The EU’s CSRD: 4 lessons learned through implementations

Through experience with clients, we’ve developed a list of challenges and best practices for this vital regulation.

As we move into a new year, it’s time to reflect on what 2024 taught us about navigating the complexities of the Corporate Sustainability Reporting Directive—the European Union regulation mandating that large companies disclose detailed information about their environmental, social and governance (ESG) impacts with the goal of driving more sustainable business practices and informed investment decisions.

The CSRD should be paid attention to by any large business, wherever it’s headquartered. Just as the EU’s General Data Protection Regulation set the global standard for data privacy regulation, the CSRD is expected to do the same for ESG. The sustainable practices encouraged by the measure will also lead to long-term cost savings, innovation, and resilience in the face of environmental and social challenges.

Lessons learned through experience

In working with myriad clients to meet CSRD directives, we faced challenges like immense data demands, non-standardized processes, and organizational barriers. From these experiences, we’ve distilled the following four key lessons that will help organizations streamline their sustainability reporting in 2025.

1. Many underestimate the time and volume of data required
   
   Organizations must report on 161 mandatory data points irrespective of materiality, assessments, covering actions, policies, metrics, and targets. Additionally, 622 data points are subject to materiality analysis, significantly increasing the reporting burden. Many organizations we worked with underestimated the time and resources required to collect this data, resulting in delays.
   
   Waiting for the completion of the double materiality assessment can exacerbate these delays due to its complexity and time-intensive nature. These factors create bottlenecks in the timely collection of mandatory data points, posing a substantial challenge for organizations striving to comply with CSRD requirements.
   
   
2. Reporting IROs is not standardized
   
   CSRD reporting is not a standardized process. Thus, organizations need to tailor their approach to define and report impacts, risks, and opportunities (IROs). We observed that companies struggle to link policies, actions and targets to material IROs across diverse structures and regions. The need for comparative data, granular breakdowns, and entity-specific disclosures adds complexity, making the process resource-intensive and challenging to streamline.
   
   
3. There is a lack of granularity in disclosures
   
   Once a topic is deemed material, organizations often struggle to achieve the required level of granularity. Complex data collection procedures make it challenging to maintain visibility across policies, actions, and targets.
   
   Organizations with multiple entities across geographies face additional hurdles, including miscommunication and data bottlenecks. Many data points remain uncaptured due to these constraints. Guidance from the European Financial Reporting Advisory Group (EFRAG) emphasizes the importance of detailed and precise data collection to ensure comprehensive reporting, yet variability in organizational structures complicates achieving this level of detail.
   
   
4. Stakeholder engagement is often limited
   
   Impact assessments often occur in silos, with teams failing to engage key stakeholders early on, both internally and externally. For example, the finance team is frequently excluded in the initial stages despite its critical role in linking materiality assessments to financial effects such as cash flows, financial position, and access to capital.
   
   Additionally, companies often underestimate the impact of value chain players, leading to incomplete data, particularly on workers’ conditions, wages, and safety measures. Failure to engage stakeholders early compromises the accuracy and completeness of the sustainability report.

What we urge organizations to prioritize

Our experience helping organizations avoid the pitfalls mentioned has led us to create these best practices:

1. Start early with mandatory data points
   
   Do not wait for the double materiality analysis to conclude. Begin collecting the regulation’s 161 minimum disclosure requirements data points immediately. For example, companies in the energy sector can focus on mandatory data like Scope 1 and 2 emissions while aligning early with EFRAG climate-change requirements, which are typically material for this industry.
   
   
2. Streamline the reporting of IROs
   
   Establish a structured process to report IROs by clearly linking policies, actions and targets to material topics. For example, a consumer goods company might link its recyclable packaging policies to financial opportunities derived from reduced material costs. Use standardized reporting formats to ensure consistency in data collection, tracking, and simplifying complex disclosures.
   
   
3. Mitigate data gaps and complexity
   
   Assign centralized oversight for sustainability reporting to ensure alignment across all entities. Standardize data collection processes using integrated systems, and adopt an iterative approach to address gaps and align sustainability data with financial disclosures. This governance structure reduces complexity and ensures consistent reporting.
   
   
4. Embrace collaborative responsibility
   
   CSRD compliance requires collaboration across teams and leveraging advanced tools like Net Zero cloud systems to streamline data collection and reporting. For example, during a reporting automation with a multinational retailer, we leveraged a data cloud solution to streamline and automate data collection and centralize Scope 3 emissions tracking. This system connected multiple teams across various geographies, enabling real-time visibility.

Compliance and innovation

By addressing the challenges and focusing on the priorities outlined here, organizations can streamline their CSRD compliance efforts, reduce complexity, and ensure a more efficient and comprehensive reporting process. As we move forward into another year of sustainability innovation, these lessons will be pivotal for success.