Key takeaways
The corporate world is on the brink of a significant shift in sustainability reporting, with the European Union's Corporate Sustainability Reporting Directive (CSRD) set to impact companies of all sizes.
The European Commission’s Omnibus proposal, published on the 26th February “contains provisions to simplify and streamline the regulatory framework with a view to reduce the burden on undertakings resulting from the CSRD and the CSDDD without undermining the policy objectives of either piece of legislation and to ensure more cost-effective delivery of the overall ambition of the European Green Deal related to the green and just transition”.
The proposed changes may reduce the number of businesses required to report under CSRD by 80% but are still subject to Parliament and EU Council approval, and transposition by Member States. While this may seem like a win for some companies, the evolving landscape raises important questions about how businesses should approach sustainability actions and reporting.
What are the implications?
For companies with significant footprints in the EU there are many elements to consider. The proposed changes, which have sparked political debates, could delay or exempt many companies from reporting requirements, a decision that is still pending approval from EU member states. While these changes could reduce the immediate regulatory burden on companies, the landscape remains fraught with uncertainty. However, it is important not to lose sight of the bigger picture.
The core question businesses must address is how to prepare for an evolving regulatory landscape. It’s no longer simply about meeting compliance targets - it’s about ensuring that sustainability efforts are meaningful, aligned with the business's long-term strategy, and built into the broader environmental, social, and governance (ESG) objectives. Whether or not the CSRD timeline shifts, businesses need to stay ahead by developing robust sustainability reporting strategies to adapt to other reporting standards coming down the track.
The Push for Action, Not Just Compliance
A critical point centres around the need to focus on sustainability actions, not just reporting. While companies may have more time to comply with reporting requirements, it is imperative to use this time wisely to implement meaningful sustainability strategies.
The temptation to view the delay as an opportunity to relax should be avoided. Instead, companies should continue focusing on improving transparency, reducing their environmental footprint, and driving genuine change. The CSRD's emphasis on "double materiality"—assessing not just the impact of a business on the environment but also the impact the environment has on its financial performance and people - requires a strategic shift in how sustainability is viewed.
It is important to focus on the end goal rather than the next hurdle. Against this complex regulatory backdrop, focusing on future strategy and taking outcome-based decisions for sound business reasons is the key to navigating the path ahead.
This is a chance for companies to pivot from a compliance-driven approach to a strategic one, ensuring that their sustainability actions align with their brand and avoid falling into the trap of "greenwashing." Just because reporting is delayed doesn’t mean businesses should halt their efforts.
Does this mean that the EU is stepping back on sustainability?
Despite the introduction of simplification measures on reporting, the EU Commission has shown a commitment to drive meaningful action on decarbonization through the launch this week of a Clean Industrial Deal (CID), which outlines a series of concrete actions to turn decarbonization into a driver of growth for European industries. The purpose of the CID is to ensure alignment on industrial and decarbonization policies by stimulating sector-specific investments. This is not just about achieving environmental objectives; it's about creating greater competitiveness and growth within the European Union. These measures have significant implications for the energy and infrastructure sectors. This strong message of the economic driver for decarbonisation also provides other benefits:
- Access to capital - Renewables attracting increased investment and banks reporting higher risks in an energy sector where this isn’t linked to renewables.
- Business resilience: Diversification of energy sources create opportunities for providers and suppliers and “hedges” risk for the company.
- It’s good for your brand – consumers and investors are looking at ways to reduce their own sustainable impact, therefore align on priorities to your value chain. It’s also good for staff retention and recruitment.
- Government support - implementing policies and incentives to promote the development of sustainable energy technologies and practices.
Adapting to a Broader Framework of Reporting
While CSRD remains a significant part of the regulatory landscape, other frameworks, such as the ISSB (International Sustainability Standards Board) and TNFD (Taskforce on Nature-related Financial Disclosures), are on the horizon. These frameworks which focus on climate-related disclosures and nature-related risks will be crucial for the energy sector's impact on biodiversity and ecosystems, and are set to affect businesses globally, including those in the UK. Energy companies will be required to adopt a more holistic approach to sustainability, being mindful of the broader implications of sustainability, not only within their organisations but across their entire value chain.
While some companies may fall out of scope under the proposed CSRD changes, the requirement for businesses to disclose sustainability data under other frameworks like ISSB and TNFD is likely to remain. This highlights the need for businesses to build systems that will allow them to comply with a range of standards, while also embedding sustainability at the core of their operations.
Despite CSRD’s shifting timeline, companies should prepare for future regulatory requirements, even if they are not yet in force. The key is developing long-term sustainability plans that encompass not just compliance but also value creation and resilience.
Beyond Reporting: The Need for Strategic Vision
Ultimately, sustainability is not just about meeting regulatory requirements. It’s about preparing for the long-term. Whether or not CSRD or other frameworks like ISSB and TNFD are immediately applicable, companies must continue to invest in sustainability programs that will help them future-proof their business. This involves not just collecting data but building robust systems that support sustainability goals and drive transparency across the value chain.
As the regulatory landscape continues to evolve, businesses must remain agile. The delays and changes in reporting requirements shouldn’t be seen as a sign to pause but rather as an opportunity to refine sustainability strategies. With the right approach, businesses can align their sustainability efforts with long-term goals that not only meet regulatory demands but also create value for stakeholders, investors, and the planet.
The Path Forward: A Pragmatic Approach to Sustainability
The landscape may be confusing, but inaction is not an option. Businesses need to focus on building sustainability frameworks now, preparing for the future, and utilising available tools to streamline the reporting process. With guidance and practical solutions, companies can manage the complexities of the evolving regulatory environment while continuing to drive meaningful change.
As we await further developments in CSRD and other frameworks, businesses should stay proactive. The path to sustainability isn’t just about complying with the regulations of today - it’s about creating the foundation for the sustainable, resilient businesses of tomorrow.
How can KPMG help?
KPMG's ESG Advisory team help companies define an ESG strategy and align this to their operating framework and reporting timelines. We can work with you to:
