The future of ESG reporting (Environmental, Social, Governance) is expected to involve increased standardization, greater transparency, and wider adoption of ESG practices. When will it actually happen? Does the entry of the CSRD (Corporate Sustainability Reporting Directive) on December 14, 2022 change everything?
Who does the CSRD apply to?
The provisions of the CSRD Directive will apply to 50,000 enterprises in the European Union. In the first place, it will cover large companies – regardless of whether they are listed on the stock exchange or not – but also companies from outside the European Union, operating largely in its territory, with a turnover of more than €150 million and employing more than 500 employees. Such companies will be required to prepare ESG reports in 2025, which means that the deadline for implementing reporting is January 1, 2024. Other companies will acquire the ESG reporting obligation in subsequent years, until 2027.
The future of ESG reporting
What ESG reporting will look like in the future can be based on 5 basic criteria. Below are possible scenarios related to standardization, transparency, widespread adoption, climate risk, and ESG reporting data and technology:
Standardization: As more companies adopt ESG reporting, the need for standardization of reporting frameworks and metrics is likely to increase. This will make it easier for investors and other stakeholders to compare the performance of different companies and make more informed investment decisions.
Transparency: Companies are also expected to provide more detailed and transparent information about their ESG performance, including their environmental, social and governance impacts. This will enable stakeholders to better understand the risks and opportunities associated with the company and its business model.
Widespread adoption: ESG reporting is likely to become more common and mandatory for companies of all sizes, across all sectors and industries. It will no longer be a “nice to own” but a requirement for companies to be able to attract and retain investors, employees, and customers.
Climate risk: Climate change is increasingly recognized as a significant risk for investors, businesses, and society. Companies are therefore expected to provide more detailed and transparent information on their climate change mitigation and adaptation efforts and to set clear, measurable, and ambitious carbon footprint reduction targets.
ESG data and technology: ESG reporting will increasingly be integrated with data technology and analytics, making it easier to collect, analyze and report on ESG data. This will make it easier for companies to identify and address significant ESG threats, and for investors and other stakeholders to assess a company’s ESG performance.