The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a major regulatory change that will affect thousands of companies. With the EU’s net-zero by 2050 target in sight, companies are facing increased pressure to reduce their carbon emissions and improve sustainability efforts. The CSRD aims to bring sustainability data to the same level of scrutiny as financial reporting. Starting in 2025, large companies with more than 250 employees or €50 million in revenue will be required to report their ESG data, which will include scope-three carbon emissions. 

This data must cover all facets of a business’s impact, including both direct and indirect environmental effects. While the largest companies are already preparing for compliance, many smaller companies are not yet ready. One of the main challenges is gathering the data, especially emissions data from the supply chain, as companies may not yet track these emissions. The complexity of reporting on the carbon footprint of products like clothing, for example, depends on the entire supply chain—from the raw materials to the manufacturing process. This makes it crucial for companies to understand the source of each material and energy used. 

Additionally, companies must begin engaging with auditors early to ensure their data collection and reporting processes are compliant and scrutinized. This collaboration can help identify issues early in the process, avoiding last-minute challenges when it’s time to submit data. 

Beyond the direct impact on large companies, the CSRD will affect small and medium-sized enterprises (SMEs) as well. While not directly bound by the regulation, SMEs will face pressure from clients who need to meet sustainability disclosure requirements. To support this, the European Financial Reporting Advisory Group (EFRAG) is creating a voluntary reporting standard to help SMEs manage ESG data requests. As more businesses adopt sustainability-focused operations, the CSRD is poised to bring sustainability efforts to the forefront of business strategies across Europe. 

Sources: 

https://www.raconteur.net/climate-crisis/fresh-esg-reporting-challenges 

https://www.newsnow.com/au/?search=%22ESG%22&lang=en&searchheadlines=1 

https://impakter.com/esg-reporting-challenges-for-eu-companies-solved-by-esg-software/ 

https://www.linkedin.com/posts/deanamhaus_eu-companies-brace-for-fresh-esg-reporting-activity-7281417044485402624-r8E0