Executive summary

The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a significant step towards integrating sustainability into corporate and financial sectors. The directive, which came into force on January 5, 2023, extends the scope of the Non-Financial Reporting Directive (NFRD) to include a larger group of companies, with around 50,000 companies now required to comply with the new rules.

The CSRD encompasses a diverse array of business entities, including large corporations, listed Small and Medium-sized Enterprises (SMEs), financial institutions, cross-border corporate entities, and subsidiaries. The directive introduces its requirements in four distinct phases, each targeting different categories of companies, starting from January 2024.

Companies are required to comply with comprehensive reporting obligations, including detailing their business model, strategy, governance, and sustainability policies. They must also disclose their sustainability targets, progress made, and relevant indicators. The directive also mandates companies to report on the material impacts, risks, and opportunities associated with their entity through direct and indirect business relationships in their value chain.

The European Sustainability Reporting Standards (ESRS) are a fundamental component of the CSRD, developed by EFRAG (European Financial Reporting Advisory Group). The ESRS comprises 12 standards, divided into four categories, and aligns with EU legislation and other global frameworks like the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI).

The concept of double materiality, which encompasses impact materiality and financial materiality, is central to the ESRS. Companies are required to focus their reporting on information that is significant to their business model and activities.

Under the CSRD, organisations are required to obtain independent third-party assurance for their sustainability reporting. This mandatory assurance is a critical step in enhancing the credibility and reliability of the disclosed sustainability information.

The CSRD introduces specific mechanisms for enforcement and sanctions to ensure compliance with its reporting standards. The responsibility for enforcing the CSRD lies with the Member States, who are tasked with the provision and implementation of penalties for non-compliance.

In conclusion, CSRD implementation requires resource allocation for staff training, new procedures, and potential adjustments in partnerships. Nevertheless, it can be achievable with a strategic approach, commitment, collaboration, and continuous improvement. The journey to CSRD alignment is a marathon, not a sprint, but with the right mindset and strategies, it can be navigated successfully, turning challenges into opportunities for sustainable growth.

I. Introduction

EU policymakers have recently taken significant steps towards integrating sustainability into the corporate and financial sectors, a development reflective of the increasing global focus on environmental, social, and governance (ESG) issues. Central to this shift is the European Green Deal1, initiated in 2019, under which several legislative measures have been introduced or proposed to enhance sustainability practices across various industries.

A key element in this legislative framework was the Non-Financial Reporting Directive (NFRD)2, which mandates large public-interest entities to disclose a range of non-financial information. This includes reporting on environmental impact, social and employee concerns, human rights, and anti-corruption measures.

In the realm of sustainable finance, the EU has also introduced the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation (TR). The SFDR requires financial market participants and advisers to disclose information related to sustainability, while the TR classifies economic activities as “environmentally sustainable” and sets additional disclosure obligations for financial and corporate entities.

Building upon the foundations laid by the NFRD, the Corporate Sustainability Reporting Directive (CSRD) aims to extend and refine these requirements, broadening the scope to include a larger group of companies. Around 50,000 companies will now have to comply with the new rules, compared to 12,000 for the NFRD.

The CSRD entered into force on January 5, 2023, with deadline for transposition set on July 6, 2024. Luxembourg’s government is working on its transposition.

II. Overview of the main elements of CSRD

a. Companies in scope

The CSRD casts a wide net, encompassing a diverse array of business entities under its enhanced sustainability reporting standards. The Directive targets:

Large corporations: This category encompasses both listed and unlisted companies employing more than 500 individuals. Additionally, companies are included if they exceed two out of three of the following criteria: a balance sheet total greater than €25 million, net turnover exceeding €50 million, or an average workforce of over 250 employees during the fiscal year.

Listed Small and Medium-sized Enterprises (SMEs) and financial institutions: Alongside large corporations, the CSRD also targets listed SMEs meeting at least two out of three criteria: more than 10 employees, a net turnover over 700,000 EUR and total assets greater than 350,000 EUR. Furthermore, it includes small and non-complex financial institutions, as well as captive insurance and reinsurance undertakings, provided they meet certain size criteria or are publicly listed. On a positive note, micro-enterprises, that is companies with less than 10 employees or below 2 million EUR, are exempt.

