Sustainability data gathering and reporting incur supplementary costs in the form of additional staff, IT resources and external consulting services. The data gathering and standardisation of measures are a challenge within a maze of national and international methods and standards. The more products and geographical diversity a corporate has, the more effort is needed to collect and measure data.
With its ESR standards, the directive wants to bring standardisation in the reporting of elements across environmental, social and governance domains. Corporates believe that the process will be a learning curve as standardising measures is making apparent the complexity of this. While companies say sustainability regulation and reporting create an extra burden, they also say this can be leveraged to build a competitive edge and to manage business risks. This is how first CSRD movers can benefit from CSRD reporting:
Reducing the risk of greenwashing through better data quality and comparability
Most European corporates that will publish CSRD information in 2025 already report under the NFRD. The NFRD allows companies to choose from different reporting systems, but the CSRD mandates the adoption of ESR standards. Efforts by corporates to align their already disclosed ESG information alongside the ESRS requirements should boost the quality of information.
With provided methodologies and standards, we expect earlier adopters to offer better quality information than competitors who will have not/are not required to submit themselves to the CSRD obligations. The ESR standards will enhance sustainability data comparability in general amongst corporates of the same sector.
Enhance credibility and attract investors
With more accurate sustainability information, corporates will be able to demonstrate their willingness to adapt their business to more sustainable practices as well as the targets they aim to reach. High-quality sustainability reporting can boost trust and help companies access funding from investors actively prioritizing ESG performance.
ESG investment funds currently fail to get harmonized criteria to perform their due diligence regarding the sustainability information provided by corporates. On top of this, the depth of the information provided varies greatly among players. With the CSRD reporting, it is believed that investors will be provided with the information necessary to make an informed investment decision. The ESRS have the potential to address the shortcomings in many ways. Compared to the NFRD, a broader range of reporting undertakings are required under the CSRD. The directive includes all large undertakings, irrespective of whether they are listed or not (excluding micro listed undertakings). The previous threshold of 500 employees is no longer considered. Additionally, the ESRS require a higher level of granularity of the reported data compared with other reporting standards such as the GRI, SFDR or IFRS ISSB, also specifying the data collection methodologies. The standards additionally cover a broader range of environmental issues, including new topics such as water and marine resources or biodiversity and ecosystems, and expand the reporting requirements to include social and governance issues. The broad spectrum of reporting requirements allows investors to incorporate numerous sustainability aspects into their decision-making process. Further, the ESRS are mandatory and often include a reporting template that should be reported in a machine-readable manner.
Better collaboration and knowledge for corporates themselves
Within organizations, the gathering of information should improve the coordination and collaboration of different departments working together on CSRD requirements. This will be especially true in the first years of the preparation of sustainability statements. The benefits could fade away after several years of CSRD reporting. The other benefit will be uncovering sustainability aspects of the products and services offered. The gathering of information along the different value chains will see the eruption of facts and figures probably not previously considered by certain parts of the business. With increased information sharing, trust and collaboration will aid the inclusion of sustainability aspects in supplier selection. The impact will vary across sectors, but we would expect corporates with the most complex value chains to benefit from the requirements imposed by the CSRD.
Enhancing behaviour changes and sustainability practices
The CSRD expands the scope of mandatory sustainability reporting to include all large and listed undertakings, excluding micro-enterprises. This will necessitate more detailed and standardized reporting. The implementation of sustainability reporting requirements under the CSRD and the European Sustainability Reporting Standards (ESRS) is anticipated to change the behaviour of various organizations. These changes include heightened awareness of sustainability issues, new internal processes, policy revisions, and modifications to business models and value chains.
Mitigating risks for companies and the whole economy
According to the World Commission on Environment and Development of the United Nations: “Sustainable development meets the needs of the present generation without compromising the ability of future generations, ensuring a balance between growth and environmental protection”. Corporates have a role to play in the climate change issue through reduction of pollution. They also play a direct role in mitigating economic and social development risks by ensuring employees and contractors fair treatment and equal opportunities for all.
At a corporate level, mitigating risks is also a question of preventing scandals and financial penalties that could negatively impact corporates’ financial and non-financial performance. The CSRD aims to force corporates to have clear objectives and align their goals through commitments to improve their sustainability performance.
The costs occurred by CSRD reporting could also bring cost saving opportunities
The CSRD and its goals to bring relevant, comparable, reliable, and usable information have a cost for corporates. ESG information is relevant to the corporates themselves as well as for investors, rating agencies, ESG (rating) agencies, and certification agencies. Corporates are asked to fill in questionnaires in different formats. The multitudes of standards, methodologies and disclosure practices at the disposal of companies, sectors and asset classes mean that the standardization and the depth of the data required by the CSR directive will help in reducing the costs occurred by the gathering, analysis and disclosure of ESG data in the long run. Organizations should be able to directly compare the reported ESRS data amongst peers and sectors, at lower costs in the long run.
