CSRD Practice check: less is sometimes more!

Kirchhoff Consult has analysed the implementation of the Corporate Sustainability Reporting Directive (CSRD) in more than 200 audited reports* from 21 countries and 11 different sectors in two partial studies. The result: significant differences in the manner of implementation. German companies publish relatively long and detailed reports. Therefore, the second section of this study focused on the reasons and drivers of the scope and complexity of German reporting.

All the results of our study are available as a white paper here. (German only)

“The first wave of audited CSRD reports shows a very heterogeneous implementation of the new standard. An increase in scope does not automatically mean an increase in quality. Rather, there are areas of tension between regulatory requirements, practical implementation and target group-oriented communication,” says Julian von Pressentin, Director ESG/Sustainability at Kirchhoff Consult. “The primary aim of our second in-depth study was to derive recommendations for practical action from the findings. The aim is to find a balance between transparency and readability, between completeness and comprehensibility.”

More extensive chapters and climate-intensive sectors

All chapters of German reports are longer on average than those from other European countries. German companies report in particular detail in the “Own workforce” (S1) and “General information” chapters. These are on average six and eight pages longer than the international average.

It was also observed that the descriptions of impacts, opportunities and risks (IROs) in the topic chapters of German reports are around 20% more extensive in an international comparison - without significantly more IROs being reported overall. This observation is supported by the fact that the description of the guidelines contained in German reports is on average 36% longer.

The analysis also revealed that the more climate-intensive a sector, the longer the sustainability reports. As the CSRD is intended to consider a company's entire value chain, manufacturing companies have more significant references to the various sustainability topics. Interestingly, the only exception is the financial sector, where, despite the exclusion of banks from this sub-study, the longest reports were produced.

ESRS 1: “Sustainability information is understandable if it is clear and concise.”

“Reasons for the more extensive reports could lie in a high level of transparency or pronounced sustainability management at German companies. However, we have found that the focus on the essentials has been lost in very extensive texts. This makes it more difficult for stakeholders to distinguish between relevant and less relevant information,” says Tori Weißenborn, Consultant ESG/Sustainability at Kirchhoff Consult.

This observation is not unproblematic in the context of the CSRD: In addition to truthful presentation, comparability and comprehensibility, ESRS 1 also lists relevance as a “qualitative characteristic of information” in Appendix B. The comprehensibility of reports and information is named as another relevant characteristic; specifically, it states that “sustainability information is comprehensible if it is clear and concise”. The principle states that “only material information” should form the basis of reporting. “Whether stakeholders can still easily differentiate between relevant and less relevant content in reports of 200 pages or more is questionable,” continues Tori Weißenborn.

Different countries - different audit requirements?

“We know from practical experience and our analysis that auditors in Germany sometimes imposed requirements on companies subject to reporting requirements that were not or not fully justified by the regulatory requirements. This can affect individual formulations but can also result in elaborate tables without any actual added value,” says Julian von Pressentin. References to data points or paragraphs were included without such requirements existing in the reporting standard. “Occasionally, it makes sense to critically scrutinize the auditor's requirements. Or to use (international) reference reports from the same audit firm to analyse the approach to the relevant issue.”

CSRD reporting: recommendations for practice

Table with key topics: If a matrix is to be created, it may not be necessary to place the individual topics/points precisely in the matrix. It is often sufficient to differentiate between the four matrix quadrants. However, a concise, tabular overview is often even more effective.

More focus for IROs: A large number of IROs do not offer the stakeholder any obvious added value. Even if many IROs are the result of the materiality analysis, these can be summarized for the report. An IRO table at the beginning of a chapter is particularly clear. As a design element, it can also enhance the design of the beginning of the chapter.

Reduce the number of chapters: In very extensive reports, there is often potential for shortening the descriptions of guidelines or the accompanying contextual information on key figures.

Use benchmarks: If companies want to benchmark their draft report, the same sector should be used as a basis for comparison, at least roughly. Differences in key topics or scope are just examples of possible differences between sectors.

A “quick win”: A GRI and/or TCFD index can be created without considerable effort. They provide guidance for international stakeholders.

* Only reports from companies that have already reported fully in accordance with ESRS were taken into account.