Cross-border corporate entities: EU parent companies with control over subsidiaries outside the EU are subject to the CSRD, particularly if these subsidiaries meet the EU criteria for size or market listing. Non-EU companies with significant EU business activities (€150 million net turnover) and having an EU subsidiary or a branch generating more than €40 million net turnover are also included under the Directive.3

Subsidiary exemptions: Subsidiaries are exempt from individual CSRD reporting if they are covered in the consolidated sustainability reports of their parent companies that comply with the CSRD or equivalent sustainability reporting standards. This exemption is applicable to subsidiaries of both EU and non-EU parent companies. For subsidiaries of third-country enterprises, transitional provisions are in place for seven years, allowing EU subsidiaries to report under European standards while the assessment of equivalent international standards is ongoing.

b. Timeline

The CSRD introduces its requirements in four distinct phases, each targeting different categories of companies. Here are the details of each phase:

The first phase: starting 1st January 2024
Large companies with over 500 employees already under the NFDR’s scope are required to start reporting for the fiscal year 2024, with their first reports due in 2025.

The second phase: starting 1st January 2025
The second phase bring in large companies not previously covered by the NFDR. These companies must start CSRD reporting in 2025, with reports to be published in 2026.

The third phase: starting 1st January 2026
Listed SMEs and other small, non-complex financial institutions must comply with the CSRD from the financial year 2026, but they have an option to opt out of the reporting rules until 1st January 2028.

The fourth phase: starting 1st January 2028
Non-EU-companies meeting the abovementioned criteria will be required to implement the CSRD from the 1st of January 2028.

c. Obligations and specific disclosures

The CSRD mandates organisations within its scope to comply with comprehensive reporting obligations, aligning with the standards detailed in the next section.

Business model, strategy, governance, and sustainability policies
Companies must thoroughly detail their business model and strategy, with a particular focus on their resilience to sustainability risks, including climate change. This should cover plans and actions aimed at ensuring the compatibility of their business model and strategy with the transition to a sustainable economy and the goal of limiting global warming to 1.5°C, in accordance with the UN 2015 Paris Agreement and the EU’s objective of achieving climate neutrality by 2050.

Reporting on sustainability governance is essential, including the roles, expertise, and skills of management and supervisory bodies.

Organisations are also required to outline policies regarding employee welfare, diversity, social responsibility, human rights, anti-corruption, and anti-bribery practices.

A forward-looking approach is needed, encompassing the company’s sustainability policies, time-bound targets, and incentives.

Targets, metrics, and performance
Companies must disclose their sustainability targets, the progress made, and relevant indicators. These should be in line with achieving net-zero emissions by 2050 and other EU sustainability objectives.

Reports should include a materiality process assessment of ESG themes, topics, risks, impacts, and focus areas, adhering to the principle of double materiality. Examples include monetized total GHG emissions, employee turnover, gender distribution in top management, and employees’ age distribution.

Value chain and supply chain reporting
Companies are required to report on the material impacts, risks, and opportunities associated with their entity through direct and indirect business relationships in their value chain. This includes the due diligence process implemented for sustainability issues and the main actual or potential adverse impacts related to the company’s value chain (both upstream and downstream), along with measures taken and the outcomes of those measures to prevent any actual or potential adverse impacts.

A three-year grace period is provided for detailed value chain reporting, allowing companies to explain their efforts and challenges in obtaining necessary information during this period.

It is important to note that companies are now required to report at the same time as the financial statements and to ensure that the information is clearly identifiable in a dedicated section of the management report. Furthermore, publication must occur in a machine-readable format, produced in the European Single Electronic Format (XHTML) and with certain sustainability information digitally tagged. 4

Under the CSRD, listed SMEs have a reduced list of requirements compared to large organisations.5

d. European Sustainability Reporting Standards (ESRS)

The European Sustainability Reporting Standards (ESRS) are a fundamental component of the CSRD, developed by EFRAG (prevously known as the European Financial Reporting Advisory Group), a technical advisory body composed of European stakeholders’ organisations, national organisations, and civil society organisations.6

EFRAG proposed the first set of ESRS in November 2022, subsequently adopted by the Commission through a Delegated Act (DA) in July 2023.7 The ESRS comprises 12 standards, divided into four categories:

Figure 1 – Overview of European Sustainability Reporting

Cross-cutting standards are setting out overarching reporting principles while the other standards dive into the details of environmental, social and governance-related matters.

