Chemical Pollution and the resulting impacts on air, water, land, and biodiversity are under intensifying investor, public, and regulatory scrutiny. The new disclosure requirements for pollutants and chemical emissions included in the European Union’s Corporate Sustainability Reporting Directive (CSRD) are a manifestation of this growing pressure.
Without exception, the new pollution disclosures are highly relevant for any company that makes products from raw materials. They all use chemicals - directly, indirectly, or both – even though many companies may mistakenly believe they don’t.
A key objective of the CSRD is to provide reliable and comparable sustainability data from companies on the impact of their operations on people and the environment. This will allow investors, customers, and stakeholders to benchmark companies and factor that into their buying and investment decisions.
However, few, if any, companies have the extent of information and data on chemical pollutant emissions and their impacts on the environment and society now required under the CSRD. Companies must act and invest to correct this since Chemical Pollution poses an equal, if not higher, risk than other sustainability topics.
Companies Face a High Risk of Exposure from Pollution Disclosures
CSRD’s Pollution disclosure requirements (Topic “E2”) can catch companies off guard leading to a significant risk of regulatory, reputational, and financial exposure. These disclosures are fundamentally about chemical pollutants, including microplastics. Many companies are heavily focused on disclosure domains such as climate. Nature, circularity, and social issues are receiving growing attention. Yet, focus on the use and environmental emissions of chemical pollutants from a disclosure perspective is relatively limited beyond regulatory requirements in specific jurisdictions.
E2 Pollution is fundamentally linked to the EU’s Zero Pollution Action Plan, which aims to reduce air, water, and soil pollution to levels that are safe for people and natural ecosystems, respecting planetary boundaries by 2050.
Companies that make products all use raw materials, which contain chemicals and minerals. Therefore, they could face significant burdens and risks under CSRD's Pollution (E2) reporting requirements that far exceed any pollution monitoring and disclosure they have been required to do until now.
This covers companies across a broad range of industry sectors, including chemicals, manufacturing, oil and gas, pharma, tech, metals, mining, and consumer products.
Companies are scrambling to find out what pollution-specific data and policies they currently hold and are becoming painfully aware of major gaps. Without a carefully prioritized and phased-in implementation plan to bridge data and information gaps, E2 disclosures could be founded on limited and poor-quality data and result in adverse reputational, competitive, and financial consequences, given that customers and investors are likely to bias their decisions to companies with better pollution footprints.
The Scope of E2 Pollution Disclosures is Vast
The EU CSRD Pollution disclosure requirements include reporting of listed chemical pollutants in emissions to air, water and soil and also the presence of listed substances in raw materials used, intermediates generated, and products placed in the market even if they are not emitted to the environment.1 The number of potentially applicable chemicals listed under CSRD is well over 15,0002. Some of these chemicals are poorly understood or defined across industries (e.g., PFAS, microplastics), and best practices and established methodologies for monitoring or estimating emissions have yet to evolve.
E2 requires disclosures not just of Pollution data but also of policies, actions, and targets aimed at reducing and minimizing the use and emissions of these substances of concern and pollutants, in line with the Zero Pollution Action Plan.
Significant Data Gaps Exist Across Industry Sectors
Despite environmental emissions from industrial facilities being heavily regulated in Europe, North America, and other parts of the globe, companies are finding that their current data processes and environmental permit compliance are simply not providing the data required to identify and report for the pollutants and substances subject to E2 Pollution disclosures.
Significant gaps exist in compiling the necessary primary data to quantify emissions to the environment and the presence of substances in raw materials and products. Even when data is available, companies may find a high range of uncertainty in their estimates, creating a lack of confidence in the datasets for those responsible for signoff (e.g., CFO) under the financial equivalency of the data.
Incorrect and incomplete Pollution (E2) disclosures will become transparent to investors, customers, consumers, and authorities, posing significant reputational risk and associated financial impacts.
A Risk and Cost-Balanced Approach to Bridging Data Gaps is Critical
Bridging data gaps while providing confidence around data quality and certainty requires well-designed sampling and analysis programs, which may initially seem cost-prohibitive under restricted operations budgets. A carefully orchestrated approach is necessary to balance risk mitigation with a cost-effective plan to bridge data gaps.
The table below contains the key elements of such a plan
Disclosing What your Company is Doing to Reduce its Pollution Impacts
E2 requires not just Pollution baseline data disclosures but also companies to disclose the actions, policies & targets they are implementing to reduce pollution by minimizing the use and emissions of listed substances. Most companies, when it comes to policies to reduce pollution, are driven by existing environmental or product stewardship regulations in different jurisdictions. Few actions to reduce pollution go above and beyond what existing regulations require. CSRD E2 disclosures will create more of a competitive landscape among companies, putting leaders and laggards in contrast based on their actions to mitigate pollution. While companies are currently heavily focused on measures such as decarbonization, there seem to be limited efforts to voluntarily reduce pollution impacts relevant under E2.
Building reasonably accurate baselines for E2 emissions and the use and production of listed substances is the foundational step in developing corporate policies, targets, and plans to mitigate the negative impacts of pollution to air, water, and soil and the presence of listed substances in raw materials and products.
Techno-economic feasibility analyses should be conducted to determine the financial exposure and business benefits of pollution mitigation initiatives to inform the policies and targets you develop. This way, the policies, targets, and plans you disclose under E2 Pollution have been deemed economically feasible in the realities of your business model.
Current company processes to facilitate E2 Pollution disclosures will likely present significant data gaps that may seem insurmountable or cost-prohibitive. The high range of uncertainty in datasets will create a lack of confidence among financial and legal corporate stakeholders for signoff under the financial equivalency of the disclosed data. A carefully orchestrated approach relying on strong data management, governance, and internal controls is necessary to balance risk mitigation with a cost-effective plan to bridge data gaps.
In addition, you need to detail the company’s policies and actions to minimize pollution. This should be based on rigorous techno-economic analyses to define the financial exposure and business benefits of mitigation measures so that you can prioritize investment in line with corporate strategy.
Climate, nature, and social topics have risen to prominence at the C-suite level in companies due to significant potential risk exposure. However, Pollution (E2) is a foundational topic that companies cannot afford to deprioritize as it poses equal, if not a higher, risk exposure than these other topics. Reducing the pollution footprints of your company’s operations and products will become increasingly critical, especially in the context of the EU’s Circular Economy and Zero Pollution action plans. Significantly evolving your company’s pollution data quality, policies, actions, and targets is essential. Many companies are discovering this is a huge challenge!
1 - This includes defined lists of pollutants, substances of concern (SOC) and substances of very high concern (SVHC).
2 - Based on individual CAS (Chemical Abstracts Service) numbers.
