Sustainability reporting

Sustainability has been at the top of the agenda for many companies since 2024 at the latest. The Corporate Social Responsibility Directive (CSRD) takes sustainability reporting to the next level and brings a significant expansion for businesses. Since January 1, 2024, companies already subject to the Non-Financial Reporting Directive have been required to report. In the next phase, the CSRD will also apply to large corporations, followed by capital-market-oriented small and medium-sized enterprises.

Based on the European objective of transforming the economy toward climate neutrality and strengthening sustainability through the Green Deal, sustainability aspects are becoming mandatory for reporting. These aspects—consisting of Environment, Social, and Governance (ESG)—are intentionally defined in a broad sense.

Sustainability reporting is considered the biggest change in accounting in many years. While communication about sustainability activities may be handled from a marketing perspective, reporting on them is an integral part of accounting, thus legally anchored and, naturally, subject to audit for obligated companies.

Furthermore, the perspective is shifting: while the annual financial statement depicts the company as a whole, sustainability analysis also encompasses value chains and product life cycles.

Indirect obligation for medium-sized enterprises

When large corporations and all companies required to prepare consolidated financial statements must also produce sustainability reports starting from the 2025 financial year—in addition to capital-market-oriented companies—far-reaching reporting obligations will arise for small and medium-sized enterprises. These result from the significantly higher number of directly obligated companies from 2025 onwards, which will examine their value chains to meet their reporting duties and, in doing so, issue information requests. Based on our assessment, a multitude of companies will have to engage in collecting and preparing sustainability information due to the supply chain monitoring of obligated companies.

In addition, the regulation of the financial sector under the banner of "Sustainable Finance" means that the finance and insurance industries are (and must be) consistently demanding information about the sustainability performance of their clients.

Materiality as the heart of the matter

The complexity of the requirements and the multitude of sustainability aspects pose significant challenges for companies. Beyond mere compliance, companies should use sustainability reporting activities to further develop their business. Most companies are already actively managing topics related to good corporate governance, social responsibility, and the environment. This provides a solid foundation to build upon—both for further development and for reporting.

Sustainability reporting is therefore based on sustainability management. Both can be effectively integrated into a company's management system. A roadmap that plans the implementation and structures the essential areas can serve as a basis for this.

This approach allows for the identification of reporting obligations arising from what is known as "double materiality." This double materiality considers, on one hand, the "outside-in" perspective, highlighting risks and opportunities similar to financial reporting. This aligns with the familiar viewpoint of shareholders and banks as capital providers. On the other hand, there is the "inside-out" perspective. This examines the impact of corporate activities on the environment—a stakeholder-oriented viewpoint.

A structured approach makes it possible to take the high level of abstraction found in regulations and existing literature and break it down into tangible steps for your own company. Once these aspects become concrete, the resulting questions become much easier to manage.

Time horizon

Sustainability is a topic for the future, and we recommend that you assess where your company stands, what obligations it has, and how you would like to develop your business in the relevant areas. Then, reporting will also become possible step by step. THE MAK'ED TEAM will support you in developing your individual sustainability strategy.

You can find more about sustainability here. There, you will also find our sustainability check for medium-sized enterprises.

You can also find our podcast episode on sustainability reporting here. Martin Auer, Managing Director of THE MAK'ED TEAM, shares his knowledge and practical experience, describing the background, challenges, and the most important aspects for approaching this topic in medium-sized companies.

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