Under the DA, the disclosure of certain standards is exempted for a period.9 All other standards and their individual disclosure requirements and datapoints are subject to a materiality assessment. This implies that companies will report only the information relevant (“material”) to their business model and activity. Further elaboration on this will be provided in the next section of this article.

In principle, ESRS align with EU legislation and other global frameworks like the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI),10 to ensure consistency and comparability in sustainability reporting. Ongoing efforts are being made to optimize interoperability between ESRS and ISSB standards, aiming to provide comprehensive sustainability issue coverage and facilitate compliance for companies adhering to both standards.11

Additionally, EFRAG planned to publish a simplified ESRS for listed SMEs,12 small and non-complex banks, and captive insurance and reinsurance companies in the first quarter of 2024. Moreover, EFRAG is developing a voluntary, simplified reporting standard for non-listed SMEs to enable them to respond to sustainability information requests, particularly when part of the value chain of enterprises mandated to publish sustainability reports under the CSRD. A draft of this standard is scheduled for public consultation in the early months of the following year.13

Sector standards are being developed over a period of 4 to 5 years and are complementary to sector-agnostic standards. EFRAG plans to work on standards for high-impact sectors (beginning with oil and gas, mining, extractive, and coal industries) and the banking, insurance, and capital markets sectors. 14 These sector specific ESRS, initially expected to be adopted by June 2024, now have an anticipated two-year extension for their adoption.

Finally, the ESRS for subsidiaries or EU branches of non-EU companies, required to start publishing sustainability information from January 1, 2028, were initially expected to be adopted by June 2024. However, EFRAG has indicated a proposed two-year extension for this deadline. Consultations on a draft of these ESRS are planned for the fourth quarter of 2024 or the first quarter of 2025.

e. Materiality assessment

The CSRD introduces the concept of double materiality, which is central to the ESRS. Materiality in this context requires companies to focus their reporting on information that is significant to their business model and activities. It encompasses two dimensions:

  1. Financial materiality: this concept is traditionally used in financial reporting, and it refers to the significance of an item, event, or information on the financial statements. If the omission or misstatement of an item could influence the economic decisions of users, it is considered materially significant. In other words, it’s about the impact on the company’s financial health and profitability.
  2. Impact materiality: this aspect focuses on a company’s actual or potential impacts on sustainability matters. It includes considerations of how a company’s activities affect various sustainability issues, such as carbon emissions, workforce diversity, and respect for human rights. This dimension assesses the positive or negative impacts of the company on people and the environment across short, medium, and long-term time horizons.

As mentioned, companies are mandated to disclose information based on this double materiality assessment. Companies must report on aspects deemed materially significant, following a comprehensive assessment process. If a sustainability matter, such as for example climate change, is assessed as non-material, companies must provide a detailed rationale for not reporting on it.

The standards require undertakings to perform a robust materiality assessment to ensure that all sustainability information necessary to meet the objectives and requirements of the CSRD will be disclosed.

f. Third-party assurance

Under the CSRD, organisations are required to obtain independent third-party assurance for their sustainability reporting. This mandatory assurance is a critical step in enhancing the credibility and reliability of the disclosed sustainability information.

Initially, the CSRD requires limited assurance for sustainability reports, focusing on understanding the data compilation process through inquiry, observation and analytical procedures to reduce the risk of material misstatement. However, from 2028, the CSRD plans to shift to reasonable assurance, which involves more thorough procedures such as the understanding of internal controls over sustainability information or substantive procedures which provides a higher level of confidence in the sustainability information. The key difference between these two types lies in the depth of procedures and level of confidence provided. Reasonable assurance, similar to a financial statement audit, provides a positive conclusion about the absence of material misstatements.

