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Sustainability now: Insights from the first CSRD reports · PwC's accounting podcast

0:00
SPEAKER_00: Thought Leadership from PWC's National Office.
0:07
SPEAKER_02: Hello, and welcome to PWC's Accounting Podcast.
0:10
SPEAKER_02: I'm Heather Horn, PWC's U.S.
0:12
SPEAKER_02: Sustainability Technical Leader, and thanks for joining us today for this exciting episode.
0:18
SPEAKER_02: Because in this episode, for the first time, we're going to see what we've been talking about for the past two or even maybe three years when we're thinking about sustainability reporting as we start to look at the results of reporting from the more than 250 companies that have published sustainability reports under the EU's Corporate Sustainability Reporting Directive.
0:41
SPEAKER_02: With me today, I'm happy to be joined by Nadia Picard, PwC's global reporting leader, who's been at the forefront of analyzing the first published reports.
0:51
SPEAKER_02: Together, we'll start to look at some of the key findings so that you don't have to look at all of them.
0:56
SPEAKER_02: Also, on a quick side note, please check back in a couple weeks for an omnibus update episode.
1:02
SPEAKER_02: But for today, we're really going to focus on the results from the first reporters, and that will be helpful for those companies yet to report.
1:10
SPEAKER_02: And I think, although I'll be talking to Nadia about this, even for companies that are looking ahead for Wave Two and thinking about the omnibus, I think what we're going to share today is going to be helpful for everyone.
1:21
SPEAKER_02: So that's a lot of background.
1:22
SPEAKER_02: But Nadia, welcome.
1:24
SPEAKER_02: Thank you so much for joining me today.
1:26
SPEAKER_02: Thank you, Heather.
1:27
SPEAKER_01: It's really great to be talking about CSRD and the actual reports that we saw.
1:30
SPEAKER_02: I know, it's crazy.
1:31
SPEAKER_02: I think of all the different episodes we had.
1:34
SPEAKER_02: And I think it was almost a year ago, Nadia, or around a year ago, that we talked about your survey that you did.
1:40
SPEAKER_02: So it's interesting to see then a year later what we actually saw came out of the reports.
1:45
SPEAKER_02: Absolutely.
1:46
SPEAKER_02: That will be interesting.
1:47
SPEAKER_02: All right, so maybe just to dive in and then we can start to dig a little bit deeper.
1:52
SPEAKER_02: Can you give a little bit about of background on the analysis that was done, what the objectives were, sort of what the overall approach was?
2:00
SPEAKER_01: Yeah, Heather, and sort of if if you think about it, prior to February 2025, um, the exact structure and how CSRD reports will be looking like was really unknown to everybody.
2:12
SPEAKER_01: So we were really, really curious to see what will transpire.
2:15
SPEAKER_01: So what we did is um we we analyzed to date um around 250 CSRD reports.
2:23
SPEAKER_01: And when I say CSRD reports, that's not really fully technically correct.
2:27
SPEAKER_01: We analyzed reports that claimed full compliance with the ESRS.
2:32
SPEAKER_01: And that technical difference has to do with uh transposition into um local law or not.
2:37
SPEAKER_01: Um and we did analyze that um in the combination of an AI-empowered tool and PWC really insights and people really looking at it, right?
2:49
SPEAKER_01: And as you already said in your introduction, this is going to be quite interesting, not only for those companies yet preparing for their first CSRD reporting, but also for all the ones that have already reported to date to shape their insights, what others are doing, their benchmarking, their analysis of their reports versus others.
3:12
SPEAKER_02: Yeah, I mean, one thing that's interesting, I think we'll get into this hopefully a little, Nadia, is if we think about financial reporting, you don't really expect from year to year to have significant change in terms of how people are approaching and otherwise, but I think for some companies, as they see what others have done, they may want to make changes to their own reporting.
3:31
SPEAKER_02: I think you're gonna give some of those insights today.
