How regulators raise the bar on ESG reporting
Joshua Ogugua
by Joshua Ogugua
In a world where environmental concerns and social responsibility are no longer optional, the stakes for corporate transparency have never been higher. As regulators tighten their grip on environmental, social, and governance (ESG) reporting, companies face a critical challenge – adapt or be left behind.
The shift from voluntary disclosures to stringent mandates is reshaping the landscape of corporate accountability, forcing organizations to rethink how they communicate their sustainability efforts. Are you ready to navigate this new reality?
The shift from voluntary to mandatory reporting
In recent years, many frontrunners – primarily larger listed companies such as Philips and Unilever – have opted for voluntary reports on ESG performance. They have integrated ESG factors into traditional financial reporting to generate a more holistic view of their company's performance, including its sustainability efforts.
In addition to environmental concerns, there is increasing emphasis on social and governance issues. Diversity and inclusion, labour practices, human rights, and ethical governance are now central components of ESG reporting.
Numerous reporting regulations have been introduced in recent years, and ESG reporting is now an obligation for many organizations. The first implementation phase focuses on larger entities, known as public interest entities (PIEs). By the end of 2025, a broader range of organizations will be subject to these requirements.
While voluntary ESG reporting was mainly about “telling a story”, regulators now demand solid metrics and verifiable data. Going forward, companies will need to ensure their ESG reports are accurate and audit-ready.
Regulatory frameworks
The EU’s Corporate Sustainability Reporting Directive (CSRD)[JO4] is the centrepiece of legislation in this domain. It is a pivotal piece of EU legislation that aims to enhance and standardise sustainability reporting across companies.
While there isn’t a direct equivalent in the United States, the Securities and Exchange Commission's (SEC) proposed climate-related disclosure rules are an essential step toward more rigorous ESG reporting, focusing on climate-related risks and greenhouse gas emissions. They build upon and significantly broaden the scope of the Non-Financial Reporting Directive (NFRD), which previously regulated ESG disclosures.
Maria Bautista, Global Head of Internal Control, Philips, has said: “Rushing data collection for CSRD deadlines without clear definitions risks inconsistent interpretations and unreliable information. Even simple terms need careful, shared definitions to ensure data integrity.”
Key Aspects of the CSRD
Broadened scope
Unlike the Non-Financial Reporting Directive (NFRD), which applied mainly to large public-interest entities with over 500 employees, the CSRD expands its applicability to include all large and listed companies, excluding micro-enterprises. For auditors, a significantly larger pool of companies will require verification of their sustainability reports, creating new responsibilities and challenges, but also opportunities.
Detailed reporting requirements
The CSRD mandates more detailed reporting on sustainability issues, covering environmental, social, and governance aspects. Companies must provide thorough information on how these factors affect their business, and how their operations impact people and the environment. Auditors must stay up to date with the new guidelines to ensure reports comply with the required standards.
Standardised reporting framework
The CSRD introduced European Sustainability Reporting Standards (ESRS) to ensure consistency and comparability. These standards, developed by the European Financial Reporting Advisory Group (EFRAG), provide detailed guidelines on the information companies must disclose.
According to Wim Bartels,European Sustainability Senior Partner: “CSRD once more calls for a good dialogue with the auditor. One should be aware that the regime of limited assurance does not mean that companies can lower the standards for information quality for now and invest in this quality later when reasonable assurance is required. In both cases, quality and reliability of the information must be in order.”
Digitalization and assurance
The CSRD mandates that companies publish their sustainability reports in a digital, machine-readable format, promoting transparency and accessibility. Furthermore, it introduces mandatory assurance of the reported information by an accredited, independent auditor, boosting the credibility of the disclosures. This mandate elevates the role of auditors, making them essential in verifying digital ESG reports, and ensuring compliance with the new standards.
Double Materiality
Companies must report on both how sustainability issues affect their business (financial materiality), and how they impact society and the environment (environmental and social materiality). This dual focus ensures a comprehensive view of sustainability performance.
Auditors in the dark – ESG in a new light
As ESG reporting evolves, organizations must adapt to new regulatory requirements, making accurate and transparent disclosures more crucial than ever.
To understand how ESG is transforming the audit landscape, check out our white paper: ESG in a New Light | White paper (datasnipper.com)
Joshua Ogugua is a Senior Content Marketer at DataSnipper, intelligent automation platform. He's a strong media and communication professional with a Bachelor of Arts - BA focused in English Literature (British and Commonwealth) from University of the West of England. Contact Joshua.
DataSnipper is focused on transforming data in the audit and financial industry. Founded in 2017, DataSnipper provides audit and finance teams with an intelligent automation platform to drastically increase the quality and efficiency of audit and finance procedures. DataSnipper is used by over 500K audit and finance professionals in 125+ countries.
