Big steps needed to ensure compliant reporting of sustainability information in annual reports from 2024
From 1 January 2024, stricter transparency requirements will apply to the reporting of information on sustainability (ESG) in the annual reports of the largest listed companies under the new Corporate Sustainability Reporting Directive (CSRD). This means, for example, that the impact of climate change on the development of the company’s market valuation becomes clear as well as the company’s impact on the environment. Ahead of the introduction of these new requirements, the AFM conducted an exploratory study into companies’ climate reporting and the related assurance provided by audit firms. This study found that big steps are needed to ensure compliant reporting from 2024. However, the AFM also found examples of good practices.
In brief
• ESG theme of climate: companies still have a lot of homework to do with little time left
• Start to collect available and reliable information on sustainability well in advance
• Room for improvement in the understandability of auditors’ assurance statements on sustainability
• Invest in sufficient expertise and capacity in relation to sustainability reporting and assurance
• The CSRD requirements will apply to all large companies from 2025
ESG theme of climate: companies still have a lot of homework to do with little time left
Half of the 27 listed companies in the study did not disclose or inadequately disclosed the negative environmental and social effects of their business operations. In addition, most of the companies were insufficiently transparent about the (financial) impact of climate change and the energy transition on their company. Around half of the companies did not clearly explain how they intended to achieve their climate goals.Start to collect available and reliable information on sustainability well in advance
For many companies, the CSRD reporting requirements will necessitate drawing up a sustainability strategy or updating their current sustainability strategy to be able to design the processes and systems needed to measure their performance on sustainability aspects and to achieve their sustainability goals. It is important that companies start to invest in this well in advance, as these reporting requirements will take effect in just nine months’ time.Room for improvement in the understandability of auditors’ assurance statements on sustainability
In their assurance statements, auditors need to be transparent about the challenges and dilemmas around the application of the CSRD reporting requirements, in order to create more clarity about the nature and scope of the procedures they performed.Invest in sufficient expertise and capacity in relation to sustainability reporting and assurance
This applies to both companies and audit firms. External auditors provide assurance on companies’ sustainability reporting. The number of assurance engagements is expected to increase significantly, as the requirements will apply to a large number of organisations.The CSRD requirements will apply to all large companies from 2025
These requirements will also apply to small and medium-sized listed companies from 2026. This means that not only these companies themselves but also parties in their supply chain, such as suppliers, will need to be able to provide the required information .Tags
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