3:34
SPEAKER_01: Yeah, we're gonna see, and I I think in the course of this conversation that there is significant variability in how people have interpreted CSID, um, the number of topics, subtopics, subsubtopics, how they've approached double materiality and all of this.
3:50
SPEAKER_01: Um, so I think there will be some adjustments and also not only from how do I respond to regulation, but really, well, as I read the CSID reports of my competitors, how come I did not identify this opportunity, for example?
4:07
SPEAKER_01: Or risk for that matter.
4:08
SPEAKER_01: Or risk for that matter.
4:10
SPEAKER_02: I guess we'll see.
4:11
SPEAKER_02: And again, I I think it's you cannot understate how exciting it is actually to start to see this first wave of true regulated sustainability reports.
4:22
SPEAKER_02: I mean, it's been a long time coming.
4:24
SPEAKER_02: So before we get into the details and some of the findings, what from your perspective, what are the biggest headlines from uh the results of the analysis?
4:34
SPEAKER_02: What would you say that we've seen so far?
4:38
SPEAKER_01: So the the biggest headline is that there are multiple headlines, I would say.
4:44
SPEAKER_01: Um, and and again, I have to come back to the variability of the findings.
4:48
SPEAKER_01: Um, and the variability between companies um across the board.
4:53
SPEAKER_01: Um, more interesting than as reporters dig into this is obviously the variability even within one industry or sector.
5:04
SPEAKER_01: Um, we also found a little bit of that.
5:06
SPEAKER_01: Um, and then the variability across topics and how that has been handled.
5:11
SPEAKER_01: But um overall, um, what we're also seeing is that sustainability-related risks and opportunities are also making their way into the general risks and opportunities or risk disclosures at a minimum, um, which then shows that the considerations around sustainability are making it into actually everyday business and company strategy as strategies and behaviors overall.
5:39
SPEAKER_01: So that that was another really interesting finding.
5:42
SPEAKER_02: All right.
5:43
SPEAKER_02: And Nadia, I was asking you right before we began when you were going to be publishing your findings and funny timing.
5:50
SPEAKER_02: We're recording this on April 23rd, and they're being published April 23rd.
5:54
SPEAKER_02: So I wanted to preface before we start to dig a little bit deeper that people definitely should check out the report.
5:58
SPEAKER_02: We'll include it in the show notes.
6:00
SPEAKER_02: But in the meantime, then let's start to dive in a little bit more.
6:05
SPEAKER_02: And I always love this question.
6:06
SPEAKER_02: You could probably have anticipated, but what surprised you or what stood out among these many headlines?
6:14
SPEAKER_01: So, surprising finding number one, and some of you might have seen the blog that we already put out in March, uh, where we analyzed the first 100 reports.
6:23
SPEAKER_01: I was really quite surprised to find that a vast majority of these reports are from five countries.
6:32
SPEAKER_01: There are other countries that report just quite a bit later.
6:36
SPEAKER_01: Um, so vast majority of reports are from five countries, three of which did not yet transpose CSRD into local law.
6:48
SPEAKER_01: So if you want to say that, these were almost voluntary CSRD reports, right?
6:54
SPEAKER_01: And those countries are Germany, the Netherlands, and Spain, right?
7:01
SPEAKER_01: That repeated itself in the 250 reports.
7:04
SPEAKER_01: So 70% of the reports are of those five countries.
7:08
SPEAKER_01: The remaining two are Denmark and Finland.
7:11
SPEAKER_01: So um I just find this very interesting, right?
7:14
SPEAKER_01: Smaller countries at the forefront in early reporting, and then those who are um not obliged to publish CSID reports.
7:23
SPEAKER_02: So yes, because actually that was going to be one of my questions, as I think we've heard anecdotally of so many companies that have said it isn't transposed or hasn't been transposed, but I'm going to move ahead.
7:35
SPEAKER_02: But then it's interesting to see this volume of reports that have come out.
7:39
SPEAKER_02: But I guess to the point that you've made, we are going to continue to see more reports come out over the next several months as additional deadlines come into place.
