I did it, but what's the use, right? So, yeah, there's probably lots of things, but hopefully what I'm saying here shows that it's just very programmatic and you don't need to be an expert in any way to understand how to make those things happen.

Speaker B: Thanks Charles. Jurgen, anything to add?

Speaker D: Uh, I would say the key thing that we have found working with sustainable um, procurement uh, efforts, buyers is that if you set clear expectations to your suppliers, that will be the single most important thing you can do that will deliver the data. We used to work with clients and the expectations were not clear. It was a nice to have instead of a hard ask and you got results accordingly. So for us, uh, other than Charles just explained how important it is to incentivize it and explain and guide them through the process, uh, especially if they never hear back from you, that's very painful for suppliers and sometimes they don't care. If the commercial benefits and things at stake are large enough, they will do it anyway. But for us setting a standard of expectations is really the key of getting your data. And nowadays you can explain with CSRD companies that have to report according to that standard, they need the data to report. But there are still lots of challenges indeed in the type of data that they receive on their end. And for us that is the argument in this particular case for the VSME to use it as a standard, um, because you can use it for, if everyone is embracing that particular standard it becomes so much easier. And it's simple enough, it's pragmatic enough, there is really no excuse to not use it. And I personally believe that that could be implemented all across the entire supply base because it's so pragmatic. And we do understand and we do recommend um, um, buyers to segmentize first and look at which are my critical suppliers that I would like to have, um, that I would like to focus on first. I have particular demands on top of what a VSME would provide or if they report themselves on the crcd, uh, that would be great obviously too. Uh, but for us we want to be very clear on what to expect and if you start conversations like that from the beginning it is a lot easier. The problem is often that they have existing suppliers that were not used to reporting in this particular format. And if you change then your expectations, you have difficult uh, conversations and they will call their contact person and if they don't say well you have to do this, then uh, it gets into that struggle. So I agree with Charles that uh, the education also on the part of the sustainable procurement side is very important that multiple people in those teams understand uh, what they're asking and why they're asking it and what we also do is actually implement, help implement those buyers to get the data because often they just need a little bit of a push and it doesn't have to be expensive. We can help them in a very pragmatic way to collect the data that the buyer is asking for and then everybody is happy.

Speaker B: I think it's a really good point, Juergen, as a former procurement professional myself, getting the requirement right at the very beginning, you know, the pretender stage. So things are very, very clear from the start. Because what suppliers don't like is surprises. Um, if you introduce something, inevitably the price goes up and then you start to develop this myth that sustainability costs more, which it shouldn't. I always say it shouldn't cost more, but bad procurement will cost you more. So I think there's a really, really

Speaker C: good message in there.

Speaker B: Okay, let's move on. If we can back to the, back to the UK for a client perspective. Nidhi, would you like to introduce yourself and what you do and where you are on this journey?