For both limited and reasonable assurance engagements, the verifiability of the reported information is essential. This requires the information to be assessed against clear and suitable reporting criteria, ensuring the data is relevant, complete, reliable, neutral, and understandable. Moreover, effective internal processes and controls within the reporting entity are vital to guarantee data quality, making the sustainability reporting both comparable and reliable.

g. Enforcement and sanctions

The CSRD introduces specific mechanisms for enforcement and sanctions to ensure compliance with its reporting standards. The responsibility for enforcing the CSRD lies with the Member States. They are tasked with the provision and implementation of penalties for non-compliance. This enforcement will be carried out in accordance with each Member State’s administrative and/or criminal legal frameworks.

III. Key points

As an increasing number of companies begin their journey to implement CSRD, we will delve into best practices for an effective roll-out: we start with the double materiality assessment, focusing on elements such as stakeholder mapping, value chain challenges, and determining the optimal timing for the analysis. Next, we underscore the importance of evaluating past reporting practices against ESRS requirements to address gaps promptly. This step involves defining KPIs, gaining a solid understanding of the data collection process, and establishing effective internal controls over sustainability reporting in preparation for CSRD assurance. We conclude our journey with an in-depth look at the role of governance and cross-functional collaboration in elevating CSRD goals to a strategic level.

a. Double materiality assessment: The starting point for CSRD

Double materiality assessment is the starting point for sustainability reporting under ESRS. Entities falling under the scope of the CSRD will have to comply with this critical requirement.

The assessment serves the dual purpose of identifying the sustainability aspects that hold utmost significance for both the organisation and its stakeholders, considering both impact and financial materiality, which ensures the most comprehensive understanding of sustainability performance.

The double materiality assessment serves not only as a compliance tool but also as a strategic instrument, guiding resource allocation and influencing corporate strategy based on identified material sustainability matters. In a broader context, double materiality ensures that sustainability reporting focuses on the most relevant topics, forming the foundation of a sustainable and impactful strategy. Effectively navigating a double materiality assessment demands a meticulous approach to mitigate potential pitfalls, with some of the most common ones listed below:

  • Incomplete stakeholder mapping: inadequate identification of relevant stakeholders will inevitably result in an incomplete or wrong selection of critical material issues. This lack of recognition may impede the thorough exploration of perspectives, expectations, and concerns from internal and external parties. A comprehensive stakeholder mapping process is crucial to ensure that diverse viewpoints are considered, fostering a more holistic understanding of the significance of sustainability matters to the organisation. To ensure a complete stakeholder mapping, organisations will need to complete a comprehensive process that spans internal and external stakeholders, encompassing perspectives from employees, customers, suppliers, investors, and local communities.
  • Limited engagement with stakeholders: superficial engagement leads to a deficiency in comprehending the depth of stakeholder expectations and concerns. This limited interaction hampers the ability to glean nuanced insights into the diverse perspectives and multifaceted expectations of stakeholders. Meaningful and ongoing engagement, conducted through various channels such as surveys, interviews, and forums, is imperative for fostering a more profound understanding of stakeholder needs and aspirations, enabling organisations to respond more effectively to their diverse stakeholders.
  • Group vs. local materiality: neglecting to differentiate between materiality at the overarching group level and the localized level may result in overlooking crucial issues specific to individual operational units. This oversight could impede a thorough understanding of the unique challenges and opportunities faced by distinct business segments, potentially hindering the development of targeted strategies. Recognizing and incorporating both group-wide and local perspectives into the materiality assessment is essential for a comprehensive evaluation that captures the intricacies and variations across diverse operational units or geographical locations.
  • Overlooking emerging issues: depending solely on historical data runs the risk of overlooking emerging sustainability issues. Relying exclusively on past information may create a blind spot, potentially missing out on evolving trends, new regulatory developments, and emerging challenges within the sustainability landscape. Adopting a forward-looking approach that includes ongoing monitoring of industry shifts and emerging issues is essential. This proactive strategy ensures that the materiality assessment remains adaptable and responsive to the dynamic nature of sustainability considerations, allowing organisations to stay abreast of emerging challenges and integrate them effectively into their sustainability strategies.
  • Quantitative vs. qualitative imbalance: an excessive focus on quantitative data to the detriment of qualitative insights restricts the comprehensive understanding of materiality. This inclination may result in overlooking nuanced aspects and contextual details that qualitative information provides. Striking a balance between quantitative metrics and qualitative observations is essential for a more holistic perspective on material issues. Incorporating both types of data allow for a richer analysis, ensuring a nuanced and well-rounded comprehension of the significance and implications of identified material matters.
  • Inadequate integration with strategy: Insufficiently weaving the outcomes of the assessment into strategic decision-making processes leads to a disjointed approach. This lack of integration may hinder the effective alignment of sustainability objectives with overarching business strategies, potentially creating a disconnect between identified material issues and the strategic direction of the organisation. A robust integration of assessment insights into strategic planning is vital to ensure that sustainability considerations are embedded cohesively into the broader organisational strategy, fostering alignment and synergy between sustainability goals and overall business objectives.
  • Timing of the double materiality assessment: theoretically, the double materiality assessment should be the initial step in sustainability reporting under ESRS. However, it’s often seen in practice that this assessment runs concurrently with the preparation of ESRS 2 General Disclosures. This parallel execution fosters a feedback loop, enabling on-the-spot modifications and fine-tuning of the assessment based on the emerging insights during the ESRS 2 alignment. While this method strays from the theoretical model, it can yield a more flexible and reactive assessment process.