7:48
SPEAKER_02: So maybe we'll see some more of these true required reporters, but but definitely interesting.
7:54
SPEAKER_01: Not surprising, really, if we look at the topics and yeah, the topics that have been reported upon.
8:02
SPEAKER_01: Really not surprising.
8:04
SPEAKER_01: Obviously, climate change, own workforce, and um business conduct were the topics that were mostly reported upon, right?
8:13
SPEAKER_01: So most frequently reported on, um, with nearly all companies having at least one related impact, risk, or opportunity related to those.
8:22
SPEAKER_01: Um and most notably, only two of 250 companies did not have climate change as a material topic.
8:32
SPEAKER_01: And those were one service company and one telecommunications company.
8:37
SPEAKER_01: So that that was, I think that's also courageous to actually make that statement.
8:43
SPEAKER_01: Um, and and they have provided the disclosures about that.
8:47
SPEAKER_02: Yes, of why they they reached that conclusion.
8:49
SPEAKER_02: All right, so Nadia, I think one of the things that's of most interest to the listeners is this question of what topics are covered.
8:57
SPEAKER_02: So you mentioned climate, you mentioned own workforce.
8:59
SPEAKER_02: How about which other ones did we see?
9:02
SPEAKER_01: So remember, Heather, that we talked about the CSID survey that we did last year, right?
9:08
SPEAKER_01: And there we already had some information from companies that said, well, we're not sure what to do with biodiversity and water resources, pollution, and so on.
9:18
SPEAKER_01: We don't think that that might be necessarily the most important topics for us.
9:24
SPEAKER_01: And that's exactly what we're finding now as well, right?
9:28
SPEAKER_01: Um, biodiversity, pollution, water resources, um, and affected communities actually were far less reported than the top three that I just mentioned: climate, owned workforce, and business behavior.
9:40
SPEAKER_01: Um, and then if you look at the number of material topics, we found again a wide range.
9:47
SPEAKER_01: Remember, there is a maximum of 10 material topics.
9:50
SPEAKER_01: Topics.
9:51
SPEAKER_01: We'll get into subtopics, sub-subtopics, but topics.
9:54
SPEAKER_01: So big topics.
9:55
SPEAKER_01: Um, some companies reported against all 10, and that makes sense depending on the complexity of the business type of company.
10:04
SPEAKER_01: Um, but some reported only on two topics, right?
10:08
SPEAKER_01: And the average number is six.
10:10
SPEAKER_01: So um it's it's quite, quite interesting.
10:13
SPEAKER_02: All right.
10:13
SPEAKER_02: And then how about when we dive down one level and actually talk about impacts, risks, and opportunities?
10:20
SPEAKER_01: Again, amazing variability.
10:23
SPEAKER_01: Companies reporting only on 10 material risks, impacts and opportunities, and others reported 120.
10:34
SPEAKER_01: So there is a wide, wide variability between those as well, right?
10:40
SPEAKER_01: And just to be very clear, more impacts, risks, and opportunities does not necessarily indicate a superior sustainability statement, right?
10:49
SPEAKER_01: So again, the variation is expected between the um complexity of the business, the geographical spread, and all of that.
10:57
SPEAKER_01: But I think as companies compare themselves to others and rethink what they've done, we might see some less variability in future years, right?
11:08
SPEAKER_01: Um, so that will certainly transpire.
11:12
SPEAKER_01: And also not quite surprisingly, and commensurate with your comment earlier, and risks, right?
11:18
SPEAKER_01: So um we always find more risks than opportunities mostly, right?
11:23
SPEAKER_01: Um and where companies actually did report on opportunities, these were mainly related to opportunities arising from changing customer preferences, and a greater awareness of overall environmental and social issues, emerging technologies and innovation, which I think is great because that is also what investors are looking for if you compare some of these findings to um our investor survey.
11:50
SPEAKER_01: And also important and in very, very interesting, some large companies actually reported zero opportunities.