Speaker G: Hi. Thank you. I worked in finance for a very long time and I'm a climate risk professional and I now work for one of the major projects, which is Size of the Sea, which is um, a mega infrastructure project and uh, its power in utility sector and even that within that it's a, uh, nuclear energy project. And I've been on this journey for a little over a year and Charles and I work very closely. Isn't it, Charles? So, yeah, I'm, um, hearing this very deep conversation about a lot about ESG reporting and it's m a good thing to do sort of conversation we are having. But I think one of the very important things that I think is sometimes often missing is, um, especially in the realm that we're talking about supply chain. Right. So we as a client, and I'm going to take this example and then drop back into the finance world. We seek, we demand because there's a regulatory, voluntary or mandatory requirement either ways. Right. So we ask for a lot of data. So we are probably, uh, the most, uh, or the bigger culprit asking for data from a supply chain. But that data is pure gold, especially for the supply chain. And we must understand that. Very well. Uh, and when I say that, what I mean is the structure of around how this whole operational equation is sitting is there's a client who does most of the contractual relationships with the tier 1s and those tier ones are the big mega companies, uh, you know, who we do these, uh, conversations with. But underneath them sits this Huge supply chain, which is the tier two in our clients respect. And that is where I would say majority of the challenges and the disconnect lies because these then over a period of time become smaller organization and that tier 2 further splits down to nth tier. I would say. I think the question is um, who has the larger benefit of doing this? We as a client would be always in a position to dictate the terms, um, and tell the market because we have commitments to prove against. But then as a large company we have the wherewithal of risk management teams and we have our insurance department, we have our diversified supply chain management, procurement, capital reserves. But for the supply chain, they're all small, medium enterprise. And further than they break down to small business. Right. They don't have that kind of buffer when it comes to resources. And why are we collecting all this information is really important because ESG reporting in a way, and whatever framework you may look at, it's too underpinning pin the very climate risk that we are all talking about here. We uh, should not lose sight of that. So big companies or clients or tier ones, they're all adapting very quickly and they're saying yeah, because all of this because of climate risk is getting reprised in our uh, sourcing strategy and in uh, our procurement, in our insurances, in our hedging of the risk. We are going out there to a supply chain, collecting this because therein lies the maximum impact. And someone spoke about this, why are we doing this? Therein lies the materiality. So the small businesses, in terms of materiality, they may appear small, but globally SMEs form 50 to 70% of the world's GDP. They employ 65 to 70% of the people globally. They're the biggest employers to be fair, and they employ locally as well. So the local social value, getting into it through any project is huge. And the organizations the top of the structure, which is the clients, we understand this very well, which means we need to do everything within our realm to enable this movement of asking for data, enabling that data representation of their data and reporting very neat and clear because therein lies the conversation around impact and materiality. I was just doing the study a couple of days ago and I was looking at from a supply chain perspective that close to 400 odd, 400 million odd SMEs globally. So I'm very happy that VSME is coming to help them, you know, and whatever region it is. And I'm sure Jurgen and others are trying to uh, their best effort to make it very seamless uh, one of the challenges that SMEs largely feel, and this is from a trade finance background, is 50% of the time or 50% of the SMEs, I would rather say they lack adequate access to the right kind of finance. And that gap is so huge, it's almost a trillion dollar credit gap. Now that is part of a huge part of the GDP itself and that is getting underpinned by how do we reduce the climate risk. And hence this realm of ESG reporting sits in very well. Because if the SME sector got the digital impetus, and they are probably between the large players and the small players, I would say the small players, they are 30% more inclined for any digital adaptation of a tool tool because it will enable them to provide this information back to all their clients. So they do have a strong willingness. I would give them a credit for that. But to address the big larger white elephant in the room is this finance gap. And therein lies the value proposition that these small businesses need to be able to use this data back to represent their credentials and pick up the finance at the terms that work for them. So it's not just a reporting and compliance and a regulatory or all other sorts of market forces requirement, which is in a way voluntary or monitoring some of the realms, but essentially creating a level playing field for everyone to operate. Because if you stand back and see the main drivers or I would say that the arteries of any economic growth or economic productivity is happening through SMEs and anybody in that client position should understand that. So one of the strong mechanisms is to help make this flow of the ask and the information back through client tier one, tier two, especially in a large infrastructure project, I'm talking about make it very clean, clear, keep responsibilities. And someone mentioned about what is your ask, make your requirements very clear. One of the things that I do as part of, uh, the data and digital aspect of this, leading this in sustainability is I ask my SMEs back as to why do you need it? Why do you need this data? So this material conversation around impact measurement and then getting the data and then finally doing work with it is very important. The what will you do with the data? Is extremely important because that ties down to, hey, how much is the um, burden of reporting all this? And I'll tell you, the conversation around burden, and I particularly dislike this word burden. It's not, I think it's a way of telling off people as to we sort of reduce the importance attached to it. So I may not use that word and why is that? Um, because when an event happens then everything flows back to the information channel, network, the digital capability of how not to have the situation back again. And I'm going to take a very different example here of a huge client, um, and a production unit of jlr. And this is not even a climate risk event but it's an IT event where JLR underwent and it happened nine months ago, September 2025. They had a big cyber security impact. JLR, um, the Land Rover company, they have seven uh, hundred plus suppliers and if not all majority of them are impacted by this. Now we need to take strong note of this that when an event, even an IT space like a cyber security risk happens the impact is so huge and these tier 2s, especially such cash flow driven businesses that they get impacted first which means production stops, workshops close, workers, the employers, the labor are um, impacted the most. And that has a huge trickle down effect on the local community level economy and that has a huge you know, cascading effect further down nine months. JLR is still trying to address the issue and why am I talking about this? Whenever something like this happens where there's an impact on supply chain trade, finance immediately comes in to help. They're the most nimble and agile arm um, of any financial setup and they make the world go around to be frank. So our requirements of any ESG realm, um, or sustainability must very closely and deeply link to how much profitability in a sustainable way can it create for your supply chain. You need to have the strong conversation through your own way of how you facilitate and then you'll start getting a lot of perspective being built. You'll start realizing that especially your tier 2s who are much more closer to the groundwork and they provide actually the real data to you. They know their know how and the knowledge of their own business is superb. So as a corporate layer you have to sometimes I would say get down from your high horse, get out of your corporate layers, get down to the ground reality of where the activity is happening. And we have a very strong culture um, in size we'll see especially to be close to the site where the construction happening, be close to your supply chain. I would like to take an example here if it helps. Uh, we're trying to pin down again as part of the Scope three remit, trying to understand our fuel consumptions. You know when a construction site is being built there's no electricity, there's no grid based electricity coming in. So you've got all these generators running 24 by 7 and you've got the fuel supplier coming in. So I'm trying to figure out, oh, where is this all impact coming from? So it took me a rather long journey to figure out who does what in sustainability space, especially in the client side. Uh, the farther remove you are from the activity, you know, because the suppliers involved, you spend a lot of time figuring out who does what. And that is where any technical or digital capability can help. That's a very strong place to operate in. Once you establish that and you've figured out who's doing what and bringing what, where, which has a deeper impact, you need to have a conversation with them to understand how are they collecting the data. So instead of this conversation about, hey, I need this like Charles and Joy and Jorgen said before, and I'm sure uh, Lex will have the same real, um, freights that, oh, I need this data. Oh great. But as, uh, a sustainability representative from your client side, you need to ask your tier 2 spatially, how will you provide me this? Sometimes a, uh, deep value lies in that.