b. A focus on organisations’ entire value chains

The distinct feature of the CSRD lies in its emphasis on value chain reporting, mandating companies to thoroughly evaluate and disclose not only the impact of their own operations but also the repercussions across their entire supply chain, hence increasing focus on transparency and due diligence. Organisations now must extend their focus beyond their immediate operations and disclose the environmental and social impacts within their value chain, ultimately taking responsibility for all their upstream suppliers.

EFRAG distinguishes between the terms “value chain” and “supply chain”. A supply chain refers to the sequence of activities from sourcing raw materials to delivering the final product, focusing on operational aspects. Conversely, a value chain is broader, encompassing the supply chain and other value-adding activities like design, marketing, and after-sales service. It is more strategic, focusing on activities contributing to customer value and competitive advantage. In EFRAG’s context and sustainability reporting, the value chain, covering all activities with potential ESG impacts, is often more relevant.

The reporting framework is structured around the concept of double materiality, encompassing the company’s influence on society and the environment, and reciprocally, how external factors affect the business. This entails a comprehensive examination, including:

  • Emission accountability: CSRD requires detailed reporting of both direct and indirect (Scope 3) emissions for a complete environmental impact understanding.
  • Worker well-being: CSRD emphasizes the evaluation of labour conditions across the supply chain, promoting fair and ethical practices.
  • Nature impact assessment: companies must assess environmental consequences from upstream activities, addressing biodiversity, resource depletion, and ecosystem health.
  • Comprehensive reporting: CSRD mandates detailed sustainability reports covering practices, impacts, and improvement strategies with specific targets.

Meeting the value chain data requirements under CSRD will be a significant challenge, necessitating consistency, especially with ESRS demanding over 1,000 data points. Global supply chains may face indirect effects as downstream partners seek data for compliance.

To navigate CSRD’s complexities, companies will need to adopt strategic foresight, fortify governance, embed human rights and environmental considerations, establish robust data collection processes, align directors’ remuneration with ESG goals, and meet annual reporting deadlines.

Incorporating robust value chain due diligence into business practices will offer a multitude of advantages, ranging from contributing to a sustainable economy to fortifying organisational resilience:

  1. Valuable contribution to a sustainable and fair economy and society: by scrutinizing and managing the environmental and social impacts across the value chain, companies contribute to the broader goal of creating a more sustainable and just society.
  2. Enhanced organisational risk assessment across the value chain: by enabling companies to identify potential challenges related to human rights, environmental issues, and other factors, companies are empowered to implement effective risk mitigation strategies.
  3. Reduction of reputational risks: by proactively managing these risks, organisations can safeguard their brand image and credibility, mitigating the negative impacts associated with any adverse events or practices within their operations.
  4. Reinforcing competitive advantage: as sustainability becomes a key differentiator, businesses that prioritise ethical and responsible practices are likely to attract a growing segment of environmentally and socially conscious consumers, thereby gaining a competitive advantage over their peers.

c. Optimizing Data, Processes, and Systems for an effective CSRD Implementation

Upon identification of material topics throughout the organization and its value chain, companies will transition their attention towards juxtaposing existing definitions, policies, and disclosure practices against the corresponding ESRSs. This comparison will facilitate the identification of gaps and aid in the formulation of a strategic roadmap for effective implementation, encompassing actions around people, processes and technology.

