Companies around the world are not ready for double materiality or fully integrated reporting, with particular concern about compliance and Scope 3 emissions measurement, according to the latest report from Workiva.
Businesses are expected to move from ambition to implementation of their decarbonisation plans imminently, with the European Union’s Corporate Sustainability Reporting Directive (CSRD) leading the way. This requires integrated financial and non-financial reporting that includes the disclosure of environmental and social impacts, risks, opportunities and progress across the value chain.
Those that fall under the scope of the CSRD must apply the European Sustainability Reporting Standards (ESRS), regardless of their sector.
However, Workiva’s latest research – The CSRD: Getting Ready for a New Era of Transparency – shows, even among companies that already report integrated financial and non-financial information, readiness for the CSRD is relatively low. A review of 50 integrated reports from companies in the EU found only 32% had stated alignment to the CSRD and are aligned in structure to the CSRD. Even more alarmingly, just 16% had conducted a double materiality assessment aligned with the latest ESRS guidance.
Additionally, in a survey of more than 2,000 finance, sustainability and risk professionals, 47% were concerned about being able to comply with new reporting mandates, and 34.6% were concerned about measuring specific data points, such as Scope 3 emissions.
With many companies, therefore, off track on their climate targets, “trust in the transition is at stake”, the report warned.
Therefore, the research outlines four consistent themes in the advice Workiva leaders give to their clients about how to get ready for CSRD.
First, companies should create shared accountability across chief financial officers, chief technology officers and chief sustainability officers to ensure that the organisation is set up to share data across teams with roles and responsibilities clearly defined to transform reporting for smarter decision-making.
Second, companies should evolve toward double materiality, with Steve Soter, vice president and industry principal at Workiva saying that it will “fundamentally transform how materiality is assessed by integrating both financial and sustainability impacts into core reporting and decision making”.
To minimise human error and fragmented data, the third piece of advice is to build data reliability by using technology and automation. Third-party assurance-readiness “should be built into reporting and data processes from the start” to build trust in the sustainable transition through assured integrated reporting, backed by cutting-edge technology and with the same rigor across non-financial and financial data.
Finally, companies should step up value chain transparency, remaining realistic about how long it takes to map international complex value chains for improved data collection and visibility into risks and opportunities. Companies are encouraged to use proxies and estimate data points, but to ensure work is started immediately to create plans that drive year-on-year improvements and close data gaps.
