Will the Corporate Sustainability Reporting Directive lead to a new era of accountability?

Initially launched in 2021, but gradually being rolled-out to include more companies, the Corporate Sustainability Reporting Directive (CSRD) is designed to cement the role of the European Union as a global leader in sustainability regulation.

From this year, large companies with more than 250 employees, a net turnover of over €40 million or total assets exceeding €20 million, will be required to report on sustainability. From 2025, companies that meet two of the three criteria will also need to comply, while in 2026, listed small and medium-sized enterprises (SMEs) will be required to report.

The CSRD introduces strict sustainability reporting requirements for businesses on topics including climate change, business conduct, resource use, pollution and biodiversity, and compels companies to disclose sustainability risks in their own operations and those of their suppliers.

By the end of July this year, most EU Member States had either adopted or proposed legislation to transpose the CSRD into national law.

The interconnected nature of modern business means that the impact of the CSRD is far-reaching, affecting some 50,000 companies globally, including many outside the EU. Companies worldwide have begun to prepare for compliance, with 75 per cent of companies gearing up to report under the CSRD saying they are increasing sustainability considerations in decision-making, according to a report by PwC.

Companies also expect a range of benefits from the CSRD, including improved environmental performance, better stakeholder engagement and risk mitigation. Around a third of companies anticipate direct revenue growth and cost savings.

Together with other initiatives such as the US Inflation Reduction Act and the EU Green Deal Industrial Plan, the CSRD represents a strong European mandate for a shift to a sustainable, low-carbon future. The re-election of Ursula von der Leyen also signals strong support for this transformation.

The result? The CSRD is driving a fundamental change in the way companies approach sustainability. Beyond a compliance exercise, prioritising sustainability is becoming a long-term strategic imperative for companies. What’s more, organisations are beginning to realise the huge value potential of integrating sustainability into their core strategy as well as becoming aware of the potential obstacles.

Despite the overall confidence in meeting CSRD deadlines, companies face significant hurdles in implementation

Challenges Ahead

The most pressing challenge is data availability and quality. The CSRD demands investor-grade reporting with repeatable, well-documented, and assurable processes. This level of rigour is new for many organisations, especially when it comes to sustainability data.

Another major obstacle is the complexity of value chains. Companies must report not just on their own operations, but also on their entire value chain. This requires unprecedented collaboration with suppliers and partners, many of whom may not be prepared for such detailed reporting.

The scope of the CSRD is also broad. It covers a wide range of topics, some of which are relatively new to corporate reporting, such as biodiversity and pollution. While familiar ground such as human resources and climate change is included, these newer areas are more challenging to address.

Opportunities Abound

To meet these challenges, companies are adopting a cross-functional approach to CSRD implementation. CFOs, CIOs, and CSOs are playing central roles, and 70-80 per cent of companies are involving executive committees or boards in the implementation process, says PwC.

This level of engagement from senior leadership underscores that sustainability is becoming a board-level concern. It’s driving closer collaboration between traditionally siloed departments and necessitating a cohesive, company-wide approach to sustainability.

Moreover, the complexity of CSRD reporting is accelerating the adoption of specialised ESG software solutions.

This shift towards more sophisticated tools is crucial. The CSRD requires detailed data that is auditable, timely, and accurate. Companies are therefore likely to look beyond spreadsheets to digital solutions that can automate data collection, improve data quality and streamline the reporting process.

What might the future hold? 

As companies progress along the CSRD implementation curve, we can expect to see evolving best practices and standardisation of reporting approaches. Early adopters may gain competitive advantages in sustainability performance and reporting, setting benchmarks for their industries.

The CSRD is not just about compliance; it presents significant value-creation opportunities for companies that successfully integrate sustainability into their business strategy. We anticipate seeing deeper integration of sustainability data into core business decision-making processes, potentially driving innovation and opening new market opportunities.

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Anna Houchen
Senior Account Executive