Since 2024 at the latest, sustainability has been right at the top of the agenda in many companies. The Corporate Sustainability Reporting Directive (CSRD) takes sustainability reporting to the next level and brings a significant extension for companies. Since 1 January 2024, companies already subject to the Non-Financial Reporting Directive have had a reporting obligation. In the next stage the CSRD also applies to large corporations, and after that to capital market oriented small and medium sized enterprises.
Based on the European objective of transforming the economy towards climate neutrality and strengthening sustainability through the Green Deal, sustainability aspects are becoming subject to reporting. These aspects, made up of environment, social and governance, are deliberately interpreted broadly.
Sustainability reporting is regarded as the biggest change in financial reporting for many years. Even if communication about sustainability activities takes place from a marketing perspective, the reporting on them is part of financial reporting, is anchored in law accordingly and is of course subject to audit for the companies concerned.
The perspective also changes: while the annual financial statements portray the company as a whole, the sustainability view also covers value chains and product life cycles.
Indirect obligation for mid sized companies
When, from financial year 2025, large corporations and all companies required to prepare consolidated accounts have to produce sustainability reporting alongside capital market oriented companies, far reaching reporting demands will reach small and medium sized enterprises. These result from the significantly higher number of directly obliged companies from 2025 onwards, which examine their value chain for their own reporting obligations and make requests for information along that route. In our assessment, monitoring of the supply chain of an obliged company will mean that a large number of businesses will have to deal with gathering and preparing sustainability information.
On top of that, regulation of the financial sector under the heading of sustainable finance means that the finance and insurance industries consistently request, and have to request, information about their customers' sustainability development.
Materiality as the heart of it
The complexity of the requirements and the sheer number of sustainability aspects place companies before correspondingly large challenges. Beyond simply meeting the obligation, companies should use their sustainability reporting activities to develop the business further. Good corporate governance, social matters and the environment are already being actively shaped in the vast majority of companies. That provides a good foundation to build on, both for further development and for reporting.
Sustainability reporting therefore rests on sustainability management. Both can be integrated well into a company's management system. A roadmap that plans the rollout and structures the essential areas can serve as the basis.
This is the route to identifying the reporting obligations that arise from what is known as double materiality. Double materiality looks first at the outside in perspective and examines risks and opportunities in the same way as financial reporting. That corresponds to the familiar view of shareholders and banks as providers of capital. Second, there is the inside out perspective. It looks at the effects of the company's actions on its environment, in other words the view of the stakeholders.
A structured approach makes it possible to render the high level of abstraction in the regulations and the available literature tangible and to break it down to your own company. Once the aspects become concrete, the resulting questions are much easier to handle.
Time horizon
Sustainability is a topic for the future, and we recommend examining where your company stands, what obligations it has and how you want to develop it on the relevant points. Reporting then becomes possible step by step. THE MAK'ED TEAM supports you in developing your individual sustainability strategy.
You can find more about sustainability here. That is also where you will find our sustainability check for mid sized companies.
You can also find our podcast episode on sustainability reporting here. Martin Auer, Managing Director of THE MAK'ED TEAM, shares his knowledge and his experience from practice and describes the background, the challenges and the most important aspects of an approach to this topic in mid sized companies.
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