As the clock ticks, here are some crucial preliminary measures to undertake in preparation for the CSRD:

  • KPI identification and definition: following the gap analysis, the organisation will analyse the definitions of the KPI to be disclosed. Many definitions provided by ESRSs leave room for further refinement to adapt them to the requirements of the company. This may include more detailed guidance or practical considerations on how to transpose the definitions in the context of the group. Particularly for large groups with multiple subsidiaries, it is crucial to identify varying practices and standardise them for a consistent data collection. A manual summarizing key characteristics of KPIs can be extremely helpful in communicating across a group of entities.
  • Data collection process: after defining the KPIs, the next step is to identify where the underlying data points come from and how they are collected. This involves mapping and evaluating the data flow across different group entities, reviewing existing policies and processes, identifying the various functions involved in the data collection process, and understanding the documents generated and systems used. This in-depth understanding of processes and their associated risks aids management in designing and implementing effective internal controls, as detailed in the following chapter.
  • Reporting solution: leveraging technology is key for managing complex ESG data, enhancing efficiency and accuracy, and meeting reporting requirements. Technology aids in automating data collection, reducing errors, and integrating diverse data sources for a comprehensive view of ESG performance. Before embarking on the selection of a new reporting tool, it is worth assessing functionalities of existing applications in light of the new requirements to identify modules which could be extended or enhanced. For the remaining gaps, various software providers have entered the market proposing a wide variety of solutions focusing on environmental, social or compliance aspects, or specific parts of the process such as collection, consolidation, reporting or forecasting.

All aspects listed above will be covered in a roadmap, a plan which outlines the steps and milestones the organisation needs to follow to achieve compliance with the CSRD. The roadmap serves as a visual guide, providing a structured overview of the journey from the current to the desired future state. Key components that typically comprise a roadmap for implementation include stakeholder identification and involvement, timeline and milestones, resource allocation, risk assessment and mitigation.

d. Ensuring consistent governance over sustainability reporting

The roles of the board and management in sustainability reporting are distinct yet complementary, playing a pivotal role in the implementation of the CSRD.

The board of directors significantly contributes to overseeing a company’s ESG strategies. They guide management on ESG initiatives and make decisions informed by stakeholders, positioning the company as an industry leader. The audit committee, where applicable, plays a crucial role in ensuring a robust non-financial reporting process and communicating relevant ESG disclosures. They ensure ESG risks are identified, prioritised, and serve to inform disclosure objectives and practices. As companies evolve their ESG programs into an integrated model, the audit committee’s role in setting the tone regarding the importance of assurance on ESG information is likely to expand. As ESG programmes mature and integrate with business strategies, boards will also need to develop their governance structures to provide appropriate oversight.

Companies may consider creating a cross-functional committee as part of their governance structure. This team, comprising representatives from various departments like risk management, compliance, finance, HR and more, aims to provide a holistic understanding of the company’s sustainability objectives. The group’s diverse expertise allows for a comprehensive evaluation of potential impacts, risks, and opportunities related to ESG considerations. This team supports the creation and monitoring of specific sustainability goals across the organisation and ensures a well-rounded perspective, aligns diverse stakeholders towards common sustainability goals, and strengthens the overall governance framework. It also enhances the company’s ability to navigate the complexities of the evolving sustainability landscape.

Management plays a crucial role in the operational execution of sustainability initiatives and the preparation of sustainability reports. They are responsible for implementing the sustainability policies and practices, which includes developing detailed plans, allocating resources, and managing day-to-day operations. A key part of management’s role is ensuring the quality of sustainability data through robust internal controls. These controls help ensure that the data collected is accurate, reliable, and consistent, which is essential for providing stakeholders with a clear and truthful representation of a company’s environmental, social, and governance related performance.

