Big steps needed to ensure compliant reporting of sustainability information in annual reports from 2024

The AFM conducted a study into companies’ climate reporting and the related assurance provided by audit firms ahead of the introduction of new requirements.
From 1 January 2024, stricter transparency requirements will apply to sustainability (ESG) reporting in annual reports of the largest listed companies under the Corporate Sustainability Reporting Directive (CSRD).
This will include disclosing the impact of climate change on the company’s market valuation and its environmental impact. Companies need to improve disclosure of environmental and social impacts, financial impact of climate change, and climate goals. They should start collecting reliable sustainability information in advance and invest in expertise and capacity for reporting and assurance. CSRD requirements will expand to cover all large companies from 2025 and small and medium-sized listed companies from 2026.
The study discovered that significant efforts are required to ensure compliant reporting from 2024:
– ESG Theme of Climate: Many companies have inadequate disclosure of their environmental and social impacts. They need to improve transparency on the financial impact of climate change and energy transition and clearly explain their climate goals
– Collect Reliable Information: Companies must start collecting available and reliable sustainability information well in advance. This may require creating or updating sustainability strategies and implementing systems to measure performance on sustainability aspects
– Understandability of Auditors‘ Assurance Statements: Auditors need to be more transparent about the challenges and dilemmas they face in applying the new reporting requirements. This will help create clarity about the nature and scope of their procedures
– Invest in Expertise and Capacity: Both companies and audit firms should invest in expertise and capacity related to sustainability reporting and assurance. The number of assurance engagements is expected to increase significantly due to the new requirements
– CSRD Requirements Expansion: The CSRD requirements will initially apply to the largest listed companies from 2024 and will extend to all large companies from 2025, and small and medium-sized listed companies from 2026. This means companies and their supply chain partners will need to provide the required sustainability information