CSR reporting is more than just a checkbox in the audit

Who should verify the Corporate Social Responsibility (CSR) report? The auditing accountant or independent providers of assurance services? This topic sparked a public debate in the Dutch Financial Times (Financieele Dagblad). Regardless of who performs the verification, the crucial aspect will be what specific issues the CSR reports will reveal and, more importantly, how the public will react to them. This public reaction can materially impact a company’s results.

From the financial year 2024, companies that previously reported their sustainability efforts on a limited basis under the Non-Financial Reporting Directive (NFRD) will need to comply with the reporting requirements stemming from the Corporate Social Responsibility Directive (CSRD). This means that companies will have to prepare and include a sustainability report in their annual report. There is an argument for having independent assurance service providers verify this CSR section of the annual report. However, the integration of the CSR report into the annual report particularly benefits from verification by the responsible accountant.

Sustainability data indeed provide insights into real risks (and opportunities) that can materially impact business results, revenue, and profitability. Therefore, sustainability data and financial data should be treated equally.

After all: measurement is knowledge. Many companies, especially large ones, have been mapping their sustainability impact for years. However, this is not yet the case for all companies (to the same extent) that will soon need to comply with these regulations. Soon, there will be the possibility of structurally comparing with competitors. Where does the company lag? Where is it far ahead of the competition? The CSR report offers an organization the chance to show societal leadership.

Effective communication about these efforts can help create new opportunities. Organizations excelling in their sustainability or diversity policies, for example, can not only strengthen their image but also their competitive position. For instance, by urging policymakers to implement stricter sustainability requirements that the organization already meets. On the other hand, falling behind on sustainability goals can have adverse effects. Suddenly, this becomes visible in the annual report. The annual reports will be scrutinized and critically reviewed by journalists, politicians, and activist NGOs. Consumers are also increasingly critical of companies’ environmental and human rights impacts. Reputation, elusive as it may be, often translates into hard revenue figures. All in all, this could directly impact an organization’s performance.

Therefore, CSR-mandated companies should not only be concerned about whether the CSR reporting is adequately presented in the annual report and passes the audit but also about the societal reaction to the sustainability data now included in the annual report.