On 30 March 2023, the Dutch Authority for Financial Markets (Autoriteit Financiële Markten, the AFM) published the results of an exploratory study on the Corporate Sustainability Reporting Directive (CSRD). The CSRD requires companies to report and disclose information on their social and environmental impact and the external sustainability factors affecting their business. The CSRD will start to apply for large public interest organisations as of 1 January 2024 and then takes effect in stages for other ‘in scope’ companies. The AFM highlights a number of challenges it identified in the run-up to the implementation of these requirements and provides for a number of recommendations for companies to improve their sustainability reporting.
The AFM notes that many companies still need to make a considerable effort to comply with the new reporting rules. About half of the listed companies included in the study did not (sufficiently) explain the negative effects of their company on the environment or society. The majority of these companies are unclear about their impact on climate change and energy transition. In addition, an explanation on how these companies intend to achieve their climate goals is often missing. The companies do not address all relevant and important sustainability topics in their annual report.
The AFM provides five recommendations on how companies can improve their reporting on sustainability:
- Presentation of key sustainability topics
Companies should include key sustainability topics more prominently in the annual report. Although companies often identify climate change as an important topic, they do not explain how this affects their strategic actions and financial planning. The AFM prescribes that companies should include a materiality matrix that explains the relative importance of both financial and non-financial topics.
- Reporting of negative impact
The majority of the listed companies currently do not explain the negative impact that the company has on the environment and society. Their annual reports do not provide a complete picture of the impact of their business. This could potentially result in greenwashing.
- Transparency about impact on climate change and energy transition
Companies are not transparent about the risks and financial consequences of climate change and energy transition. This includes investments required to keep up with energy transition and measures that are to be taken to adapt to climate change. Companies are to apply scenario-analysis to map these risks, to report on the results of this analysis and to link these results to their strategy and financial planning.
- Clarify realisation of climate objectives
Companies should clearly report how they plan to achieve the climate objectives set by them, as well as on the dilemmas they experience in doing so. The AFM finds that more companies join the Science Based Targets initiative (SBTi) and have their objective scientifically validated. This validation can be used to support the company’s objectives.
- Involvement of auditors
The AFM provides that the role of the external auditor is important to provide a balance view in sustainability reporting. The external auditor is to establish that the information is not misleading and that the report provides for a balanced overview.
Please find further information on the scope of CSRD and a summary of the key requirements in our publication ‘The Corporate Sustainability Reporting Directive and its impact on EU and non-EU companies’, available here.