11:59
SPEAKER_01: So I also suspect that they might be reading their competitors' reports and take a look at what opportunities they were reporting and ask themselves on whether they have it right for themselves, whether they have just not disclosed it or they have not thought about and captured this opportunity.
12:18
SPEAKER_01: Right.
12:19
SPEAKER_01: Um some also disclose zero positive impacts.
12:23
SPEAKER_01: Um, that is also well, I I don't find that that surprising, actually, because this thinking about impact was so new for companies, and actually then defining what is that a positive impact, is that a mitigation of a negative impact, and and all of that confusion that was really going on, maybe that is also something that will level out over time, really.
12:48
SPEAKER_02: So yeah, and actually on that final point, it's interesting because we've been talking about the omnibus and proposals and what might happen with the ESRS set two.
12:59
SPEAKER_02: And one of the topics we've been talking about is this idea that is it a positive impact?
13:04
SPEAKER_02: Is it mitigation of a negative impact?
13:06
SPEAKER_02: Is that something that FRAG or the European Commission should give more guidance in this ESRS set too?
13:13
SPEAKER_02: Because it's definitely a fine line, you know, which is which.
13:17
SPEAKER_02: So, and I also think for some companies, maybe if you're thinking, oh, the zero opportunities, I uh there's so much sensitivity as well about greenwashing.
13:27
SPEAKER_02: And so I don't know, does that also factor in?
13:30
SPEAKER_02: Well, let's just focus on the negative because then no one is thinking we're greenwashing, or I don't know.
13:36
SPEAKER_01: Well, and we're so used to in financial reporting, right?
13:39
SPEAKER_01: You don't really report on opportunities and and earnings potentials in the future, um, right?
13:46
SPEAKER_01: That just doesn't happen.
13:47
SPEAKER_01: So thinking about opportunities then in the sense of sustainability reporting and opportunities does relate to financial impacts, right?
13:56
SPEAKER_01: So um maybe that is something where we need to shift our thinking as well into something that is a bit more progressive.
14:02
SPEAKER_02: Yes.
14:02
SPEAKER_02: So, Nadia, one of the things that jumped out to me when you gave this range, I think you said from 10 to more than 120, is whether or not there was any uh trends that we could see by sector or industry, or if if it was either too difficult to tell or if we couldn't see enough.
14:23
SPEAKER_02: Because, you know, one of the things, again, we've been talking about with the omnibus is the fact that now FREC has been directed not to issue sector standards.
14:33
SPEAKER_02: And I think for many, many companies, they were actually anticipating the sector standards as being helpful because that would bring some consistency or otherwise.
14:41
SPEAKER_02: So just curious if you saw trends or if again, not enough data set or otherwise to do that.
14:49
SPEAKER_01: So, yes, if you dig into industries and sectors, it it does become quite interesting, right?
14:54
SPEAKER_01: So, again, very very small minority of, for example, telecommunications media technology companies did include any disclosure around biodiversity, only 9%, water resources, pollution.
15:09
SPEAKER_01: I mentioned that already, right?
15:11
SPEAKER_01: In contrast, if you look at industrial and services companies, at least half of them disclosed at least one related impact, risk, or opportunity related to these topics that I just mentioned, right?
15:25
SPEAKER_01: And when you then dig deeper into the subtopics and subsubtopics, um, we see that more than half of companies in the consumer market, energy utilities, and industrial services area make disclosure around health and safety of their own workforce.
15:43
SPEAKER_01: And if you step back, that totally makes sense.
15:45
SPEAKER_01: However, also making a lot of sense, less than one in ten financial services companies did disclose health and safety concerns of their own workforce.
15:56
SPEAKER_01: Obviously, that makes sense in terms of their businesses and how they conduct their businesses, but it's also good to see those benchmarks then um being driven out in the different industries, right?
16:09
SPEAKER_02: Yeah, although it's actually interesting, Nadia.
16:11
SPEAKER_02: And, you know, again, you have to look at the individual reports and otherwise, if anything, I would have thought those percentages reporting, particularly energy, utilities, resources, industrial products companies, that that would have been higher for health and safety, just if I think about the nature of the business.
