Impact of the new Corporate Sustainability Reporting Directive (CSRD) on clients and audit firms

The EU-Commission will require auditors to audit CSR information and to include the results in the audit opinion. 

The Corporate Sustainability Reporting Directive proposal (CSRD) published by the EU Commission in April 2021 both increases corporate social reporting (CSR) requirements and extends the circle of companies that are compelled to report. The new requirements apply to all large European companies for financial years beginning 01 January 2023 or during the calendar year 2023. As of 2026, the same reporting requirements will apply to small and medium-sized capital market-oriented companies. A postponement of the effective date of at least 1 year is currently being discussed.

What are the key issues?

Sustainability issues and business strategy

1. Explanation of the robustness of the business model in terms of sustainability risks e.g., rising sea levels or resource scarcity)
2. The firm’s ability to benefit from sustainability initiatives
3. Description of corporate sustainability principles
4. Development and implementation of the sustainability strategy
5. Sustainability goals and appropriateness of the strategy for all stakeholders

Role of management and the supervisory board(„Sustainable Governance“)

1. Internal monitoring of corporate sustainable behaviour at all levels (e.g., sustainability KPIs)
2. Involvement of management (e.g., frequent management reporting)

Corporate actions to enhance sustainability of the entire value chain

1. Description of sustainability-related due diligences
2. Negative implications of the value chain (“Principal Adverse Impacts”) and corporate actions to reduce them (e.g., carbon footprint)

Further information

1. Intangible assets such as human capital or intellectual capital
2. Methods of collecting sustainability-related information

What is important for audit firms?

Audit firms need to gain knowledge on how to review and provide assurance on CSR reports. Many companies will struggle with the new requirements as they have little to no experience in CSR reporting. They are likely to ask their auditors for advice. Consequently, it will be important for auditors and accountants to be prepared in developing, implementing and auditing effective and appropriate sustainability reporting.