As the EU’s CSRD deadline approaches, sustainability practitioners are struggling with lack of guidance, short timelines, and excessive reporting requirements, all of which may lead to noncompliance or poor implementation
Cries of frustration from sustainability practitioners in carrying out double-materiality assessments or trying to understand the gaps in their current data collection processes have persisted with the first reporting deadline of the European Union’s Corporate Sustainability Reporting Directive (CSRD) less than six months away.
To understand the depth of sustainability professionals’ dissatisfaction, sustainability consultancy SB+CO gathered experiences from more than 30 senior sustainability and finance leaders from large corporations at various stages of grappling with CSRD compliance. Without the EU providing more specifics on guidance, communications, and adjustments to timelines, a key question is whether some companies forego CSRD compliance in the first year or two to avoid significant costs until more best practices emerge.
Key challenges: Lack of guidelines and short timelines
CSRD was born from the principle that businesses should report on their sustainability performance as rigorously as they report on their financial performance. Its scale, breadth, and reach make CSRD the most ambitious piece of sustainability-related regulation anywhere in the world. However, conversations with sustainability and finance professionals revealed that they were struggling with the regulation’s practicalities. If the gaps in practical guidance and timelines are not resolved, the worst-case scenario could see many companies choosing noncompliance or poor implementation, both of which dilute the original ambition of the regulation.
Some particular challenges include:
CSRD’s ambition clashes with practical reality — The scale and scope of CSRD are proving hugely problematic for practitioners in terms of the resources, time commitment, and knowledge required — particularly for companies reporting in 2025 and smaller businesses.
“CSRD is effectively trying to make sustainability data on a par with financial data,” says Nick Wyver, Consultancy Director at SB+CO. “It took 100-plus years to evolve a system of financial reporting, and 20-plus years to evolve the system of carbon reporting. Suddenly, CSRD also asks for reporting on companies’ impact on a whole range of topics that businesses just don’t have the data for — from biodiversity impacts through to impacts on indigenous communities.”
The current approach overlooks the varying levels of maturity in reporting on different issues and places an excessive burden on businesses by requiring reporting of more than 1,000 data points. A more pragmatic strategy — and the one being taken by the International Sustainability Standards Board (ISSB), which is the competing sustainability standard being adopted in many geographies outside of Europe — is to focus on well-established areas of reporting first, then gradually incorporating other topics to ease the burden.
Lack of clarity on guidance — The looseness of the guidance on properly conducting double-materiality assessments and how to do assurance are additional headaches for sustainability practitioners. The European Financial Reporting Advisory Group (EFRAG) has tried hard to provide flexibility in the way that companies disclose, Wyver explains, adding that companies can determine how they conduct their materiality assessments and set their materiality thresholds, “but that has actually made it really difficult.”
Likewise, the path to assurance for CSRD is unclear, and assurance providers are not providing sufficient guidance. This lack of clarity is making it difficult for companies to prepare for CSRD disclosures with confidence. The assurance industry is still developing its processes, and there is a shortage of time and resources to meet the requirements. As a result, companies are working towards compliance targets without a clear understanding of the criteria against which they will be assessed.
While CSRD’s aim is improve the quality and the comparability of companies’ output in order to make it decisions, Phoebe Whittome, Sustainability Strategy Director at SB+CO, say she expects the first round of disclosures to vary in terms of how companies report and what is deemed material. Over time, she expects companies to course correct over time because best practices will emerge.
Guidance was published too late, and many questions must be answered about the specifications on double materiality and assurance — and that needs to happen faster and earlier, according to Whittome and Wyver.
Big CSRD pay day for consulting and law firms — There is a risk that the Big Four accounting and consulting firms and large law firms will be the primary beneficiaries of CSRD, according to the sustainability leaders that SB+CO interviewed. These firms have a vested interest in making CSRD preparations complex and time-consuming, which could lead to higher fees for their services.
Practitioners have expressed concerns about the potential conflict of interest when these firms provide both double-materiality assessments and subsequent data collection and reporting services. This could result in firms recommending approaches that expand their own scope of work and fees. Indeed, the astronomical fees quoted for CSRD preparations, as well as the significant variances in work being quoted — examples ranged from £50k to £1.3 million for double-materiality assessments — have raised questions about what is required and what is optional.
Optimism dominates, despite turbulent start
While none of the sustainability leaders interviewed by SB+CO aimed to change the directive itself at this late stage, they did advocate for course corrections on guidance, communications, and timelines, which could enable more businesses to disclose with more accuracy and robustness. Without them, some companies may intentionally miss the compliance deadlines, perhaps as a protest to push the EU to address these challenges.
As an interim measure, Wyver and Whittome both advise corporate sustainability leaders to be pragmatic and to be clear on what the company wants to achieve, whether the approach to compliance is a tick-the-box exercise or a way to embed sustainability into the company’s core operations. Either way, they suggest that sustainability professionals build a plan and “take the business with you on that journey,” recognizing how much work is required to educate and up-skill colleagues much more broadly than solely for the sustainability function.
Over the last 80 years, a lot of negative externalities have not been factored into companies’ operations and financial statements. CSRD, in combination with the EU’s other major legislation, the Corporate Sustainability Due Diligence Directive, mandate that companies identify their impacts and invest resources to mitigate negative outcomes.
“It is going to be a bumpy ride, and it will be hard for a lot of businesses to get going,” Wyver states. “Over time, though, reporting will get easier — and fundamentally we think both pieces of regulation are important steps forward.”
Whittome concurs, adding that compliance will continually become easier. “We are starting to see practitioners reflect on the benefits of having gone through the CSRD process, and [they] can see some of CSRD’s initial ambition emerging as a practical reality,” she says.
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