Inside Ford's CSRD reporting journey

Two year process

Reporting on sustainability is not new at Ford, Wroten explained, as it was the first automotive company to publish a sustainability report 26 years ago. This began as voluntary reporting, but as a Wave 1 reporter -- which required large organizations to complete CSRD reporting by January 2025 -- Ford decided to meet the deadline, Wroten said.

"We did that to build on our legacy of trust and transparency and reporting," she said.

The CSRD report took nearly two years to complete and engaged all parts of the company, bringing together more than 150 subject matter experts across more than 20 different departments.

"But a big change happened in CSRD reporting with elevated levels of executive engagement, there was significant board oversight and auditing requirements that CSRD demanded," she said.

The board oversight included two committees to sign off on the CSRD report, Wroten said. Ford has Sustainability Innovation and Policy Committee, which was chartered to review the sustainability report. However, CSRD requires an audit committee to be responsible for the audit and process around it.

"We have to navigate managing two board committees and make sure that they are both aligned on who does what for each committee," she said. "We got a lot of love from both committees, and it led to a much more robust report."

The CSRD report team established a formal review and sign-off program that's nearly identical to Ford's financial 10-K annual reports to the Securities and Exchange Commission and tightly aligned the CSRD with the 10-K report formatting, Wroten said.

CSRD reporting based on double materiality

The double materiality assessment [DMA] is the backbone of the CSRD report, Wroten explained.

The DMA evaluates a company's materiality through two distinct lenses, she said. One is impact materiality, which is an external lens that assesses how Ford's products, operations and services affect the environment and society. The second is financial materiality, which is an internal lens that evaluates how sustainability financially impacts value creation, risks and opportunities.

Conducting the DMA was a significant undertaking at Ford, Wroten said. It involved cross-functional alignment, gathering critical insights across the entire company and engagement with key external stakeholders, like non-governmental organizations, dealers and suppliers.

"CSRD intentionally provides a lot of flexibility around DMA," she said. "Within Ford, we had to develop a DMA process and once we created that process, we realized we had to add an extra step in there to further refine the process."

Because there's ambiguity and flexibility in how companies can conduct a DMA, they are very different for each company, Wroten said.

"Some companies have a very broad lens that includes everything. At Ford, we went with a very prescriptive focus that only focus on IROs [impact, risks and opportunities] that were very prescribed and truly were the biggest risk and opportunities for the company," she said. "How [others] choose to do a DMA will be up to their company and what level of risk they feel comfortable with."

Working with the auditors

Ford used its financial auditing firm PwC as its CSRD auditor and Wroten explained that her team worked hand-in-hand with the auditors, engaging in extremely detailed DMA assessments and walkthroughs. However, the relationship had challenges, as PwC was also going through its first CSRD audit.

For example, the Ford CSRD team took PwC auditors to an assembly plant and walked them through all the details of a plan, like how Ford collects water data and accounts for emissions and electricity, Wroten said.

"PwC, in turn, taught us the rigor of what a limited assured statement meant and all the expectations they had on metrics, walk through, data testing and consistency checks," she said. "This intense and frequent engagement with our auditor was critical, so we had no surprises before we achieved their final opinion."

CSRD lessons learned

The CSRD reporting process was long, complex and had a number of significant challenges, but Wroten detailed several valuable lessons that can make the process more effective:

• Start early. Ford's DMA took eight months to complete, and because the DMA is the backbone of CSRD, it sets up everything needed to report for CSRD. "Start with the DMA and start very early. If you think you're starting too early, you're not starting early enough," Wroten said.
• Establish the ESG financial controller. The Ford CSRD team went to the finance organization for its ESG controller because they know the rigors of financial reporting. "As we're reporting out to the board of directors, [the ESG] organization and the financial team do it lockstep, which was critical to have success," she said.
• Establish clearly defined roles and responsibilities. Ford uses two board committees that have oversight over the CSRD report. The sustainability committee led the strategy of the DMA and reporting, while the financial audit committee led the controls and the audit process.
• Focus on continuous improvement. Shortly after report was launched, the CSRD team conducted a workshop around what worked well and what could be improved, leading to a list of things the team will do differently next year. "For example, right now our report is 300 pages because we have a sustainability report and our sustainability statement," Wroten said. "Next year, we're strongly considering splitting the two documents so the auditing firm will look at the statement and it'll be easier for them to give an opinion on a statement."

Jim O'Donnell is a news director for Informa TechTarget who covers IT strategy and enterprise ESG.