Most EU Firms Follow ESG Reporting Rule; 65% Use it Strategically

• Businesses, though they acknowledge biodiversity or impacts on communities, hardly set tangible goals for them.
• Fewer are using data for strategic decision-making.
• An ideal sustainability report should be between 80–160 pages.

More than 95% of large European businesses are complying with the basic requirements of the Corporate Sustainability Reporting Directive (CSRD), but only 65% use it as a strategic management tool, notes a new study by Horváth.

According to Horváth, a management consultancy headquartered in Stuttgart, Germany, though most companies are submitting their sustainability reports in line with CSRD rules, fewer are leveraging them to guide their internal affairs and long-term planning.

The study says that climate change (E1), resource use and circular economy (E5), and own workforce (S1) are commonly reported topics, areas where businesses set tangible targets. On the flip side, biodiversity (E4), affected communities (S3), and end consumers (S4) receive less attention, even though companies widely recognise them.

READ MORE: What is Sustainability Reporting? Meaning, Types, and Benefits

Businesses that comply with the CSRD must identify material topics. These are issues that impact the environment, society, or the economy and influence stakeholders' decisions. This entails 1) financial materiality — how issues affect a company, and 2) impact materiality — how that company affects its surroundings.

However, the report paints a grim picture of them not clearly stating these material topics; even fewer set specific goals to address them.

Companies, on average, disclose around 39 topics with respect to impacts, risks, and opportunities (IRO). Of these, 63%, 25%, and 12% relate to negative impacts, risks, and opportunities, respectively — meaning they are more focused on certain topics, such as environmental damage, and are not really exploring how sustainability can drive innovation or be used to gain advantage.

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Over half of them refer to the UN Sustainable Development Goals (SDGs), especially from the finance, retail, and consumer goods sectors, where investor demand for accountability is strong.

When it comes to emission reporting, the Greenhouse Gas Protocol is popular among companies. Firms in high-emitting industries like energy, automotive, and chemicals submit detailed reports, while those in technology, finance, and insurance tend to disclose fewer details.

Sergiu Cărată, Senior Project Manager, Horváth Romania, said: "Technical compliance is not enough. The companies that will make a difference in this new era of transparency are those that use sustainability reporting as a tool for governance, strategic integration and investor communication.

"To bring real value to the business, sustainability needs to be integrated into performance and risk management, as well as internal control systems, while reporting efficiency can be increased through automation and artificial intelligence."

Finally, the report says that most sustainability reports are quite long. It suggests an ideal report should be between 80 and 160 pages, sufficient to cover all material topics a company needs to report.

ALSO READ: EU Firms Divided on Sustainability Progress Amid Delays

For a more detailed view of the study, please visit their website or click here.

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