Could you share some of the best practices Royal Philips has implemented in relation to CSRD?

Simon outlined a strategic approach to implementing the CSRD at Philips, emphasising the importance of starting with a double materiality assessment, followed by a gap assessment, and securing senior management and board support (buy-in).

He highlighted the need for a strong governance structure, including a CSRD steering committee and work streams dedicated to different ESRS standards (Philips dedicated 60 people, amounting to 15 full-time employees, to work on CSRD).

Additionally, Simon stressed the value of a clear and accessible reporting manual to facilitate the assurance process, ensuring that audit or scan efficiently review internal documentation.

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What are the main challenges Royal Philips faces when complying with the CSRD?

Simon highlighted that Philips has extensive experience in conducting GRI impact materiality assessments over the past ten years, which has equipped them with a deep understanding of their business. This experience allows them to streamline the double materiality assessment process, avoiding unnecessary complexity that some companies and stakeholders might introduce.

Despite this expertise, Simon acknowledged the significant challenges posed by the sheer magnitude of the CSRD. With activities in over over 70 countries, Philips aims to be 90% compliant by the end of September. For more complex reporting areas, such as the financial effects of climate change, Philips might phase in these requirements over time, allowing them to manage the workload more effectively as they move forward.  

- Coordination across Global Operations: Philips manages this challenge by centralising data collection and reporting processes, ensuring consistency and accuracy across all regions. They use centralised systems like Workday for HR data, which helps in standardising the data collection and reporting process.

- Supply Chain Challenges: Philips adopts a risk-based approach to supply chain management, focusing their efforts on the most impactful suppliers. They also moved away from traditional auditing towards a supplier development program, aiming to improve suppliers' capabilities rather than merely ensuring compliance.

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How does Philips manage the complexity of CSRD across a diverse and global value chain?

Simon acknowledged the challenge of varying supplier maturity levels in sustainability practices but highlighted Philips' proactive and strategic approach. Through their 12-year supplier sustainability program, Philips has shifted from traditional auditing methods to a supplier development approach, focusing on improving supplier capabilities rather than merely enforcing compliance.

Philips adopts a risk-based, selective strategy, prioritising efforts on suppliers with the most significant impact or those critical to their operations. This includes regions with higher risks, such as China and India, where issues like child labour are more prevalent. Currently, 350 suppliers report to the Carbon Disclosure Project (CDP), covering over 90% of Philips' carbon impact. The company plans to expand this number to 500 suppliers, ensuring that they focus on the most impactful areas.

- For critical suppliers or those with significant environmental or social impacts, Philips takes a hands-on approach, particularly through their supply chain decarbonisation program. This targeted strategy allows Philips to closely guide these key suppliers, driving meaningful improvements in sustainability across their supply chain.

- For less impactful suppliers or those with minimal business volume (e.g., suppliers from whom Philips only purchases a small amount of equipment annually), Philips does not allocate significant resources to engage them in their sustainability programs.

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How does Philips, as a frontrunner, support SMEs in your value chain to enhance their CSRD capabilities?

Philips recognises  that engaging every SME in their supply chain is not impactful. Therefore, they prioritise engagement with suppliers who have a substantial impact on their sustainability goals. For SMEs that are  deemed important due to the critical nature of their products or their significant impact on Philips' sustainability goals, Philips provides more direct support.

Philips also encourages SMEs that are part of their supply chain to join industry-wide initiatives like the Carbon Disclosure Project (CDP). By participating in such programs, SMEs can meet the requirements not just of Philips, but also of other customers, making it easier for them to manage their efforts across multiple clients.

What are the next steps for Philips since it’s done with its first year of reporting?

After completing the first year of CSRD reporting, Philips plans to focus on continuous improvement by reviewing their processes and identifying areas where they can be more efficient. They recognise that the first year is a learning experience, and there will be opportunities to refine and optimise their approach.

In 2025, Philips plans to explore the implementation of tooling to support internal controls.However, the immediate focus remains on achieving compliance. The resources required for this endeavour are significant and are expected to increase as the scope of the CSRD expands. However, the introduction of such tools may only happen after the initial compliance efforts are stabilised.

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What is the plan to engage stakeholders in implementing actions for improvement after the first reporting?

Philips already has a well-established performance management process that includes monthly monitoring of sustainability goals.These goals are regularly reported to the Executive Committee and the Board of Management. This existing structure allows Philips to continuously engage stakeholders and ensure that actions for improvement are implemented effectively.

The focus is on integrating these improvements into the ongoing cadence of reporting and monitoring. The established processes at Philips make it easier to track progress and address any areas that need enhancement based on the reporting outcomes.

What advice would you give to companies just starting their CSRD journey?

"Start with a double materiality assessment and gap assessment as soon as possible. Engage senior management early, get support from the board, and then go full speed ahead. Don’t underestimate the effort, but also try to frame CSRD as an opportunity, not just a compliance task!

However, failing to comply can result in being accused of economic crimes, and banks might not extend credit if you’re non-compliant. Smaller companies shouldn’t underestimate this either; you’ve got no time to waste!"