Speaker F: How?

Speaker G: I ended up looking at one of the brilliant Excel sheet that this supplier maintained, which nobody ever looked on our side. And I was literally in tears after looking and said, mate, you could have given me this on day one. And he's like, but you guys ask these questions in a different format. And I was like, yes, because we make mistakes too, you know, so be humble about this. Talk to your supply chain quite regularly, ask, ah, people, how are they doing this for you? Not always about, uh, why they need to do it for you. They understand the why and make no bones about it. Quite often corporates may not understand, but your supply chain knows the supply chain. You may have to sometimes help them because, you know, there are other aspects of the small companies as well who think that this is the cost conversation, this is a burden, um, but you need to mobilize as a well playing client to make sure that you're supply chain understand why it's important. There's a bit of an, I'm sure something like an extra sustainability which your school of sustainability that you run separately can help them in that kind of environment. You know, I think these kind of things are very important and it's not, not an ideological reason to do things in the right way anymore. You know, it's like uh, even for a small player in today's world, they need to understand, well, what are my realistic ways that my business could not be disrupted in the next five, 15 years? And the small players, they're constantly thinking about that they may not use always the climate risk language, but climate risk is such a strong business risk. They may not have everything in a very digital format somewhere or system, but they have it in here. So asking them how they do it is very important. I would say that's a practical thing. I would like to probably our audience to take note from and if you get any pushback, I guess a good conversation would be to start from, well, if you do not want to participate in this, wouldn't it be better that you start doing measurement for your own good? Because of the finance angle that I discussed about earlier. But also that through this data journey you will find out a lot about your yourself on your own terms before someone else finds it out about you, isn't it? So that's there, you know, just structure, turning the table. Uh, and there's a lot of empathy you need to have in these conversations. Um, it's, it's not a very simple thing to solve in companies who have got everyday pressure of some sort of disruption going on. Especially we live in a world where energy shock factor is almost normalized on a day to day basis. As uh, a planet, we consume so much electricity, we need electricity to build everything and anything, which means any mega projects or anything that we are doing, you know, from building a spoon to a nuclear reactor, you need a supply of electricity, which means you need to be very cognizant and aware of how these energy and input costs being managed. And therein lies your big data about if you can measure stuff and you can build this great supply chain relationship and help them decarbonize, it helps you decarbonize. You can then have the strong relationship move on to the next project along with them. So you're not only only doing something one off, but you're actually building a capability across the market. And then these conversations around, well, what does the regulation look like then becomes a secondary thing. Then the people who are in the regulation world will roll up their sleeves and say, yep, this is exactly what we wanted. I've been telling you guys from day one, you know, so that's sort of my view on it. And I think one of the things that. Because we hire a lot of people as well, right. So I see a lot of uptake in the people whom we speak with to come and work with us and join us. They are very astute in terms of what we're doing sustainably. You know, they care a lot for the planet. So there is a bigger drive for us to do things in the right way. Because of the future employees that you're building in a workforce, isn't it? So there you go, Sean, thanks.

