Companies prepare for the CSRD: where do we stand?

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Currently, 95% of the world's 250 largest companies have set targets for reducing carbon emissions, and 56% have a sustainability officer. Almost a third of the top 100 global companies have integrated sustainability into management remuneration systems, a percentage that rises to 41% in the group of the 250. These data come from the research KPMG Sustainability Reporting 2024, which analyzes the progress of sustainability reporting practices worldwide. These results underline the growing importance of sustainability in corporate strategies and the role of regulations and standards in defining ESG reporting approaches.

The KPMG research is based on an in-depth analysis conducted by professionals from 58 KPMG member firms, who evaluated annual sustainability reports, integrated reports, and ESG communications of the 100 largest companies in their countries. With a sample of 5,800 companies, the survey is the most extensive in the series started in 1993. Up to 52 data points were collected through a standardized questionnaire, totaling over 180,000 aggregated and validated elements. The reports analyzed cover the period from July 1, 2023, to June 30, 2024. This rigorous methodology guarantees representative and meaningful data to understand the ESG reporting landscape.

The CSRD represents a significant evolution in sustainability reporting, increasing the number of companies required to prepare a sustainability report. The main goal is to create a standardized and detailed framework for ESG reporting that is recognized globally. Among the requirements of the CSRD is the adoption of the ESRS (European Sustainability Reporting Standards), developed by EFRAG (European Financial Reporting Advisory Group). These standards define clear and measurable indicators for each area of sustainability. Furthermore, companies must provide data not only on environmental impact but also on issues such as human rights, gender equality, and working conditions.

The CSRD directive follows a precise timeline already in place from January 1, 2024 for large public interest companies with an annual average of at least 500 employees, already subject to the NFRD. For them, the first reporting will occur in 2025 for the 2024 fiscal year. From January 1, 2025, the CSRD will affect large companies that meet at least one of the following criteria: more than 250 employees; net revenues exceeding 50 million euros; assets exceeding 25 million euros; reporting will begin in 2026, based on the 2025 fiscal year. Obligation starting from January 1, 2026 also for listed SMEs and other entities identified by the regulation. These will have to present their reports in 2027, relating to the 2026 fiscal year. Finally, from January 1, 2028, the CSRD will apply to companies from third countries with a parent company outside the EU having net revenues exceeding 150 million euros within the EU for the last two years.

Companies are preparing for the CSRD (Corporate Sustainability Reporting Directive) by voluntarily adopting the European Sustainability Reporting Standards (ESRS), which include 12 sector standards with over 120 specific measures. Although only 2% of the G250 declare compliance with the ESRS, this figure reflects the limited presence of European companies in the sample. Among the European N100 companies, the percentage rises to 12%, with Spain leading (66%). States like Cyprus, Estonia, and Portugal show signs of preparation with at least 20% of companies complying. Voluntary adoption of ESRS indicates a growing awareness of the impact of imminent mandatory regulations.

The double materiality, which assesses both the environmental and social impacts and financial risks, is adopted by 78% of G250 companies and 45% of European companies. KPMG has identified three categories of materiality: impact, financial, and double. Currently, 50% of the G250 use double materiality, compared to 42% of the N100. Adoption is particularly widespread in Asia-Pacific (85%) and the Middle East (78%), while in North America, 64% of companies use materiality assessments, but only 25% adopt double materiality. Double materiality includes "substantive materiality", which pertains to companies' impact on the climate and stakeholders, and "financial materiality", which assesses how climate change affects financial performance. Investors are crucial in this context, where sustainability plays a central role for sustainable finance and the European Green Deal.

The EU Taxonomy is adopted by 14% of G250 companies and 22% of N100 companies. In Europe, adoption reaches 45% for N100 companies. Although more than half of the N100 companies in the EU countries use the Taxonomy, not all adopt the ESRS. The CSRD will require companies to apply the principle of double materiality, integrating ESG topics in management reports and subjecting the reports to independent verification. The European Taxonomy is a classification system created by the EU (Regulation 2020/852) to assess the environmental sustainability of economic activities. Developed by experts from the technical group on sustainable finance, the Taxonomy aims to provide investors with tools to identify environmentally compliant investments, supporting the ecological transition.

Companies can monitor, improve, and communicate their impact on biodiversity through "non-financial" reporting, supported by specific standards. These standards, including ESRS, provide guidelines for addressing various aspects of environmental, social, and governance (ESG) sustainability. Among the best-known in Europe are the GRI standards, whose GRI 101: Biodiversity 2024 is designed to assist companies globally in ensuring full transparency regarding their most significant impacts on biodiversity, both directly in their activities and throughout the entire value chain. Likewise, ESRS standards require biodiversity reporting, particularly through ESRS E4 standard, which aims to encourage companies to understand and communicate how their activities influence biodiversity and ecosystems, considering both positive and negative, real and potential material impacts.

In summary, the CSRD Directive represents an important step towards greater transparency and corporate accountability in sustainability matters. With the introduction of standards like ESRS, companies are called not only to monitor their environmental impacts but also to consider their economic implications. The growing focus on biodiversity, in particular, highlights the importance of integrating sustainability into every aspect of corporate management. Preparing for this regulatory evolution is not just an obligation but a true strategic lever for companies, which increasingly need to respond to the rising expectations of investors, customers, and communities. For more information on the CSRD Directive, download the dedicated 3Bee guide.