16:29
SPEAKER_02: And frequent listeners will know I audited utility companies, thinking about the focus they had on health and safety.
16:34
SPEAKER_02: But but again, it's hard to say what they're thinking from a risk perspective, or maybe, you know.
16:40
SPEAKER_01: I thought about this, and I think health and safety is so boxed in with laws and regulations.
16:47
SPEAKER_01: I was wondering, and then so ingrained in the general operations of companies in so many countries that is that really still something that companies consider sustainability risk, or is that just the normal way of doing business?
17:02
SPEAKER_02: Yeah, I actually had that same thought too.
17:04
SPEAKER_02: It's very interesting.
17:05
SPEAKER_02: Again, I think it shows how different companies thought of different things.
17:09
SPEAKER_02: If we're seeing more than 50% put it, but then at least some portion did not.
17:14
SPEAKER_02: How about then, though, within industries?
17:17
SPEAKER_02: Are there outliers you would highlight?
17:19
SPEAKER_01: Of course.
17:20
SPEAKER_01: Um of course there are outliers within each industry.
17:24
SPEAKER_01: So, for example, you do find the TMT companies that disclose um pollution topics and issues.
17:30
SPEAKER_01: You do find the financial services company actually having disclosures around health and safety of their own workforce, right?
17:38
SPEAKER_01: And that is what will sort of level out over time as they consider what others have said about these topics and issues.
17:50
SPEAKER_01: They will reconsider their own disclosures and either stand firm because there is a difference between them and other companies, or amend these disclosures in the future.
18:00
SPEAKER_01: So look, in analogy to financial reporting, we have years and years, decades of financial reporting where things have evolved, right?
18:10
SPEAKER_01: And whenever a dramatic new standard came out, um, by now we already also have years and years of routine of reporting under these standards.
18:20
SPEAKER_01: This is the first year of really regulatory sustainability reporting.
18:25
SPEAKER_01: So give everybody a little bit of time to digest what happened.
18:29
SPEAKER_02: Yes, 100%.
18:30
SPEAKER_02: I think we expected to see uh quite a bit of variability from that point of view.
18:35
SPEAKER_02: So, Nadia, another topic that was a huge area of discussion before companies started reporting were entity-specific disclosures.
18:44
SPEAKER_02: And again, it's a reminder to our listeners entity-specific disclosures are required when the ESRS is don't cover or don't cover with uh sufficient granularity, you know, impact risk or opportunity.
18:56
SPEAKER_02: And so, what did we find in the area of entity-specific disclosures?
19:02
SPEAKER_01: Not surprising, and I say not surprising, because we do know that it also is of interest for investors, right?
19:10
SPEAKER_01: Remember from the Global Investor Survey, I think we said that about 36% of investors find cybersecurity a significant risk for companies.
19:22
SPEAKER_01: Companies think about it quite similarly.
19:25
SPEAKER_01: So one out of five companies made entity-specific disclosures relating to cybersecurity and data privacy, right?
19:32
SPEAKER_01: So that really is quite nicely aligned and also not that surprising in today's world, I think.
19:40
SPEAKER_01: Innovation is another topic, and which some companies, not that many, 8%, disclose some positive impacts and opportunities for the business.
19:48
SPEAKER_01: Opportunities, I get more positive impacts, probably like in pharma.
19:54
SPEAKER_01: Um, I don't have that on the top of my head, but probably in pharma where innovation always has a societal impact with respect to like people's health status, right?
20:05
SPEAKER_01: So same around ongoing investments into research and development, right?
20:11
SPEAKER_01: And then I don't think we can have any conversation these days without touching on AI.
20:16
SPEAKER_01: So I will touch on AI very briefly.
20:19
SPEAKER_01: Um, 2%, a small number of companies made disclosures relating to artificial intelligence and really highlighting responsible AI practices and AI as an opportunity for the business and actually a positive potential positive impact on society or their business or both.
