In a world where environmental concerns and social responsibility are no longer optional, the stakes for corporate transparency have never been higher. As regulators tighten their grip on ESG reporting, companies face a critical challenge: adapt or risk being left behind. 

The shift from voluntary disclosures to stringent mandates is reshaping the landscape of corporate accountability, forcing organizations to rethink how they communicate their sustainability efforts. 

Are you ready to navigate this new reality?

1. The Shift from Voluntary to Mandatory Reporting
2. Regulatory Frameworks
3. Key Aspects of CSRD
4. Auditors in the Dark: ESG in a New Light

The Shift from Voluntary to Mandatory Reporting

In recent years, many frontrunners—primarily larger listed companies such as Philips and Unilever—have opted for voluntary reports on ESG performance. They have integrated ESG factors into traditional financial reporting to generate a more holistic view of a company's performance, including its sustainability efforts.

In addition to environmental concerns, there is increasing emphasis on social and governance issues. Diversity and inclusion, labor practices, human rights, and ethical governance are now central components of ESG reporting. 

However, with the introduction of numerous reporting regulations in recent years, ESG reporting is now an obligation for many organizations. The first implementation phase focuses on larger entities, known as Public Interest Entities (PIEs). By the end of 2025, a broader range of organizations will be subject to these requirements. 

While voluntary ESG reporting was mainly about “telling a story,” regulators now demand solid metrics and verifiable data. As a result, companies will need to ensure their ESG reports are accurate and audit-ready. 

Regulatory Frameworks

The Corporate Sustainability Reporting Directive (CSRD)[JO4]  is the centerpiece of legislation in this domain. It is a pivotal piece of legislation in the European Union that aims to enhance and standardize sustainability reporting across companies. 

While there isn’t a direct equivalent in the United States, the SEC’s proposed climate-related disclosure rules are an essential step toward more rigorous ESG reporting, focusing on climate-related risks and greenhouse gas emissions. They build upon and significantly broaden the scope of the Non-Financial Reporting Directive (NFRD), which previously regulated ESG disclosures.

“Rushing data collection for CSRD deadlines without clear definitions risks inconsistent interpretations and unreliable information. Even simple terms need careful, shared definitions to ensure data integrity.”
Maria Bautista,
 Global Head of Internal Control, Philips

Key Aspects of CSRD 

1. Broadened Scope 

Unlike the Non-Financial Reporting Directive (NFRD), which applied mainly to large public-interest entities with over 500 employees, the CSRD expands its applicability to include all large and listed companies, excluding micro-enterprises. For auditors, a significantly larger pool of companies will require verification of their sustainability reports, creating new responsibilities and challenges—but also opportunities. 

2. Detailed Reporting Requirements 

The CSRD mandates more detailed reporting on sustainability issues, covering both environmental and social and governance aspects. Companies must provide thorough information on how these factors affect their business and how their operations impact people and the environment. Auditors must stay up-to-date with these new guidelines to ensure reports comply with the required standards. 

3. Standardized Reporting Framework 

The CSRD introduced European Sustainability Reporting Standards (ESRS) to ensure consistency and comparability. These standards, developed by the European Financial Reporting Advisory Group (EFRAG), provide detailed guidelines on the information companies must disclose.‍

“CSRD once more calls for a good dialogue with the auditor. One should be aware that the regime of limited assurance does not mean that companies can lower the standards for information quality for now and invest in this quality later when reasonable assurance is required. In both cases, quality and reliability of the information must be in order.” Wim Bartels,
European Sustainability Senior Partner 

4. Digitalization and Assurance 

The CSRD mandates that companies publish their sustainability reports in a digital, machine-readable format, promoting transparency and accessibility. Furthermore, it introduces mandatory assurance of the reported information by an accredited independent auditor, boosting the credibility of the disclosures. This mandate elevates the role of auditors, making them essential in verifying digital ESG reports and ensuring compliance with the new standards. 

5. Double Materiality 

Companies must report on both how sustainability issues affect their business (financial materiality) and how they impact society and the environment (environmental and social materiality). This dual focus ensures a comprehensive view of sustainability performance.

Auditors in the Dark: ESG in a New Light

As ESG reporting evolves, organizations must adapt to new regulatory requirements, making accurate and transparent disclosures more crucial than ever. To understand how ESG is transforming the audit landscape, check out our whitepaper, Auditors in the Dark: ESG in a New Light. 

Discover insights on the challenges and opportunities in ESG reporting, collaboration strategies for data integrity, and how effective ESG practices can drive long-term value for your organization.