Speaker B: Some fantastic points there.

Speaker C: And I'm very keen to move on and ask Lex to speak as well. But I think your point about the importance of SMEs to the GDP of most countries is a fascinating one. And, uh, you know, I mean, Jurgen introduced the session to start with, to say they focus on SMEs, and I think it's important that we all remember that small businesses are the drivers of our economy. And yes, they do need help sometimes, but they do get it. I think that's really important. And also a point that Joy made earlier about needing to tell the story. If you're building a nuclear power station, you sure as hell needs to tell the story. But that story comes from, uh, the multiple tiers of the value chain. Lex, you said you were happy to go last because assurance always comes last. So if I could ask you to introduce yourself and give us a perspective

Speaker H: for a number of years. It must be 10 years ago or even longer. I, uh, had a sentence in my bio, you know, that short piece that you write about yourself that's used for, for example, a compass like this. And, uh, my bio would always end with a saying called, you cannot see eye to eye. If you look down on something, someone, and it was there for years, and my colleagues noticed it, they actually didn't like it. Nobody ever said that to me. That's what stood out to me. They had questions, why do you write this down this way? But nobody ever asked me, why, why did you write it down? But it has to do something with assurance. It has to do something with auto technique. It has to do with something with, you know, if you're sitting across a person and then he can look down or even up, it's the same problem. You're not going to get a good conversation and you're not going to get the right facts on the table if you cannot see eye to eye. So it's become very instrumental to my whole way of working, uh, and the payoff that we use nowadays as a company called FIRA Sustainability. In English, it would sound honestly forward only if you can be honest about yourself, honest where you are, you can look to where you actually can grow and what your next step can, uh, can be. So we are, uh, a company, assurance providers. We're not inspectors. We do not come to chastise you. We do not come to, uh, crucify you or anything. But we are experts trying to uncover the Facts to honestly look forward together with you, where you can be going. Now, speaking about honesty, it may be very logical to move to the topic called greenwashing, because, you know, when you talk about reporting greenwashing, everybody says all over the place. But, um, I would like to add some of my experience because, of course, my whole job is, revolves around, uh, making, um, sure greenwashing doesn't happen, right? So we look at these reports, we look at all these claims, not even reports, sometimes just websites or sometimes just a separate claim where they claim something. And we look for the objective evidence, whether that's true or not. And in practice, we often, you know, it's about an experience number with 30 to 40% of text is slightly rewritten because we say, you know, if you say it like this, it's not right, you know, you cannot substantiate it like that. But if you say it like this, you know, it actually fits. And it's still honest, it's still open, it's still transparent. I found with greenwashing and with doing this work with companies that greenwashing is seldom on purpose. People don't do this on purpose. We have a cold, uh, a game in the Netherlands called Vortidor Flash that I used to play as a child. I think in English. It's called Chinese Whisper, where you sit in a circle and you have to whisper somebody's ear. And then it ends up in the end with something completely different. Well, that's what happens with sustainability reporting too. It's not necessarily intentional. It's just the one message carried from one to the other. And especially when in the end of the circle, the marketing or salesperson who's enthusiastic about the message of what they want to bring as a company is right there. He's going to rewrite it to something which doesn't really fit anymore. It's Chinese whisper. So talking about greenwashing, it's. To me, it's not that negative. And what I like about my job, it's bringing positivity. Last Sunday, uh, I was sitting, actually reading a report of a client. Most of one day, I had to make what we call a claims book. So I read this report and I write everything down, which is a claim, and I put this in the list. And then we're going to ask for, you know, can you substantiate what you're saying here? And that can be words and phrases. And of course, there's always also numbers that we ask for. And I know that halfway today because I sat in my office here for almost 10 hours reading this, about halfway today, I all of a sudden felt happy. And I was thinking, wow, these people are doing really cool things, you know, and if we go into the media, we hear everything about war. We hear negativity. Uh, we heard scared, terrible things. We hear about crisis in the world. When you read a report like this, it was just. It just framed my mind like, this is cool. These guys, there's a lot of people really trying to do really good things, uh, in the world. They had a very positive effect on me. Charles asked the question, why do companies report? And of course, depending on what part of the business you are in, the answer may be very different. Some of them do it because they get more points than some type of rating they do. Uh, the same is true for assurance. When you go to Ecoviles, for example, you get points for your port, and you get points for the fact that you have assurance on it as long as you use the right standard for it. If I look at, from a sustainability perspective, what I've noticed, and, uh, this