The emergence of mandatory corporate sustainability reporting has become a topic of increasing importance in recent years. Organisations are now required to disclose their environmental, social, and governance (ESG) risks and impacts through sustainability reports. These reports provide a comprehensive overview of an organisation's sustainability performance and are used to address the demands of investors, customers, and employees.
Similar to financial accounting, there is a growing need for generally accepted sustainability metrics to effectively manage ESG risks. However, challenges such as imprecise measures and confusion over reporting requirements have been highlighted in a recent survey. To address these challenges, global efforts are underway to establish standardized reporting.
The U.S. Securities and Exchange Commission (SEC) is currently revising its sustainability reporting standards, with a focus on carbon disclosure. It is expected that these standards will evolve over time to cover a broader range of sustainability metrics. This revision aligns with the global trend towards sustainability reporting and the increasing recognition of its importance.
Sustainability reporting is not only driven by regulation but also by demands from investors, customers, and employees. Investors are increasingly considering ESG factors in their decision-making process, and sustainability reporting provides them with the necessary information for comparison and analysis. Customers and employees are also placing greater importance on sustainability, and they expect transparency from the organisations they engage with.
Uniform disclosure metrics are crucial for investor comparison and auditing purposes. These metrics enable investors to assess the sustainability performance of different companies and make informed decisions. Additionally, uniform metrics facilitate the auditing process, ensuring the accuracy and reliability of reported sustainability data.
Furthermore, sustainability reporting is essential in the broader context of addressing the climate crisis and biodiversity loss. Organisations need to innovate and pay attention to their environmental impacts to contribute to a more sustainable future.
The Corporate Sustainability Reporting Directive (CSRD) is a significant development in the field of sustainability reporting. It expands the requirement for sustainability reporting to include all large legal entities with limited liability, indirectly applying to public companies regardless of their size.
The implementation of the CSRD is staged, with different deadlines for different types of companies. Companies already under the Directive on non-financial information disclosure must comply by January 1, 2024. Large companies not currently under this directive have until January 1, 2025, to comply. Listed small and medium-sized enterprises (SMEs) and certain financial institutions have until January 1, 2026, to comply.
Once a public company is obligated to develop sustainability reporting, the EU taxonomy automatically applies. However, there is some ambiguity surrounding whether certain public law institutions and state-owned enterprises are obligated under the CSRD. In Germany, for example, most public companies must prepare financial statements and management reports like large corporations, which may lead to an obligation to prepare sustainability reports.
Municipal associations are advocating for amendments to municipal codes to possibly exempt some entities from CSRD reporting obligations. Despite these legal complexities, municipal companies and municipalities should consider adopting sustainability reporting for compliance reasons and due to their public role.
Sustainability reporting covers a wide range of issues, including environmental concerns, employee issues, and social concerns. It is supplemented by the EU Taxonomy Regulation, which provides additional guidance on reporting environmental performance.
Preparing sustainability reports can be challenging, but it also offers opportunities for reputation enhancement and stronger community connections. By disclosing their sustainability performance, organisations can demonstrate their commitment to sustainability and enhance public and stakeholder trust. Sustainability reporting can also provide access to new financing opportunities, reduce operating costs, and assist in risk management.
Sustainability reporting is becoming increasingly important for both public and private sector companies. It is driven by new laws and regulations, such as the CSRD, as well as demands from investors, customers, and employees. While the challenges of sustainability reporting should not be overlooked, it presents an opportunity for companies to showcase their commitment to sustainability and enhance their reputation. By adopting uniform disclosure metrics and embracing sustainability reporting, organisations can contribute to a more sustainable future and build trust with their stakeholders.
Screen around 100 CSRD solutions in minutes not weeks, and create an individualized list of solutions.
