Listed companies are preparing for the CSRD

The CSRD responds to the growing demand for reliable and comparable sustainability information among investors, consumers, and other stakeholders. The goal is to promote more sustainable business practices throughout Europe. The ESRS's serve as the basis for the CSRD reporting requirements.

The introduction of the CSRD will impact investment decisions, the reputation of companies, and the ability to attract and retain talent. In recent years, PwC has been involved in the preparation for the CSRD at many Dutch listed companies, both as an auditor and advisor.

Are listed companies on track for CSRD?

The major question is: are listed companies on track? To assess that, PwC analyzed the 2023 annual reports of AEX-listed companies using generative AI. We programmed AI with 75 targeted questions on seven ESG areas, designed to investigate the depth and breadth of ESRS implementation within the reporting of each company. In addition to this analysis of 2023 reports, we included our own market observations in the research. 

‘Listed companies recognize the urgency of CSRD and are preparing for it, but they still have work to do, especially in the social and governance areas,’ says PwC partner and ESG expert Marcus Looijenga based on the analysis. The CSRD Global Survey by PwC previously revealed that most Dutch companies are confident that they will meet the reporting requirements. Please find the key findings for each reporting component below.

Awareness and integration of sustainability reporting

First and foremost, there is a high level of awareness among Dutch AEX companies regarding the ESRS requirements for sustainability reporting. Over seventy percent of these companies are actively working on integrating CSRD and ESRS into their reporting. It is clear the majority not only understands the upcoming changes but is also making efforts to adapt their processes accordingly.

Despite this overall positive trend, there is still a small portion of companies (twelve percent) that have not yet disclosed their approach to CSRD and ESRS integration. This may indicate that there are issues or a lack of urgency in addressing the new requirements. As the deadline for CSRD implementation approaches, it will be crucial for these companies to accelerate their efforts to avoid potential compliance risks and ensure they do not fall behind their industry peers.

ESG integration in corporate governance

In their annual reports all surveyed companies explain how sustainability oversight is structured. This suggests companies recognize the importance of embedding sustainability considerations in their highest decision-making bodies. Furthermore, over 75 percent of companies have included ESG objectives in the performance evaluation systems of their top management. This is an important step in aligning corporate strategies with sustainability goals. 

Risk management and internal controls

Almost all companies have recognized sustainability as a critical factor and have integrated it into their risk management frameworks. However, only half of the companies clarify the steps they have taken to incorporate sustainability information into their internal control systems. Therefore, companies will need to improve their efforts in this area in the coming years.

Assessment of double materiality

The concept of double materiality actually forms the foundation of the CSRD and ESRS requirements. It involves companies considering not only the impact of the company on people and the environment (inside - out), but also how sustainability issues can affect their financial performance (outside - in).

The research results show that approximately 92 percent of companies provide information about their materiality process. Furthermore, almost half explicitly mention the double materiality approach as defined by CSRD and ESRS. Climate change, own employees, and business ethics are almost unanimously considered material topics, while other environmental topics such as water, pollution, biodiversity, materials, and the circular economy are reported by more than half of the companies.

According to Daniël van Veen, ESG expert at PwC, the double materiality assessment is a challenge for companies in the financial services sector. ‘They must make an impact 'through the provision of services'. In other words, they must guide and advise customers towards sustainability. For example, considering sustainability aspects in loans to companies in the manufacturing industry.’

Climate change and environmental topics

We see these companies are most advanced in the area of climate change. Many explanations are already provided in that regard. Looijenga: 'More than ninety percent of companies have defined goals based on a net zero strategy. Important next steps include extrapolating long-term goals, such as for 2030 or 2050, to short-term goals, such as annual CO2 reduction targets. And concretizing the financial impact of these goals on business operations.'

Social topics within sustainability reporting

The social dimension of sustainability reporting covers a wide range of topics. While all companies report information about their own workforce, information about 'non-employees' is often not provided, even though this group falls under 'own workforce' according to the ESRS. More than 85 percent of companies provide information on diversity and inclusivity, while less than half provide information on employee wages, the gender pay gap, and living wages. This suggests that, although diversity and inclusivity receive significant attention, there is still room for improvement in transparency regarding equal treatment.

Governance is a fundamental element of sustainable business

The CSRD emphasizes governance as a fundamental element of sustainable business. Most companies disclose their governance structures in the field of sustainability and demonstrate how they oversee sustainability at the highest level. Many companies are increasingly linking sustainability performance to executive compensation, indicating their commitment to embedding sustainability in the core activities of the company. At the same time, companies still lack concrete indicators to measure governance performance, which is also being requested by the CSRD.

Assurance on reported sustainability information

The CSRD requires assurance with a limited level of certainty to increase the reliability of reported sustainability information. Our findings show that more than eighty percent of companies include an assurance report from an external auditor regarding sustainability in their annual report. Interestingly, all of the reviewed companies rely on one of the 'Big4' accountants to ensure their sustainability information.

Conclusion: Growing trend towards robust sustainability reporting

Companies are at different stages of preparation for the CSRD, with some showing an advanced level of integration. The widespread inclusion of assurance reports and reliance on the 'Big4' accountants reflect a growing trend towards robust sustainability reporting. Looking ahead, we expect companies to continue improving their reporting practices to address the identified shortcomings and meet the increasing expectations of stakeholders. The CSRD and ESRS will shape the landscape of corporate reporting and contribute to a more sustainable future.