already started somewhere about 20 years ago when I worked in a consulting company, I noticed that companies that were making actually their ESG report were growing their ESG practice and their impact faster than the companies that weren't. So I'm very aware of the balance that joy is in. You know, should we spend our time and money on trying to make impact? Should report on it. But the answer somewhere lies in the middle. Uh, we have, of course, the saying, you know, be good and tell it. And so often within sustainability, we think, oh, we're just being good. We don't. Not everybody has to know. You know, it's almost. You know, you talk about Christ like, you know, the left hand should know what the right thing's doing. That's not what this is. You know, we need to tell this good news to, uh, people what we're doing. And it's balanced. You need to spend your time on doing the impact. You need to spend at least some time on, you know, telling others what you're. What you're doing. We've talked about the VSME before. I always have a copyright with me. This is it, right? This is the vsme. It's very thin. And if you look at it like this, these are the requirements. It's only a few pages. The rest is guidance. Now, if you compare that to my CSRD file, which I don't have on my desk anymore, I threw it out. Sits in a cupboard right there, Right back there. Uh, this is very little I, uh, like the VSME because it's a small start, it's metric oriented. I like that too. It's fairly simple. And still at the same time, of course we now have clients where they're making the report and they're asking us, can you also state that we are compliant to the vsme? And then we get into the nitty gritty and all of a sudden it still becomes kind of difficult. Difficult because it's language and it's things that they're not always used to look at, look at reporting and uh, look at doing. If I would have to criticize the vsme. There's only one thing that's really, really missing in vsme if you look from a corporate social responsibility perspective. And that's it has nothing about stakeholders in it. And if you think about corporate responsibility, it's always been totally stakeholder centric. It's all about, you know, beyond our clients, who else is there? Our workers, our uh, surroundings where we work, uh, from banks. There's all kinds of stakeholders impacted by us. That's what the thesme passes by. I guess the only reservation I have about it. We work, uh, according to, uh, we are an AA1000 licensed company, both as persons, as a company itself. And AA1000 is a UK standard. It used for me for a long time the only assurance standard that was out there for non accountants. We still using it, we still love it. It's totally stakeholder centric. Everything there starts by who are your stakeholders? And from the principle of inclusivity, don't forget anyone. Who are your stakeholders actually and how are you responsive on your stakeholders and how do you have impact on your stakeholders? And that's where this whole discussion should start with. Those are the examples that Neddy are also using. Uh, I guess maybe two more remarks and then I'll be shorter than the others. Two more remarks based on what some of the others were saying. Materiality for your company is a great way of looking at what's important for you and also understanding what your supply chain goes through. But beware very much if you are engaging with your supply chains, what's material for you may not be material at all for your supplier. Those are two very different worlds. And within procurement I've seen the most ridiculous things. You know, I've seen big clients ask their employer agency to get a 14,001 certificate or to ask whether what are you doing for circular business? That's not the core. You should be asking how they're treating their people and how they make sure. They get the same pay as the people at the company that they work in and those type of questions. So you have to be more precise and be aware that if you make your program and you want specifically this data, that data may not be the same, have the same importance to your supply chain, Tier 1 to Tier 3 or Tier 4, or even further in that respect. So be mindful of that. Nidhi, I liked your comment about learning about yourself. I often bring work to my secretary, which is so simple that I'm almost ashamed to give it to them. And they sometimes say that to me. And then they say to me, I actually like that. I like doing this work, Lex. Give it to me. Uh, give, uh, it me. I've had that same experience with Clyde not so long ago, where I was kind of embarrassed with all these questions for all this ESG data that we needed, especially on the finance side. And I kept pushing her because they were making quarterly reports, and we were looking at his quarterly reports every time. And we're saying, you know, sorry, that we're asking this data again. And then she said, you know what, Lex? We have learned so much from gathering this data, uh, about our company and how we do things. Exactly. The statement that you make, Nidhi, I hear that literally out the mouth of a client. We learn so much by looking at this data and having this data, uh, about who we are and what we can do. It doesn't matter. I'm happy to provide you with this. Maybe last but not least, I really liked your comment, Joy, about step by step. I had that in my end m. Note also, you know, stop chasing every metric. Stop trying to be complete all at once. And I like the way that you framed it. You know, start with the page and then start with the chapter in the financial, and then make a separate report of that if you. If that needs be. Uh, do it step by step. It's the way to grow. Be honest, look honestly forward, and do it step by step is what my frame of mind is. Back to you, Sean.