While internal controls over sustainability reporting and financial reporting share the common goal of ensuring accuracy and compliance, there are several differences between the two. On the one hand, financial reporting primarily deals with quantitative, monetary data that is often historical and derived from well-established accounting systems. Sustainability reporting, on the other hand, involves both quantitative and qualitative data, covering a broader range of topics such as environmental impact, social responsibility, and governance practices which may, at times, be forward looking. The data may come from diverse sources and may not always be easily measurable or comparable.

Well designed and effective internal controls, both manual and automated, therefore play an essential role in ensuring high-quality ESG data and accurate sustainability reporting.

  • Data accuracy: they help ensure the accuracy of ESG data by establishing procedures for data collection, processing, and reporting. These controls can help prevent errors, omissions, and fraud that could compromise the quality of the data.
  • Data consistency: internal controls will help ensure consistency in ESG data by ensuring that the same definitions for KPIs are used across groups for data collection and reporting. This allows for a more meaningful monitoring of targets over time and across different parts of the organisation.
  • Regulatory compliance: they can help ensure that ESG data collection and reporting comply with all relevant laws, regulations, and standards. This can reduce the risk of non-compliance penalties and enhance the credibility of the sustainability report.
  • Risk management: internal controls can help identify and manage risks associated with ESG data and reporting. This can help prevent issues that could damage the company’s reputation or financial performance.

In summary, internal controls are essential for ensuring that ESG data is accurate, consistent, verifiable, compliant with regulations, and managed effectively. Building a successful internal controls environment for CSRD involves a deep understanding of existing data collection processes, identifying material risks to the organisation and designing and implementing effective internal controls. Regular evaluations and communication will ensure alignment is maintained across the organisation, with existing systems adapted to meet ESG-related needs.

IV. Conclusions

As ESG scrutiny rises, adapting to the evolving sustainability regulations, such as the CSRD, has become a strategic priority for corporate boards. Key aspects of the CSRD, including double-materiality assessments, reporting on risks and opportunities as well as detailed disclosure requirements on qualitative and quantitative KPIs, aim to elevate sustainability reporting standards.

Compliance with CSRD will be challenging, requiring resource allocation for staff training, new procedures, and potential adjustments in partnerships. Companies may need external services for understanding and complying with new regulations, including audits related to CSR aspects like carbon footprint analysis. Non-compliance could lead to financial penalties and trust erosion, impacting business activity and profits.

However, CSRD compliance offers an opportunity to enhance a company’s sustainability profile, instilling confidence among stakeholders and reinforcing commitment to responsible practices. Deloitte’s readiness assessments reveal that many companies, even those advanced in sustainability reporting, fall short of CSRD requirements, highlighting the need for prompt preparations for timely compliance.

ESG reporting allows companies to integrate ESG principles into their strategic planning and operational frameworks, attracting talent, engaging customers, and securing investments. However, significant refinements in data collection, processing, and reporting across ESG dimensions are likely needed.

In conclusion, CSRD implementation requires resource allocation for staff training, new procedures, and potential adjustments in partnerships. Nevertheless, it can be achievable with a strategic approach, commitment, collaboration, and continuous improvement. The journey to CSRD alignment is a marathon, not a sprint, but with the right mindset and strategies, it can be navigated successfully, turning challenges into opportunities for sustainable growth.


Andrea Zumbado and Sara Garcia – Legal Sustainability Practice

ArcelorMittal, a global steel manufacturing multinational, is preparing for the implementation of the Corporate Sustainability Reporting Directive (CSRD) set forth by the European Sustainability Reporting Standards (ESRS). With an extensive presence in both EU and non-EU countries, the company faces the challenge of reporting under CSRD starting in 2025, based on 2024 data collection commencing in January 2024.

The sheer scale of ArcelorMittal – spanning around 500 sites, offices, and facilities worldwide – adds complexity to compliance efforts, requiring the involvement of various corporate departments and local entities. To meet the CSRD requirements, the company has initiated a meticulous process that involves interpreting legal concepts, reviewing disclosure standards, and allocating substantial time and financial resources.

Upon the release of the initial ESRS drafts, ArcelorMittal took the proactive step of disaggregating the Disclosure Requirements. The Legal Sustainability department coordinated this effort, extracting the specific disclosure requirements.

