Sustainability Reporting Update What you need to know

Key Points to Consider:

1. Harmonization of Reporting Standards: The UK is aligning its sustainability reporting frameworks with global standards, especially with the EU’s Corporate Sustainability Reporting Directive (CSRD) and guidelines set by the International Sustainability Standards Board (ISSB). These developments aim to standardize reporting practices, ensuring the uniformity, comparability, and reliability of Environmental, Social, and Governance (ESG) data on an international scale.
2. Major Regulatory Changes: The CSRD broadens the scope of companies required to disclose sustainability information, increases the level of detail needed in these reports, and mandates external verification of the reported data. On the other hand, the ISSB guidelines aim to establish a global benchmark for sustainability disclosures, focusing on materiality and information that is relevant to investors.
3. Impact on UK Businesses: UK companies will be expected to disclose comprehensive information across various ESG factors, including their carbon footprint and social impacts. Moreover, third-party assurance and verification will become compulsory soon, enhancing the credibility of the information provided.

How Companies Should Prepare for the Future:

• Engage Early: Companies are advised to familiarize themselves with the upcoming standards and incorporate them into their reporting practices as soon as possible.
• Efficient Data Management: Firms will need to establish strong data management systems to effectively gather and manage relevant ESG metrics.
• Clear Stakeholder Communication: Businesses should actively engage with all their stakeholders, including local communities, to understand their expectations and information needs.
• Build Internal Capacity: Companies should invest in developing their in-house expertise in sustainability reporting.

Despite the guidance, businesses may face challenges, particularly with resource allocation. Smaller businesses may struggle due to limited resources and expertise. Additionally, keeping up with the rapidly evolving regulatory landscape will require continuous attention and the ability to adapt quickly.

Differences in the EU Approach:

For companies operating in the EU, there are notable differences to be aware of. The CSRD, as part of the EU’s Green Deal, significantly increases the number of companies required to

report on sustainability. The directive requires companies to report on a broad spectrum of ESG factors, with a focus on “double materiality.” This concept means that companies must disclose how sustainability issues affect both their business and how their activities impact society and the environment. In contrast, the UK has historically focused more on “single materiality,” which emphasizes the business impact, rather than external social impacts.

Assurance and Verification:

The CSRD mandates external assurance for sustainability reports, which is intended to improve the credibility and trustworthiness of ESG data. The UK is moving in a similar direction by making external assurance a requirement, but it has not yet enforced regulations as stringent as those in the EU. However, it is expected that the UK will implement similar rules to uphold its international standing and investor trust.

While the CSRD has a well-defined timeline, with smaller companies expected to comply by 2026, the UK’s approach is more flexible, allowing businesses adequate time and resources for compliance. The CSRD’s prescriptive approach ensures consistency and comparability across the EU, while the UK’s framework offers more adaptability, giving companies some discretion in how they fulfill the reporting requirements.

While the EU is driven largely by its internal legislative and policy goals, the UK’s strategy focuses on aligning with global standards, particularly the ISSB, to maintain its leadership in international finance and sustainability.

Don’t Fall Behind!

The shift toward more stringent sustainability reporting is gaining momentum worldwide. This reflects the growing importance of ESG factors in business operations. By taking proactive steps now, companies can not only stay compliant but also strengthen their reputation, attract more investment, and contribute positively to broader societal goals.

So, act now—don’t risk falling behind and missing the opportunity to be on the right side of history!

To find out more contact Adrian via: [email protected]

This is a guest blog which contains the views of the author and does not necessarily represent the views of the IoD.