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Are Companies Ready for EU CSRD Regulation? Business Survey Says...

October 27, 2023 by Joe Panettieri

In theory, 50,000 businesses worldwide are preparing to comply with the European Union CSRD (Corporate Sustainability Reporting Directive). But in reality, many European businesses have not taken any ESG (Environmental, Social and Governance) actions to address CSRD compliance, new research suggests.

To understand the full picture, keep these nuggets of information in mind.

  • The background on CSRD: By 2024, EU companies with more than 500 employees or more than €40m in turnover will be required to report on their environmental, social and governance impact.
  • The twist: In many cases, the CSRD directive expands BEYOND companies in the European Union. For instance, certain U.S. companies and other international companies will need to comply with the directive based on their EU business activities and other variables, PwC notes.
  • The widening net: CSRD's reach doesn't end there. The directive will expand to include companies with more than 250 employees in 2025, listed SMEs in 2026, and subsidiaries of non-European groups in 2028, according to Lefebvre Sarrut, a provider of legal and tax services.

Survey: European Companies and CSRD Preparation

Convention wisdom says European companies should prepare now for CSRD reporting compliance. But in many businesses that's not the case. According to a Lefebvre Sarrut study of European companies::

  • 40% are not familiar with ESG criteria;
  • 43% do not have a designated reference for ESG criteria;
  • 45% have not taken any action to prepare for the European CSRD directive.

Still, there are some signs of progress. For instance, companies in the industrial sectors (automotive, manufacturing, chemicals, etc.) "stand out for their greater maturity when it comes to ESG criteria, with the deployment of policies aimed at controlling and reducing their social and environmental impact," the report said.

Camille Sztejnhorn
Camille Sztejnhorn, director of ESG Impact, Lefebvre Sarrut

In a prepared statement about the research findings, Camille Sztejnhorn, director of ESG Impact at Lefebvre Sarrut, said: "Too many companies underestimate the future role of the CSRD directive and - beyond that - the environmental, social and economic issues it raises. If properly understood, ESG criteria (understanding, measuring and improving them) can be a source of value creation. On the other hand, ignoring them runs the risk of compromising the company's long-term viability. It is now imperative for the 50,000 companies that will soon be directly affected by CSRD to grasp these issues, equip themselves with specific tools and/or receive appropriate support. And the sooner they get to grips with it, the less they will experience it as a constraint, and the more they will be able to turn it into a lever for development."

SEC Climate Disclosure Regulation: Coming Soon?

Meanwhile, thousands of U.S. businesses could soon face additional sustainability regulations. For instance, the SEC is striving to announce its climate disclosure regulations by October 2023. The proposed SEC rules would require all publicly listed companies to disclose Scope 1, Scope 2 and Scope 3 climate information.

It's safe to expect a political pushback against the expected SEC regulations. Nevertheless, many U.S. companies and software providers are preparing now for the potential regulations. One case in point: Microsoft Cloud for Sustainability will soon support Scope 3 reporting capabilities, General Manager Shefy Manayil Kareem disclosed in mid-June 2023.

For technology partners, sustainability regulations represent both an opportunity and a challenge:

  • On the upside, 53% of EMEA (Europe, Middle East and Africa) technology partners say it's extremely likely or likely that they will experience revenue opportunities from sustainability, according to Canalys research. The figure is 50% for APAC partners, 25% for North America partners, and 24% for Latin America partners.
  • On the downside, 55% of North America partners and 48% of Latin America partners are not yet tracking sustainability KPIs (key performance indicators), compared to 29% in EMEA and 34% in APAC, Canalys reported.

Related: Track all of our coverage of Government Regulations involving ESG and Sustainability here.

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