This endeavour involved not only dissecting information but also interpreting legal concepts and adapting to evolving standards released by the European Financial Reporting Advisory Group (EFRAG). Competent departments dedicated in 2023 up to 50% of their time to deciphering CSRD concepts. Plus, the Legal Sustainability Practice allocated an additional 20% for aligning with other regulations (such as the upcoming Corporate Sustainability Due Diligence Directive). This implies not only an exhaustive legal review of concepts but also establishing processes for sustainability performance and compliance wherever gaps have been identified.

Consequently, the corporate functions have conducted a thorough gap analysis of over 1000 datapoints. This analysis highlighted the percentages of available information, undisclosed information, missing information, and information already disclosed in other reports, such as the Integrated Annual Review and the Annual Reports. This analysis represents only the initial phase, emphasizing the need for resource allocation and more efficient processes in the organisation. As an example, individual production sites will face elevated IT-related costs to identify and collect the data (for example, for the collection of emissions, resource use, own workforce, among others).

The implementation journey involves several steps, starting with assessing Impacts, Risks, and Opportunities, followed by a double materiality process to identify the relevant topics and gather information, quantitative and qualitative, spanning 12 months. Subsequently, addressing Strategy, Business model, and Governance aspects for each topic, alongside shortlisting key performance indicators, and relevant metrics and targets, which can take an additional 12 months. Thus, the overall timeline to meet CSRD reporting requirements extends from 14 to 24 months.


  1. Start early: Begin the process of interpreting and adapting to the evolving standards well in advance to ensure a smoother transition.
  2. Stakeholder engagement: Engage various departments from legal to finance in a collaborative effort.
  3. Map out processes: Conduct a comprehensive gap analysis to identify missing information and establish processes for sustainability performance. Mapping out a clear plan for data collection and reporting will contribute to a more efficient compliance process.
  4. Opportunity for sustainability performance improvement: Leverage existing processes and align with other sustainability-related regulations. This not only assists in meeting CSRD requirements but also ensures a more integrated and cohesive sustainability strategy.


Beatrice Geoffrin, Director of ESG Reporting

What does Amazon think of the incoming reporting requirements?

We believe that consistent sustainability reporting can act as a catalyst for positive change, supporting the transition to a sustainable economy – and that’s both my hope and ambition for reporting, not only for Amazon, but for the industry. In order for reporting to reach its full potential and drive change globally, it needs to be practical, comparable across jurisdictions, and to guide decision-making.

Amazon co-founded and was the first signatory to The Climate Pledge, a goal to reach net-zero carbon across Amazon’s operations by 2040, a decade ahead of the Paris Agreement, with signatories agreeing to measure and report greenhouse gas emissions on a regular basis and implement decarbonisation strategies. I raise this because Amazon has been championing voluntary GHG disclosures before the wide-ranging disclosure requirements that we are seeing now. Today, there are more than 450 Climate Pledge signatories, who together generate approximately $3 trillion in global annual revenue.

What tips do you have for reporting? And what are the challenges?

Get started with a cross-functional team, recognise it’s a journey, and share information with others. We formed a project team comprised of experts in science, sustainability, legal, accounting, finance, and public policy, along with a substantial investment of time from our technology team.

In terms of challenges, Amazon operates across many borders and our business is often not structured around jurisdictional boundaries; comparability and interoperability of reporting standards are key topics for us. Enabling flexibility for a company to report at an entity or consolidated level provides the most useful information to guide decisions and promotes climate action while reducing compliance burden. It also provides investors and other stakeholders with the necessary level of information on a company’s overall sustainability profile.

We advocate for an EU-wide framework for sustainability reporting, instead of a patchwork of national requirements.

Preparing for sustainability reporting under ESRS is certainly a challenge for us and for other companies. It is not only industry stakeholders which need to build capacity, but the whole ecosystem: policymakers, regulators, and auditors. This means upskilling existing employees and recognising that we are on a learning journey.

Les auteurs
Bettina Werner
Partner at Deloitte Luxemourg
Francesca Messini
Partner at Deloitte Luxemourg
Francesco Fiaschi
Adviser European Affairs for FEDIL