Europe proposes simplified sustainability rules, but reporting remains key

The European Commission is revising its sustainability rules even before they fully take effect. Tanguy Legein and Filip De Bock from KPMG discuss the impact and challenges this poses for reporting. Drawing on their experience with companies already subject to the CSRD, they share their advice: “It pays for companies to continue investing in sustainability.”

In 2019, when the European Green Deal was first introduced, the economic climate was far from what it is today. By the start of 2023, the Corporate Sustainability Reporting Directive (CSRD) was rolled out as a key measure of the Green Deal to ensure companies reported on their sustainability efforts in an objective manner. But only a few years later, the scope of this regulation is under review, with Europe looking to reduce obligations to protect business competitiveness.

“The Commission has put forward three key proposals," says Filip De Bock, Partner at KPMG. "A large group of major non-listed companies was set to comply with the CSRD starting in 2026, but that deadline is now expected to be delayed by two years, until 2028. Additionally, the group of companies subject to the CSRD will shrink by about 80% due to the new applicability thresholds. Lastly, the Commission intends to simplify the European Sustainability Reporting Standards (ESRS) to ease reporting requirements. Although no official date has been set yet, I expect the delay to be announced shortly, and more stakeholders will likely become involved in the ongoing discussions.” 

“At this stage, the Commission’s proposals are still under review. They must go through the EU legislative process and be transposed into national law. Companies would do well to closely monitor this process and keep making progress on their ESG strategy and implementation.” 

Large companies will still be subject to the CSRD and have been actively engaging with it over the past few months. “Most of our clients have incorporated ESG into their strategy and set internal goals,” says De Bock.

However, it is crucial that companies do not simply base their reporting on previous sustainability reports, emphasizes Tanguy Legein, Audit Partner at KPMG.

“Businesses should approach this with a clean slate, without preconceived expectations. A CSRD report is not the same as a financial report. It requires the involvement of all departments. Even smaller entities within the company can have an impact or pose risks and opportunities. For many managers, this is an eye-opener. It enables them to create a strategic approach to important issues they may have previously overlooked.”

One of the biggest challenges is the lack of implemented reporting tools. “For financial reporting, companies typically use specialized software packages, but for CSRD compliance, businesses often rely on a combination of existing systems and Excel files,” says De Bock.

"Therefore, thorough checks of manually entered data are essential. Internal controls for CSRD reporting are often less mature than those for financial reporting. If certain information is difficult to obtain, companies may make estimates, but this also brings challenges related to methodology, data, and assumptions."

Another stumbling block is procrastination. “Companies sometimes focus too much on gathering data and therefore start writing their sustainability reports too late,” notes Legein.

"Such a report takes considerable time, especially given the extensive number of reporting requirements and criteria that need to be met, both quantitatively and qualitatively. The final product must be clear and consistent. Interestingly, companies don’t struggle with the more complex topics—they’re well-prepared for those. It’s the simpler aspects that unexpectedly take up a lot of time."

The sustainability information to be reported will remain subject to assurance by an independent auditor. This presents challenges, such as the tight timeframe within which the reporting must occur and assurance must be obtained. The timing must be aligned with financial reporting.

Just because the European Commission is softening the rules doesn’t mean companies can put off sustainability reporting. “The CSRD will continue to evolve, but core elements, like the double materiality analysis, will remain unchanged,” says De Bock.

“It’s advisable for companies to carry out and document this analysis now, potentially with external help. It is essential to use the double materiality analysis to identify the key issues at an early stage, understand the reporting requirements and data points to be met, and determine how to gather the necessary information."

This article was created in collaboration with De Tijd and L'Echo.