CSRD Report Part 7: Estimated Time and Costs for SMEs and Large Enterprises
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Is the great corporate sustainability reporting rip-off about to occur? Will organizations significantly overpay for services simply because they have no firm basis for calculating the actual cost on their own? These are significant questions as the looming question for organizations is: how much is this going to cost? The good news is that the Enterprise Engagement Alliance and its affiliates have first-hand experience: ours are almost the only companies in the world that have created human capital reports and conducted audits for both very large companies and an SME (small- to medium-size enterprise), providing us with first-hand experience of the time and expertise involved; the cost, and scalability factors.By Bruce Bolger
Cost Factors
Time and Cost Estimates
Many organizations risk significantly overpaying for corporate sustainability management and reporting because the subject of stakeholder management and disclosures is not taught in business schools nor written about in the general business media. The situation appears similar to the internet frenzy in the 1990s, when senior executives with little training or experience in web technology had to make major financial decisions that often resulted in significant waste. Before sharing the Enterprise Engagement Alliance’s estimates, here are two different views for the basis of comparison that demonstrate the potential for overpaying. Neither estimate appears to include all the cost factors outlined below; yet, both appear to overestimate the actual cost of what is required.
For a complete report on the European Union Corporate Sustainability Reporting Directive, click here.
- A recent article in the Wall Street Journal shares the EFRAG (European Financial Reporting Advisory Group) estimate that “related yearly auditing costs for ‘limited assurance’ can range from 0.013% to 0.026% of revenue; or $130,000 to $260,000 per year for every $10 million in revenue. This estimate does not appear to include the cost of creating and implementing the corporate sustainability reporting plan.
- The company One Trust estimates that it will cost large companies up to $218 million in the first year and $152 million for following years, with average recurring administrative costs at $89,500 per year, of which about 40% can be attributed to legal costs. It estimates that large companies will pay an estimated $109,000 for assurance services (a preliminary audit) on average, while smaller companies will pay between $30,500 and $46,000 on average.”
Cost Factors
A fundamental factor in estimating your organization’s cost in terms of outside advisory and legal fees, as well as internal management time, varies based in part on whether your organization views corporate sustainability reporting as an opportunity or a compliance issue. When viewed as an opportunity, there is less extra time required of your team after the first year’s investment because the processes are built into the organization’s operating system and because the corporate sustainability report is considered a marketing investment and differentiator: not every organization can produce a meaningful corporate sustainability report backed up with audited metrics. When viewed as an obligation, all the activities in this executive brief are “sunk” costs.
Compliance versus opportunity considerations. When viewed as compliance, every moment diverted from management’s time is a cost. Therefore, the four hours or so a month required of each stakeholder leader to review reports, practices, and metrics; share findings with other stakeholder heads in monthly meetings, and to oversee implementation of improvement processes, are all unfunded costs; the same applies to the legal and communications costs. The risks of viewing the reports as compliance is that the metrics reported will be inferior to the company's competitors, since companies subject to the laws must publish their reports in a publicly available searchable database in a format enabling easy comparisons between companies.
When viewed as an opportunity, after the first-year launch process, there is much less incremental cost in terms of management time because the requirements and corporate sustainability report overlay with the management, measurement, and continuous improvement processes they would conduct anyway. Viewed as a marketing activity to engage investors, talent, customers, supply chain and distribution partners and communities, and to enhance the credibility of general marketing by backing it up with facts, the communications, design, layout and related public relations and other costs to create the corporate sustainability report are part of the strategic marketing plan.
Below is a breakdown of the cost factors. When engaging an advisory firm, it should be able to develop an estimate of hours and costs based on its hourly fees after a preliminary gap analysis process at your organization.
1. Executive briefings and leadership training. This is a relatively fixed cost that involves a combination of group and individual self-learning to grasp the basic principles of stakeholder management and reporting.
Estimated management time: A half- to full-day group session, plus three to five days of self-training for those in charge of implementation.
Estimated advisor time for on-site or live training: 50 hours, including pre-program prep, facilitation, and a formal report.
2. Management of strategic plan development, implementation, reporting, and the continuous improvement process across the enterprise. This process involves:
General oversight. At a large company, in the first year, this can require a part-time senior-level executive with cross-functional business experience, or a part-time or semi-retired senior executive already knowledgeable about the organization, supported, as needed, by qualified outside consultants in the Environment, Social, and Governance (ESG) domains.
Strategic plan development: An off-site 1½-day meeting includes the head of every department reporting to the CEO, meaning the COO, CFO, CMO, CHRO, IT, Operations, Research, Legal, etc. This is no different than any other strategic planning meeting except that the agenda includes all the key practices, metrics, and risk and opportunity analysis contained in the EU CSRD or outline for the corporate sustainability report.
Management and coordination hours (whether provided internally or with an outside advisory firm): About 80 hours blended senior and mid-level support time to organize, communicate, facilitate, and provide a written report.
Implementation: The actual process of implementing the plan is based almost solely on the current state of stakeholder management at the organization. If it already has a business operating system for managing its people resources, the process is relatively seamless. If not, the process of streamlining an organization through implementation of a business operating system can require from six months to a year or more. The good news is that in year two, there will be no need to repeat this process. Managing and coordinating a business operating system requires about 24 hours a month to manage meetings, communications, information sharing, and reporting at an SME and easily double that for a large enterprise.
Deliverable. A formal, consensus-based stakeholder management, measurement, and continuous improvement plan based on fulfilling the organization’s purpose and achieving its goals and objectives. The entire plan should be summarized in no more than two pages, including key metrics aligned with the EU CSRD.
