Get ready for a new level of ESG reporting

From 2024, companies will have to report on over hundreds of metrics and targets. In addition to tracking performance on climate change, the circular economy and pollution, organisations should be transparent about how they tackle biodiversity loss and reductions in resource and water use — where material or part of mandatory items required by other EU legislation. Social challenges like the treatment of workers, within organisations and across value chains, are also part of the new CSRD. Disclosures related to business conduct policies, including corruption and bribery prevention, supplier relationship management, lobbying activities and payment practices, will also fall under the G standard.

This is an extension to both the range of indicators companies need to report on and the depth of information required, with a need for far greater transparency over the entire value chain.

Compared to the NFRD, the CSRD will apply to a larger number of companies (up from 11,600 to almost 50,000), covering more than 75% of European companies’ total turnover. Most of these companies are likely to be unfamiliar with such comprehensive and detailed ESG reporting requirements, while some might have never released an ESG report of any form.

Companies that must report in compliance with the CSRD include those listed on EU-regulated markets, although small and medium-sized enterprises will not have to comply until January 2026 and have an opt-out clause until 2028. Added to this are companies of a certain size, which may be EU companies or EU subsidiaries of companies from outside of the EU. These companies must fulfill two out of the following three criteria: 

• net turnover of 40 million euros or more and/or
• a balance sheet of 20 million euros or more and/or
• minimum of 250 employees

Listed or large insurance companies and credit institutions will also have to comply.

One of the core objectives of the CSRD is to ensure that ESG and financial reporting are of equal importance.

While many companies have already been reporting on their sustainability performance for some time, the CSRD will require a new level of disclosure with ESG reporting now a board-level priority. Companies need to disclose their policies and targets across a wide range of areas, including emissions reduction targets and resource conservation plans. This transparency may drive them to revisit or develop policies and targets, and integrate ESG into corporate strategy and operations. To achieve this, they must set up processes to gather ESG data, evaluate ESG performance and report according to the European Sustainability Reporting Standards in an appropriate, auditable way.

The first set of draft ESRSs were released as part of the CSRD, and are much more rigorous in scope and depth of disclosure requirements than the current Non-Financial Reporting Directive (NFRD).

As companies’ ESG performances come under growing scrutiny, reporting is going mainstream. Keeping track of and adapting to evolving sustainability regulations has become a critical strategic priority for boards. As some companies only have a year before the first reporting period starts, it is vital to be prepared by considering the following key items:

• Establish a board-led governance structure
• Set up a due diligence process across complete value chains
• Integrate ESG into corporate risk management systems
• Prepare for assurance
• Consider short-, medium- and long-term time horizons

Even companies fairly advanced in their sustainability reporting journey are likely to require significant improvements to the way they gather, process and report data across ESG topics across their entire upstream and downstream value chain.