20:39
SPEAKER_01: So just a few companies also highlighted AI and their use of AI as a potential negative societal impact.
20:48
SPEAKER_01: So that is quite interesting and also will give others pause to think about that and position themselves.
20:56
SPEAKER_01: But really, when it comes to AI, we understand really, or I understand from conversations with stakeholders, with investors, with companies, with others, um everybody is interested in how companies are using AI and what are the cost benefits, what the returns are, what are the returns that the use of AI yields?
21:16
SPEAKER_01: Difficult sentences one non-native speaker.
21:19
SPEAKER_01: So um, and compare that, however, with the investments that companies are making into AI.
21:25
SPEAKER_01: So, what is the the risk and opportunity balance from the use of AI?
21:30
SPEAKER_01: And then again, as we mentioned, um, the oversight, the use of data, the integrity of the models, and what is the governance of companies around those?
21:39
SPEAKER_01: So that is quite um interesting for stakeholders, is what we understand.
21:45
SPEAKER_01: Another topic that we debated internally quite a bit are tax disclosures, right?
21:50
SPEAKER_01: Yes.
21:51
SPEAKER_01: So, to what extent are tax disclosures really a significant entity specific factor?
21:56
SPEAKER_01: And we've heard that 6% of companies included tax related.
22:00
SPEAKER_01: Disclosure, some as a governance matter, and um really woven into the business conduct standard as an entity-specific disclosure, right?
22:10
SPEAKER_01: But then if you look into the future, we do know that in the EU, the country-by-country reporting is due in 2026, right?
22:18
SPEAKER_01: So maybe some companies are already considering that and are taking country-by-country reporting.
22:25
SPEAKER_01: So country-by-country reporting on taxes is coming in 2026.
22:30
SPEAKER_01: So that is what also might have been on companies' mind as they dig deeper into their tax disclosures in the context of their sustainability statement.
22:40
SPEAKER_02: Yeah, I can't decide if it's a lot that we saw at least those trends at all in terms of AI and tax and otherwise, but they're relatively small.
22:50
SPEAKER_02: So again, I it will be interesting to see next year if companies see what others have done and then you know add some of these disclosures.
23:00
SPEAKER_01: I have a hypothesis on this.
23:02
SPEAKER_01: Yes.
23:03
SPEAKER_02: I'm very interested.
23:04
SPEAKER_01: My hypothesis is that a lot of companies unfortunately, and and due to the very, very short timing of the implementation of CSRD, took CSRD as mere compliance reporting at this point in time.
23:18
SPEAKER_01: So they were ticking off what they had to do and didn't really think beyond is there anything around the story that I want to tell about my company?
23:27
SPEAKER_01: Do I want to tell a positive tax contribution story?
23:30
SPEAKER_01: Do I want to tell a positive AI responsibility story?
23:35
SPEAKER_01: Or I yield more from the use of AI than the investment that I'm making.
23:40
SPEAKER_01: It's positive in terms of training and engagement to my workforce.
23:45
SPEAKER_01: I think I and I really, really hope that companies will find their storytelling around sustainability topics back after CSRD and regain their ability to tell that positive story without highlighting only the positive items, but really also highlighting the negative items and how they are managing this, right?
24:06
SPEAKER_02: So Yeah, and strategy, really, right?
24:09
SPEAKER_02: How it's fitting in with their plan for the future.
24:11
SPEAKER_02: Yeah, and I guess the other thing with entity specific that, you know, obviously a survey like this or an analysis like this would be difficult to find is where companies have included those entity-specific disclosures as part of discussion of, say, climate or of some of these other areas where maybe there wasn't something with specific uh granularity within the ESRS.
24:32
SPEAKER_02: So again, it I think for companies looking at others in their sector and what they've done will be very educational.
24:40
SPEAKER_02: So on the topic of climate, let's let's go to that.
24:43
SPEAKER_02: You mentioned that climate, own workforce, and business conduct were the most common material topics.
24:50
SPEAKER_02: Uh and so maybe starting with climate, what did you find from the analysis?
