A Few Important Tips for Accountants
The Corporate Sustainability Reporting Directive (CSRD) introduces new requirements for sustainability reporting in Europe, compelling companies to account for their societal impact under the European Sustainability Reporting Standards (ESRS). This accountability forms part of the management report in financial statements and must include an assurance statement with limited assurance. This offers accountants a vital role in creating transparency and trust.
External audits by accountants enhance the reliability of financial statements and boost stakeholder confidence. Reliable financial information is essential for acquiring credit, strategic partnerships, risk assessment, and maintaining transparency within markets and organisations.
Accountants must also take on this role when it comes to sustainability information. However, the introduction of the CSRD is new and demands that both companies and accountants scale up quickly on multiple fronts. The risk lies in approaching the CSRD purely from a compliance perspective, potentially overwhelming organizations with an excessive administrative burden. Instead, this legislation requires accountants to apply professional judgment based on a solid foundation of knowledge, ensuring that the CSRD genuinely enhances transparency on the issues that truly matter and contributes to achieving real impact.
Comparing Apples to Oranges: The Double Materiality Analysis
The double materiality analysis (DMA) forms the foundation for relevance in sustainability reporting under the CSRD. The goal of the DMA is to identify the themes that truly matter—those the organization must report on. Environmental, social, and governance topics must be evaluated side by side. This can feel a bit like comparing apples to oranges—and to some extent, it is. It requires companies and accountants to approach these themes in a way that differs from the traditional methods they may be used to.
What should you pay attention to as an accountant?
- Does the company have a clear process to compare themes?
- Are internal and external stakeholders involved in the process?
- Is management actively engaged in the process?
- Is the impact across the value chain sufficiently considered?
- Are themes made specific, and are impacts, risks, and opportunities (IROs) clearly defined?
What Are the Pitfalls?
- Over-reliance on surveys because they provide quantitative data—while surveys can offer valuable insights, they are not always essential.
- Undervaluing high-quality interviews with experts—qualitative information can yield equally significant insights.
- Expecting all data to be substantiated in the first year—the DMA is an iterative process aimed at identifying the organization’s key focus areas. Where possible, data should support the analysis, but it is primarily a starting point for further data collection.
- Focusing on themes that are clearly material or clearly not—prioritize the themes in the gray area where decisions are less obvious.
- Failing to dive into IROs (impacts, risks, and opportunities)—a company-specific perspective is crucial to correctly assess the relevance of a theme. This also supports further development in strategy, policy, and KPIs.
Conclusion
The goal of DMA is to help organizations focus on the right priorities. Accountants must understand this process to provide limited assurance. Ensure no key themes are missed, but avoid going overboard.
From Origin to End: The Value Chain
The CSRD requires companies to take responsibility across their value chain, both upstream (where products come from) and downstream (what happens to products and services after they leave the organization). Due diligence in the value chain is a crucial starting point for understanding the impact across the chain. But how far should this responsibility go? There’s no one-size-fits-all answer.
What should you pay attention to as an accountant?
- Does the company have a clear understanding of its value chain?
- Are boundaries in reporting clearly justified—where does the company take responsibility, and is this logical?
- Are impacts, risks, and opportunities described specifically within the value chain?
- Is due diligence conducted across the value chain?
- How are stakeholder expectations incorporated?
Pitfalls to Avoid:
- Expecting companies to have full insight into their entire value chain in year one—this is a growth process, transparency about what is not yet known is also acceptable.
- Overinvesting in small parts of the value chain— the effort of both the organization as well as the accountant should align with impact and risk.
- Stopping too soon with “we have no influence” when dealing with direct suppliers—change may take time, but buyers have leverage over suppliers.
Conclusion:
The CSRD requires value chain transparency. Keep in mind, though, that the focus should be on parts of the sector and the value chain that truly matter.
Data: The Answer to Everything—or Maybe Not?
For material topics, companies must report on policies, governance, goals, impacts, risks, opportunities, KPIs, progress, and performance. Quantitative data is crucial but not always easy to obtain for every material topic. For topics such as CO2 emissions or the EU taxonomy KPIs are pretty easily quantifiable. The standards also offer clear guidance for that. In other cases, like with biodiversity, quantifying the data is more complex.In such cases, qualitative information remains vital, particularly in the early years. This is also a key part of the accountant’s role.
What should you pay attention to as an accountant?
- Is the company transparent about the information they do and don’t have?
- Do qualitative claims and textual information avoid inaccuracies?
Pitfalls to Avoid:
- Expecting companies to have all data in year one.
- Neglecting to evaluate qualitative information.
- Over-scrutinizing available data—this is an assurance engagement, not a full audit.
Conclusion:
A sustainability report is a combination of quantitative and qualitative information. Quantitative data is essential for comparing organizations, but there must also be room to develop this data over time. Qualitative information provides a critical foundation for this process and is therefore a key component of the assurance engagement.
An Opportunity for the Profession
The CSRD presents a valuable opportunity to enhance sustainable impact and elevate the relevance of the accounting profession. Let’s embrace this challenge to create reliable sustainability information that serves both companies and society.