Speaker B: Brilliant. Uh, thanks very much, Lex.

Speaker C: We've had some fantastic perspectives there, and we are getting short of time. I'll attempt to summarize if I possibly can.

Speaker B: Uh, we've obviously heard a lot of different perspectives on the same subject, but for me, there's some very clear messages coming through. There's this whole issue of benefit versus burden. Um, and I think what we're hearing

Speaker C: very clearly from all of our speakers is there are benefits in this, but

Speaker B: it needs to be done.

Speaker C: Well, it needs to be done properly. We've certainly heard from, uh, most of our speakers about the importance of procurement and making requirements clear all the way down the value chain. We've heard about the importance of actually engaging with the supply chain and particularly small businesses, and particularly from Nidhi, about having these conversations with the suppliers about what they have and how they're doing it, rather than certainly from my, uh, I'm old enough to have been in procurement in the 1980s where you put something in a contract and you beat the supplier up if they haven't done it. We've moved a long, long way from there now, uh, into a much more collaborative environment. We've heard about the value potentially of businesses coming together, uh, to actually help each other to actually achieve those requirements. We've heard about materiality and uh, I sometimes wonder. We use this word materiality in English and it sounds really quite technical and quite a bit kind of accountant speak. It's just again, we've heard from most of our speakers to say start small and let's understand really what's important to us as a client at the top of the value chain. But also then to think about, as Lex said, you don't ask uh, an employment contractor about their approach to circular economy because it's completely irrelevant. So there's something about materiality at the top of the value chain, but there's also something about relevance to the supply chain. And uh, Lex von Opel, because he and I worked together an awful long time ago on the development of ISO 2400 and the importance of actually creating that heat map of suppliers and supply categories to understand what's relevant to which category of your supplier is really, really key. So I think there's some really important points there. I think we also talked about the challenge of getting suppliers to report and you know, Joy's point early on about, well, 80% of our supply chain weren't ready. Uh, I think that will resonate with lots of people around the world because they're not. And how do we do that? And we've heard about explaining why, developing that understanding, providing that sort of help and support from, from our suppliers. So I was going to go around the room with a final question, but, um, we're running out of time so I'm not going to now. So I'd really like firstly to thank all of our speakers. I think this event has been a great success in terms of really getting into understanding what this means. You know, what this, this whole issue of supply chain, uh, ESG reporting is all about. We've heard a lot about some of the regulatory requirements, particularly in the eu, the csrd, but also we've heard a lot about VSME and the potential benefit of that. Uh, not a mandatory standard, voluntary standard at this stage, but something that is proving to be more and more beneficial across the, across the piece. So I do hope our audience have enjoyed, uh, today's session. Um, going to wrap there with a final big thanks to all of our speakers. As I said, we're uh, live on YouTube at the moment, but we will be doing, uh, an edited recording of this session. We'll be putting it up on certainly on our website, iso2400.org and also sharing it with uh, our partners with FIRA and with Planet Yes. So we get as much exposure as we can, uh, to this really valuable session. So I hope you all enjoyed it. Thank you very much everybody. Enjoy the rest of your day.

Speaker E: Thank you very much.

Speaker H: Thank you, Sean for organizing this excellent,

Speaker G: yeah, lovely meeting everyone. Bye bye.

Speaker A: Thank you for listening to our podcast on sense and sustainability. Please listen out for more episodes. For more information, learning resources, tools and much more content on sustainable procurement, go to www.iso2400.org.