Regulation is not an end in itself. In the long term, it is designed to change the behavior of market actors – in the case of ESG requirements, to redirect capital flows towards a sustainable economy. In the area of sustainability, the regulatory framework as well as the economic and social requirements are becoming more stringent, and not only within the EU. As a result, sustainability reporting will soon be on a par with financial reporting, which is also what the legislator wants. To this end, financial and non-financial data must be interlinked. This harbors enormous potential for corporate development – as long as it is based on a holistic strategy.
Mandatory standards that really matter
At European level, the Corporate Sustainability Reporting Directive (CSRD) currently provides the central mandatory framework. Large, capital-market-oriented companies will be obliged to comply with the requirements defined therein from the start of fiscal 2024. Large, non-capital-market-oriented companies and capital-market-oriented small and medium-sized enterprises will also be compelled to "get on board" shortly thereafter and start taking the new requirements into account in 2025 and 2026 respectively. In Germany alone, the user base will increase from 500 in the first "run" to around 15,000 companies. However, almost two in five companies have not yet started preparing for this, as shown by the current Horváth study on the status quo of the sustainability transformation. A similar picture can be seen throughout Europe.
A further, relevant set of mandatory rules is the EU Taxonomy, a classification system for sustainable economic activities that has been in force since 2021 and applies to the same user group as the CSRD. Moving forward, the EU taxonomy requirements contained therein will be transferred to the CSRD. In parallel, additional sustainability standards are being developed at the international level by the independent International Sustainability Standards Board (ISSB), an offshoot of the International Financial Reporting Standards Foundation (IFRS), under the names IFRS S1 and IFRS S2. The focus here is on climate-related disclosures. The extent to which these new international standards can be linked to the existing ones is not yet known.