Around 50,000 global companies will be subject to CSRD reporting … few are actually ready

For some firms, ESG reporting is still a "nice to have." For firms in the EU, and firms conducting business in the EU, it is now a matter of compliance.

On January 5 2023, the EU Corporate Social Responsibility Disclosure (CSRD) went into force—the first companies governed by the directive will have to apply the new requirements for the financial year 2024. Eventually, the CSRD will apply to an estimated 50,000 companies across the EU. Our research suggests many firms are not ready.

The applicability of CSRD will be expanded in a staged approach for the financial years 2025, 2026, and 2028. Small- and medium-sized enterprises (except micro undertakings), small and non-complex credit institutions, and captive insurance undertakings will be required to report, as will non-EU undertakings with a turnover above €150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds. In major ways, the effects of CSRD will extend well beyond the EU's borders.

Earlier in 2023, AlixPartners conducted an assessment across industries to investigate the readiness of companies to comply with CSRD requirements. Generally, our analysis suggests a significant need for action across industries. While some companies have established suitable reporting mechanisms in line with CSRD requirements, most appear early in the development process. Granular research results for selected industries will be published on AlixPartners' LinkedIn channel over the coming weeks.

As the directive is here to stay, it is high time for companies—in the EU and beyond—to take action. First and foremost, they must design and implement data-driven reporting mechanisms and systems that allow leaders and stakeholders to regularly review the impact of actions according to a company's overall sustainability goals. By doing so, companies will avoid "uh-oh, it's already Christmas again" fire drills associated with poor use of resources that threaten the quality of data reported and decisions taken as a result.

Companies also need to look beyond the reporting requirements and embrace the CSRD as a mechanism to improve their overarching steering model. This means integrating ESG/CSRD reporting and financial/non-financial steering mechanisms into operations—this will help ensure companies implement the double materiality perspective, encompassing both financial and impact disclosures.

Further, companies that can improve transparency on ESG-related measures may be able to identify monetization opportunities. For example, companies might be better able to identify ESG-related costs and implement them into their product pricing or develop enhanced products and services integrating ESG-elements allowing for tiered product pricing creating greater value.

Ultimately, improved reporting capabilities and the according quality of ESG data allow for better decision-making within the management team and eventually increase stakeholder trust in a company's sustainability in the broadest sense possible.

AlixPartners helps clients implement the CSRD and drive ESG transformation and value creation. If you are interested in learning more about our analysis or discussing how we can best support your company in implementing the CSRD, please reach out to the authors of this article. 

Stay tuned for more market-specific deep dives being shared on LinkedIn shortly!