Executive Summary

Increasing expectations of sustainability reporting from suppliers and partners put increasing pressure on them, especially in the form of ESG risk questionnaires from German automotive customers. Although for Fémalk CSRD compliance did not bring significant operational changes - as they had to focus mainly on the calculation and documentation of existing data - the systematisation of sustainability reporting and the development of internal control processes became essential. Some partners have indicated that without meeting certain ESG reporting requirements, they will have to re-evaluate their further cooperation. Fémalk's sustainability experts hope that the publication of high quality audited data will not only reduce the data hunger of their customers and partners, but also reduce the burden of responding to ESG questionnaires in the long term, especially for claims coming through various payment platforms.

Initially, there was resistance to sustainability reporting and CSRD frommanagement, who saw it only as an administrative and financial burden and a seemingly unnecessary investment of resources. At that time, ESG data collection was still mainly manual, theinformation was often not validated and there were also many problems in collecting and collating data on smaller suppliers.

Participation in the ESG-CSRD Workshop was a turning point for Fémalk. It was here that the FEMALK staff embraced the view that sustainable operations and sustainability reporting can be not only a legal obligation but also a business benefit. This message was also taken to the company's management, who tried to raise awareness and demonstrate the importance of this in everyday, smaller-scale decisions, which proved to be an effective strategy. Another important step in Fémalk's sustainability maturation process was the creation of an internal sustainability team, which ensures the quality of data collection, the definition and monitoring of supply chain sustainability criteria and reporting, in cooperation with different departments - HR, logistics, EHS.

Company data

Fémalk Zrt. is one of the leading companies in the Hungarian aluminium foundry sector, playing a significant role in the automotive supply chain. The company's basic principle is to use state-of-the-art production technologies and has always placed a strong emphasis on sustainability and environmentally conscious operation, even before the regulations.

• Industry: aluminium die casting
  

• Company size: nearly 1000 employees, two production plants
  

• Turnover: HUF 40 billion
  

• Focus of CSRD implementation: dual materiality analysis, automated collection of ESG data, increasing supply chain transparency, sustainability strategy creation) and integration

Challenges of CSRD implementation

For Fémalk Zrt., sustainability reporting is not just an administrative obligation, but a complex task that needs to be understood on multiple levels, requiring a thorough understanding of the legal environment and relevant regulations. One of the first challenges was to clarify that sustainability reporting under the CSRD and the Hungarian ESG reporting obligation are two separate but partly overlapping tasks. While the Hungarian ESG report is primarily aimed at compliance with the local regulatory environment of the company, the CSRD is much more detailed and sets out requirements for the whole company. Accordingly, there was a need to develop an approach that treats the two regulations separately, but where possible creates consistency between the data collection and reporting processes.

Another key challenge was the process and logic of dual materiality analysis. For Fémalk Zrt. it was particularly important to clarify the criteria for assessing whether an impact is negative or positive and how to quantify and rank them. One of the main difficulties was that sustainability impacts can be very diverse and getting lost in the detail can easily hinder effective decision-making. The company therefore needed to develop a structured approach that would allow for a logical and meaningful assessment of sustainability aspects. In addition, it was also important to ensure that relevant stakeholders were properly involved in the process of dual materiality analysis. As automotive supply chains have to meet stringent sustainability requirements, a key question for the company was which business partners, internal departments and even external experts could be most usefully involved in the analysis.

The third major challenge was to understand the audit expectations and develop a corresponding data collection strategy. CSRD requirements not only demand that the company provide accurate and reliable sustainability data, but also that this data be documented and traceable in a way that is suitable for external audit. Fémalk Zrt. therefore needed to develop a data collection and storage strategy that would ensure auditability, minimise the potential for error and establish clear lines of responsibility for data collection and verification. As the credibility and accuracy of the data was critical to the company, preparing for audited sustainability reporting required a new approach in which the management of sustainability data was no longer a background process but an integral part of the company's operations.

These challenges illustrate that CSRD compliance is not only a technical task, but also a strategic transformation process in which the company needs to understand the regulatory environment, effectively apply the methodology of dual materiality analysis and develop a data management system that ensures the measurement and credible documentation of sustainability performance over the long term.

The solutions and their implementation

• Dual materiality analysis: Using the lessons learned from the Workshop, Fémalk developed its own ESRS-compliant dual materiality methodology and followed this up by conducting an evidence-based dual materiality analysis based on quantitative assessments using denxpert's dual materiality module, relying mainly on internal experts.
  

• Establishment of a sustainability team: The company has set up a sustainability team consisting of members from HR, supply chain management, R&D, finance and EHS. The collaboration of the different departments has resulted in a team responsible for and with in-depth knowledge of ESG data collection and compliance with CSRD requirements.
  

• Optimisation of the automated data collection system: The company already had an automated data collection system, but the CSRD requires greater accuracy and deeper insight, so they were fine-tuned to meet the standards. Additional meters were installed at all major production units, providing even more accurate and faster data than before. Digital data processing platforms have helped to reduce discrepancies from manual data processing and allow continuous monitoring of ESG data.
  

• Mainstreaming sustainability into strategic decisions: One of the positive "side-effects" of the introduction of reporting requirements, dual materiality and the focus on data collection projects is that sustainability considerations have been mainstreamed into strategic investment decisions. For example, when purchasing machinery or building new production units, only energy-efficient solutions are now requested and suppliers have to demonstrate that they meet ESG criteria.
  

Successes achieved through solutions

Since the experience gained at the CSRD Workshop, Fémalk Zrt.'s sustainability data collection has been significantly professionalised, and whereas previously data collection was a forced exercise, it is now a strategic exercise, with closer cooperation between departments. This has not only made reporting more transparent and efficient, but has also helped to integrate sustainability considerations into the company's strategic and procurement decisions. As a result of this process, the visibility and value of sustainability has increased significantly in the eyes of the company's management, and it is no longer seen as a regulatory obligation, but as a business opportunity and a long-term competitive advantage.

Lessons for those about to implement

The experience of Fémalk Zrt. has important lessons for those preparing to implement CSRD reporting:

• Start preparing early: organising ESG data and developing sustainability strategies is a time-consuming process. Delays due to supplier expectations and regulatory pressures can be a serious disadvantage.
  

• It makes sense to create an internal sustainability team: collaboration between different departments is essential for effective data collection and the achievement of sustainability goals.
  

• Use automated data collection: Manual data collection is not only time-consuming but also inaccurate. Automation can significantly reduce the administrative burden and increase the reliability of data.
  

Through the experience of Fémalk Zrt., it is very clear that compliance with the ESG law and the CSRD is not just a legal compliance exercise - although many people see it as such - but also an important strategic tool to increase the credibility of companies, especially in international markets. CSRD compliance can increase a company's long-term value and competitiveness.