Companies face data gaps in their sustainability reports

Companies believe that the Corporate Sustainability Directive will bring them commercial benefits, despite the tight time frame and complexity of implementing the regulation.

The European Union’s new Corporate Sustainability Reporting Directive (CSRD) aims to improve the quality of non-financial reporting. In fact, it was created with the aim of making sustainability reporting equal to financial reporting. To do this, companies will have to provide reliable information about the impacts, risks and opportunities (IRO) associated with sustainability across the value chain, which is a challenging task for companies.

Six months from now, starting in 2025, there will be an obligation for large public interest companies (which also have more than 500 average employees at closure date) to publish their 2024 data reports. Gradually, other companies will join it until the last ones join by 2029.

Great Barriers

But what are the main obstacles that companies face when adapting to this European standard?

Availability and quality of data (59%), complexity of value chains (57%) and shortage of professionals (50%) are among the most prominent. This is evidenced by PwC’s first global CSRD 2024 study of more than 500 managers and companies from 30 countries affected by regulation. Next in order of priority are the deadlines for implementing the directive (47%), the unpreparedness of companies’ technological systems (43%) and economic costs (43%).

However, despite this challenge, companies are showing greater confidence that they will be able to meet their deadlines, with 63% of all companies surveyed saying they are “very” or “extremely” confident in meeting the sustainability reporting directive and simply. 3% doubt their ability to do this. In fact, 76% believe the CSRD will ensure that senior management takes sustainability into account in their decision-making to a greater extent than they have done so far, and 59% believe this is already happening.

“Companies face technological and internal control challenges as sustainability information is less reliable than financial information, as well as technical challenges in interpreting new and complex standards. Sustainability and climate change at PwC.

In exchange for efforts to implement the directive, companies expect to receive a wide range of benefits as a result of the CSRD coming into force. More than half (51%) believe it will significantly improve companies’ environmental performance, 49% say it will strengthen relationships with stakeholders, and 48% say it will help better manage risk. In addition, 28% expect it will help them increase income and 26% save costs. The companies that most expect CSRD to have an economic impact are those with the closest reporting obligations.

Respondents are more confident when they have to report on topics they already include in their current reports, such as their employees, business behavior or climate change. In contrast, they have less confidence in their ability to comply with information obligations on less familiar issues such as biodiversity, pollution and the employees who make up their supply chain.

On practice

The security of companies when using this standard is not yet manifested in concrete actions, since only one in five confirmed the availability and quality of data. This is because, as Bascones points out, CSRD includes the concept of dual materiality, unknown to many companies, which covers both the financial impact of sustainability on the company, expressed in risks and opportunities (financial materiality), and the company’s impact in the environment and society ( Impact Materiality Double materiality is the starting point for CSRD reporting and its framework was only approved a few weeks ago, so it is reasonable that it is still being delayed.

Interview | PABLO BASCONES, Partner Sustainability and Climate Change, PwC

“This is not just ‘reporting’, it is intended to provoke a change in management models”

Pablo Bascones is a partner in charge of sustainability and climate change at PwC.

Pablo Bascones, partner in charge of sustainability and climate change at PwC, notes that the European Corporate Sustainability Reporting Directive (CSRD) “is not just a reporting standard, it is intended to provoke a change in the management models of companies and organizations.” be able to use this to transform the business towards more sustainable development”

Although Bascones is aware of the difficulties that many companies will face in adapting to this new standard, he believes that Spanish companies are “starting from an advantageous situation, since the transposition of the non-financial information directive has gone further than in other countries.” The law on non-financial information applied to more companies, so many have already submitted reports on non-financial information.” Moreover, he adds, “the list of indicators they had to report was broader and had to be verified by a third party.”

The difficulty of adapting to CSRD is explained, among other things, by the lack of qualified specialists in this matter. “Ibex companies have been preparing and strengthening their sustainability areas for some time using external and internal profiles and closing gaps, but overall there is a shortage of talent in the market. And it will be difficult to find an ideal profile that knows the subject and knows the business, as we have already experienced with the application of the non-financial information law. Another challenge is that data availability must span a company’s entire operations and supply chain.

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