An analysis of more than 300 major Western European companies has revealed serious gaps in business preparedness across the EU for the imminent implementation of the Corporate Sustainability Reporting Directive (CSRD). The survey, which was carried out by Baker Tilly member firms in France, Spain, Italy and the Netherlands, highlights that while businesses are aware the directive is coming, there has been slow progress in facing up to the realities of what will happen next.

What is the CSRD and are companies prepared?

1 January 2024 marks the beginning of the first year of application of the CSRD (for organisations that are currently subject to the Non-Financial Reporting Directive) for around 12,000 companies across Europe. This number is expected to rise to 50,000 by 2028.

88% of companies surveyed said they do not yet feel ready to meet the expectations of the CSRD and 57% of respondents feel they have little or no knowledge of the new ESG reporting obligations that arise from CSRD. Interestingly however, only 21% view CSRD as a burden with little additional value, suggesting the problem is largely a communications gap. There certainly appears to be an appetite to understand more about the implications, with over half of survey respondents (51%) saying they are ‘curious’ to know more.

Published in 2022, the aim of the CSRD is to provide a unified framework for corporate ESG reporting. It aims to increase transparency, comparability between companies, and the reliability of published data, gradually bringing sustainability reporting up to the standards currently required of financial reporting.

It will require companies to publish a sustainability report with information on the governance, strategy, impact management, objectives and metrics of ESG information, which means companies will need to look at how they structure their ESG governance, strategy and data collection systems.

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By GlobalData

Commenting on this, Baker Tilly International global ESG lead, Arnaud Bergero, said: “The CSRD will completely redefine the corporate ESG landscape and there are still too many companies that are unprepared for its implications despite the implementation of the directive being only a month away. However, companies are not starting from scratch, and can leverage existing ESG processes and politics to address the strategic challenges arising from this new obligation.”

Baker Tilly International CEO, Francesca Lagerberg, added: “Not only does the new CSRD have a major impact on any company operating in the EU, it also has global ramifications. It is going to be the most comprehensive disclosure obligation we have ever seen organisations required to produce. It will mean companies reporting on the sustainability of their operations and existing requirements in the US by the SEC. And in the UK, the Sustainability Disclosure Standards, which will be published in 2024, will similarly require disclosure on sustainability-related risks and opportunities for companies.”

Some clear challenges ahead

While it’s clear most companies that were surveyed have already formalised a CSR strategy and are tracking ESG indicators, they will need to evolve their organisations and reporting systems to meet CSRD requirements and publish their sustainability report.

Only 9% of companies surveyed currently consider their ESG reporting system to be ready or almost ready for CSRD and 62% still use Microsoft Excel to collect their ESG data. Unsurprisingly, only 7% of companies have confidence in the quality of the data and their collection system. 35% of respondents still collect their ESG data without an internal control process and 20% do not have a data collection procedure in place.

CSRD will also be a challenge for the accounting profession. Lagerberg comments: “The new assurance requirements under CSRD could be significant, especially by 2028. I’ve seen estimates that the numbers of auditors required to provide that level of comfort under the new rules will more than double in the next few years and we will all need water, waste, and climate specialists, as well as general sustainability experts, to round out our teams. At the moment, as an industry, we are some way behind where we need to be to deliver on CSRD.”

An opportunity not a threat

Ultimately though, as Bergero explains: “CSRD does provide a great opportunity for companies to bring their sustainability reporting in line with their financials. Rather than using multiple standards, including national specific criteria, the sustainability report will make it possible to harmonise ESG reporting practices by offering quality, reliable and comparable ESG information. But getting there will be a challenge.”