Corporate commitments to improving the world they operate in are not vanity projects. When implemented correctly they should contribute to business growth and success. But to do so, they must be aligned with corporate strategy and link clearly to the business’ overall objectives.
The European Commission says in its press release launching the simplification of the Corporate Sustainability Reporting Directive (CSRD): “By bringing our competitiveness and climate goals together, we are creating the conditions for EU businesses to thrive, attract investment, achieve our shared goals – such as the European Green Deal objectives – and unlock our full economic potential.”
With changes due in both the EU and the US, CFOs and investor relations professionals must consider how their ESG reporting is accounted for and communicated. ESG reporting will continue to be a strategic concern for businesses that operate in Europe.
Reporting requirements
Sustainability reporting evolved naturally in the 1970s and 1980s, but hit its stride after the 2008 financial crisis. When the recession came, corporate governance became an issue that affected everyone from consumers to investors to employees. How businesses treated their staff, communities and environment was part of that.
Then, ESG reporting requirements began to become mandatory for listed companies operating across Europe, the US and beyond. But now, the landscape in the US and the EU is shifting. The US is easing its requirements around reporting, causing many companies to roll back their programmes.
In the UK and Europe, ESG reporting is still a necessity dictated by the CSRD and the UK’s equivalent, the Sustainability Disclosure Standards (SDS).
The CSRD has recently implemented a change to ensure it is simple and easy-to-understand, particularly for smaller businesses. President of the European Commission Ursula von der Leyen said in a release: “Simplification promised, simplification delivered!
“EU companies will benefit from streamlined rules on sustainable finance reporting, sustainability due diligence and taxonomy. This will make life easier for our businesses while ensuring we stay firmly on course toward our decarbonisation goals. And more simplification is on the way.”
With investors reporting action against climate-change as a consideration, there is a clear link between financial success and ESG strategy
The simpler rules will allow for easier “sustainable finance reporting, sustainability due diligence, EU Taxonomy, carbon border adjustment mechanism and European investment programmes.” Not only will that make it simpler for investor relations and finance leaders to account for, but it will save an estimated €6.3bn in administrative costs.
Jamie Eagan, VP of product management at Insightsoftware, which provides reporting and accounting software, says: “Data collection from disparate data sources and contributors, is one of, if not the most time-consuming ESG task. Many organisations are struggling with inconsistency, narrative data collection and error-prone manual processes.
“We believe this complexity and the associated financial burden is a primary driver for the pause in CSRD adoption. Providing easy data collection and consolidation, with solutions that are user-friendly and automated, would alleviate much of the current ESG reporting complexities.”
Effectively, the bulk of the CSRD changes will make ESG less challenging for SMEs. By reducing the reporting obligations related to the SMEs big corporations rely upon throughout their supply chains, SMEs will have a decreased ESG burden – and decreased associated expenses.
The European Commission hopes that by doing so, this will unlock “€50bn in additional public and private investments.” That could contribute to actual economic growth as more money is invested back into the market.
Inside reporting challenges
KPMG research found that 2022 marked the highest rate of ESG reporting ever among the top 250 global businesses (96%). It noted that 83% of North and South American companies and 82% of European companies created sustainability reports. While the US numbers may decrease, KPMG also notes that Chinese companies – notably absent from the 96% listed above – will likely join the fray soon.
One of the onuses facing US companies is the need to report ESG information alongside financial information, effectively turning it into an accounting metric. And this is notably difficult.
“Almost all organisations experience challenges with their ESG reporting. Master data alignment and data collection is complex, and aligning ESG data with financial disclosures can be greatly challenging,” says Eagan.
The new landscape
For multinational businesses, reporting is not only a challenge because of the complex data streams and accounting that must be provided. But also, different requirements across different territories pose a significant communications challenge.
But, 86% of European companies are confident that the CSRD reporting requirements will be easily understood, according to Insightsoftware’s 2025 ESG Insights and Challenges report. The goal of the updated framework was simplification and it seems as though that will be the case in Europe.
That should be an advantage for multinationals as well, because reporting on European operations will be simpler and less burdensome.
And, those companies that are able to overcome the reporting challenges and successfully align their financial and ESG data will likely see a business benefit from it.
In one respect, according to PWC’s partner in ESG reporting and assurance, Laura Kelly, there is the potential for a credibility gap for those companies that do not report ESG alongside business strategy and financials.
The consultancy’s UK Investor Survey cites that over 90% of investors think corporate sustainability reporting contains at least some amount of greenwashing. That’s a reputational risk.
She advises companies to look at reporting not just as a compliance issue, but as a driver for strategic growth. “Sustainability reporting can be a powerful catalyst for accelerating more fundamental business transformation, creating trust and unlocking new sources of value and sustainable growth,” she says.
With investors also reporting action against climate-change as an investment consideration, there is a clear link between financial success and corporate ESG strategy.
One of the ways companies can improve their reporting and streamline processes is by implementing effective accounting software that can consider both ESG-related and financial disclosures. The CSRD is simplifying, but it still requires clear, authentic ESG accounting.
European and UK companies still consider data collection, management and collaboration a significant challenge in the reporting process. In fact, 48% of UK companies – the highest in Europe – say that the integration of ESG data with financial reporting is a significant challenge.
But the adoption of software technologies that can help streamline this process will allow companies to make their reporting journeys easier. “This delay in CSRD adoption presents a great opportunity for organisations to improve their data capture, especially around the current quantitative data-points, as we expect less significant changes to these requirements. Finding data and process gaps and remediating them in preparation for eventual adoption is a valuable exercise,” says Eagan.
Organisations wishing to adopt ESG reporting on a voluntary basis as part of their corporate strategy, or to proactively manage their eventual ESG statutory requirements, will need a solution focused on capturing and consolidating this data. “Ultimately, building trust with stakeholders and positioning themselves as leaders in sustainability are still goals for many organisations,” says Eagan.
The first step, though, is the embedding of ESG goals within corporate strategy. Taking that step will make accounting easier. It will also simplify the comparison and communication of financial and sustainability objectives, creating a more cohesive corporate story.
Insightsoftware is a global provider of comprehensive solutions for the Office of the CFO. With data at the heart of everything they do, Insightsoftware enables automated processes, delivers trusted insights, boosts predictability and increases productivity. Learn more at Insightsoftware.com
Corporate commitments to improving the world they operate in are not vanity projects. When implemented correctly they should contribute to business growth and success. But to do so, they must be aligned with corporate strategy and link clearly to the business’ overall objectives.
The European Commission says in its press release launching the simplification of the Corporate Sustainability Reporting Directive (CSRD): “By bringing our competitiveness and climate goals together, we are creating the conditions for EU businesses to thrive, attract investment, achieve our shared goals – such as the European Green Deal objectives – and unlock our full economic potential.”
With changes due in both the EU and the US, CFOs and investor relations professionals must consider how their ESG reporting is accounted for and communicated. ESG reporting will continue to be a strategic concern for businesses that operate in Europe.