3. Information Technology. This includes data collection, management, reporting, and security and includes human resources systems for turnover, pay, diversity, safety, and wellness; learning and professional development; incentives, rewards, and recognition; workplace or customer-related legal actions; discrimination, harassment, and fraud claims, etc. The goal is to create a dashboard that overlays with the EU CSRD reporting requirements.
The first-year IT costs include:
A. Setting up the data reporting framework in compliance with the soon-to-be-published European digital reporting framework—this process should be incorporated into the strategic planning meeting so that the implementation begins the first business day after the meeting. A public database will be available in 2027 based on the current plan.
B. The IT plan includes establishing the internal distribution and action plan; finding and consolidating the data from the various related departments and getting it to the right place at the right time, through APIs when required.
Estimated IT time. This depends completely on the state of data management at the organization but can easily range from 100 at a SME to 1,000 hours at a large company.
Second-year costs and beyond: Once again, if viewed as compliance, the potentially thousands of hours required to fully modernize stakeholder management reporting into convenient dashboards for everyone with management accountability might be viewed as a cost; for other companies, it’s a good reason to provide management with the information they need to continually improve experiences, quality, and productivity and to report on them in corporate sustainability reports to engage investors, employees, customers, supply chain and distribution partners, and communities.
4. Communications to write and publish the report. An effective corporate sustainability report starts with a short summary of the organization’s purpose, goals, and objectives in each stakeholder category, along with key metrics for each goal and process. Many current reports are as many as 60 pages long; given the attention span of today’s busy citizen, half that length is advisable, even including space for visuals. A one-page summary is highly advisable.
Once again, the first-year cost is higher to create the template, design, table of contents and boiler plate statistics in a way that can be easily updated from year to year. The number hours for an experienced senior writer’s time can vary from about 120 hours for a SME to triple that for a large company. This does not include design and layout fees for PDFs or printed materials, which could easily amount $500 per page for a large company in the US and half that for a SME.
5. Qualified legal counsel. While companies that view the corporate sustainability report as a business opportunity do not employ attorneys to run the process, a qualified attorney is critical at every step of the way to 1) review the strategic plan, reporting criteria, and initial reports to identify early risks, and 2) to read the final report to identify overlooked risks or opportunities and ensure alignment (when applicable) to the EU reporting requirements.
Estimated legal time: For an SME, the job can be accomplished in about 80 to 120 hours the first year, and half that the second year. For large companies, the cost is easily triple that based on the number of subsidiaries or independent business operating units.
6. Audits. Because of the lack of experienced talent available for conducting stakeholder management audits, organizations will have a challenge finding people who have conducted audits and/or who are qualified to do so. This concern will be somewhat alleviated by the fact that the European Union will allow the same firms that audit financial reporting to audit corporate sustainability reporting as well. Based on the experience of the Enterprise Engagement Alliance and its affiliates, a stakeholder management audit takes anywhere from about 60 to 80 hours at a SME to at least 180 hours or more at a major company with many separately reporting business units.
The audits, which must be completed by someone unaffiliated with the entity aiding in the creation of the stakeholder management business plan and corporate sustainability report, examine the stakeholder management business plan, practices, and metrics, including how they are calculated. The process includes one-on-one meetings with department heads as well as with random stakeholders as necessary to determine that the practices are being carried out as reported. The deliverable is a final report and a score based on the CSRD criteria and ISO 30414 human capital reporting and ISO 10018 people engagement standards.
Note that companies below $50 million in sales and/or that don't have to comply with CSRD standards can create effective corporate sustainability reports at a lower cost.
Time and Cost Estimates
| Fee Category | SMEs ($50 million+ sales) | Large companies ($1 billion+ sales) |
| 1. Executive briefings and leadership training. |
*50 hours prep time by internal or outsourced manager. (Four to 30 hours for management depending on need for further training. ) |
*50 hours prep time by internal or outsourced manager. (Four to 30 hours for management depending on need for further training. ) |
| 2. Management of strategic plan development, implementation, reporting, and the continuous improvement process across the enterprise. | *250 hours of internal or blended outsourced time, including 60 hours to facilitate and create the stakeholder management plan and about 10 hours a month to monitor progress. | *500 hours of internal or blended outsourced time, including 120 hours to facilitate and create the stakeholder management plan; then about 20 hours a month to monitor progress. |
| 3. Information technology. |
*Year one—100 to 200 hours. *Year two—minimal updating and distribution costs. |
*Year one—500 hours plus *Year two—minimal updating and distribution costs. |
| 4. Communications. |
*Year one—Up to 120 blended hours for writing, editing, design, etc. *Year two—About 100 hours. |
*Year one—Up to 360 blended hours for writing, editing, and design. *Year two—About 300 hours. |
| 5. Legal. |
*Year one—Up to 80 hours. *Year two—Up to 60 hours. |
*Year one—Up to 240 hours. *Year two—Up to 200 hours. |
| 6. Audits (second year). | *60 to 80 hours. | *180 to 240 hours. |
| Deliverable | A formal Corporate Sustainability Report and metrics in conformance with the EU CSRD. | Same as SMEs |
| Estimated hours (For developed nations, use $400 per hour blended rate for outside advisors/internal management time; $500 at large enterprises.) |
First year: 650 advisor hours ($260,000) Second year: 550 advisor hours ($220,000) |
First year: 1,750 advisor hours ($875,000) Second year: 1,400 advisor hours ($700,000) |
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