Investors see EU sustainability reporting rules as ‘gold standard’
Expectations that the EU’s sustainability reporting rules will become the market favourite are leading accountants to get their organisations to comply.
Despite not being captured by the EU's integrated sustainability reporting standards, 81 per cent of global ESG practitioners will nonetheless align their reporting with the mandate.
The EU’s Corporate Sustainability Reporting Directive (CSRD) was developed to bring the quality of sustainability reporting in line with that expected of financial reports.
Unlike many foreign equivalents, the CSRD required captured entities to integrate their sustainability performance within their financial reports. The US Securities and Exchange Commission has since followed suit.
According to survey data from Workiva, which polled more than 2,000 finance and accounting, sustainability, audit, legal, and compliance professionals across Asia, North America, and Europe, the integrated nature of EU climate reporting could be why so many organisations are looking to comply.
“Integrated reporting is the gold standard,” according to the report, adding that the CSRD is the most comprehensive ESG regulation to date.
Asked why a company would voluntarily comply with the CSRD, particularly given the challenges of meeting its requirements, Paul Dickinson, Workiva ESG advisory council member, said it came down to “market expectations.”
“Passed in 2023, the CSRD was the among the first regulatory mandates requiring integrated financial and ESG reporting with third-party assurance over ESG data,” said Dickinson.
“Practitioners are preparing for a market where assured integrated reporting is the de facto global norm. Having spent 21 years at the helm of voluntary disclosure, I believe this development to be a positive step forward and reason to celebrate,” he added.
Given that 88 per cent of institutional investor respondents said they would be more likely to invest in companies with integrated financial and ESG data, the market pressures are substantial.
"As companies around the world gear up for their first mandated CSRD reports in 2025, we’re seeing CSRD’s impact extend far beyond those subject to the regulation," said Paul Volpe, senior vice president of growth solutions at Workiva.
"The CSRD has initiated a global shift toward assured integrating reporting, with business leaders recognising the market demand for contextual, transparent, and credible data that aligns with stakeholder expectations."
Underlying the market expectations is widespread faith in the benefits of integrated financial and sustainability reporting, as evidenced by the survey.
Eighty-four per cent of respondents agreed that integrated financial and sustainability data enables better decision making that can improve a company’s financial performance.
A further 88 per cent agreed that it would have a positive impact on a company’s long-term value creation.
Unlike the CSRD, Australia’s climate-related financial disclosure legislation will require captured entities to produce a standalone sustainability report, separate from their annual financial reports.
While this might deprive Australian entities of the perceived benefits of integration, it is conceivable that entities will be permitted to cross-reference between their reports.
“While ASIC has an instrument that permits cross-referencing in the annual financial report in certain circumstances, the sustainability report will be a separate report and ASIC’s relief would likely need to be updated to extend to facilitate cross-referencing,” according to Herbert Smith Freehills.
Intentions to comply with CSRD reporting standards are high globally, though there is some regional variation.
For instance, North American respondents were most likely to intend to comply with the CSRD (86 per cent), while only 72 per cent of UK respondents said the same. Seventy-nine per cent of Asia-Pacific respondents will be CSRD-aligned.
Despite the high hopes for sustainability reporting, 87 per cent of ESG practitioners said they find it challenging to update reporting processes in line with new regulations, while 59 per cent said ESG regulation had disrupted their company’s reporting processes.
ESG reporting regulations have also added process complexity to reporting, evidenced by the fact that 78 per cent of respondents now have three or more internal teams involved in the process, compared with 71 per cent a year prior.
Similarly, 86 per cent said they were at or beyond capacity concerning their existing reporting functions.
Finance and accounting respondents listed complying with new mandates, internal controls, and addressing stakeholder demands as their leading ESG reporting concerns.
On ESG compliance, finance and accounting respondents listed the number of requirements, complying with multiple global standards, and measuring qualitative initiatives as the leading challenges.