24:55
SPEAKER_01: So overall, as I said before, 99% of companies reported on climate own workforce and business conduct.
25:03
SPEAKER_01: Not surprisingly.
25:04
SPEAKER_01: But when it comes to climate specifically, over 70% of companies did disclose their climate transition plans.
25:12
SPEAKER_01: Interestingly enough, again, on the sector-specific analysis, we found that this number is lower for financial services companies, with a lot of them saying that their transition plans are actually underway.
25:26
SPEAKER_01: They haven't been finalized.
25:28
SPEAKER_01: I take that as a positive because that shows that companies are taking it quite seriously.
25:35
SPEAKER_01: They're really digging deep and they're not making blanket statements, but they're really grounding their transition plans in their operations.
25:43
SPEAKER_01: Right.
25:44
SPEAKER_01: Then also of interest is which categories of the scope three disclosures, greenhouse gas disclosures are um most common.
25:55
SPEAKER_01: And also maybe not so vastly surprising.
25:58
SPEAKER_01: It's around business travel, fuel and energy related activities, and purchase goods and services are the most common categories.
26:05
SPEAKER_01: Um, but we also see, and again, not surprising, we do see patterns of differences between, let's say, financial services companies and industrial companies, and so on, right?
26:18
SPEAKER_01: Um workforce and business conduct again were really also highly reported on.
26:24
SPEAKER_01: Um, and I really encourage, I think it's getting a bit much in terms of statistics and pointing things out.
26:32
SPEAKER_01: So please go in and look at the tables and the insights that we provide in our publication that is actually coming out.
26:39
SPEAKER_01: Okay, excellent.
26:40
SPEAKER_02: And then let's move on to a new topic, uh, specifically talking about assurance.
26:46
SPEAKER_02: So obviously, CSRD currently requires limited assurance and will still require limited assurance in the future, uh, given at least what's proposed from the omnibus.
26:56
SPEAKER_02: So, what did we see?
26:57
SPEAKER_02: Any patterns or anything that you would highlight there?
27:01
SPEAKER_01: So I don't know where to start.
27:02
SPEAKER_01: So um there was so much discussion around the huge number of um assurance reports with qualifications that we might expect and what that might do to capture markets and so on.
27:15
SPEAKER_01: The first reports, 250, that we looked at, had a quite low number of assurance reports with qualifications.
27:26
SPEAKER_01: We did see some emphasis of a matter or um inherent limitation um paragraphs that highlight certain issues around the lack of comparability between years or between companies, and sort of also pointing at the difficulty in assessing the double materiality assessment.
27:47
SPEAKER_01: But these are not qualifications, these are still unqualified reports highlighting certain issues, right?
27:53
SPEAKER_01: What really surprised me is to see that some companies elected to have reasonable assurance, so the level of assurance that you render on financial statements on certain KPIs and disclosures, mostly in the climate space.
28:11
SPEAKER_02: Oh, so the overall limited assurance, but then selected reasonable assurance.
28:17
SPEAKER_02: Exactly.
28:17
SPEAKER_01: On climate and on own workforce.
28:21
SPEAKER_01: Um couple of interpretations and maybe short pieces of information on that.
28:26
SPEAKER_01: That is not possible under every country's assurance regime, right?
28:33
SPEAKER_01: To have an overall limited assurance report and then go selected for reasonable.
28:38
SPEAKER_01: Um, so that I see you rolling your eyes.
28:42
SPEAKER_02: No, in the US, I don't think we would have that.
28:45
SPEAKER_01: But still we saw that, right?
28:46
SPEAKER_01: And that means that companies really want to emphasize that they've done their homework, their um processes and systems and controls are in place.
28:56
SPEAKER_01: And to those topics that are really important to them, they want to highlight that to the outside, right?
29:02
SPEAKER_01: So I find that really positive and very inspiring for others as well.
29:07
SPEAKER_01: We saw one report that rendered full reasonable assurance on the whole CSRD report, right?
29:14
SPEAKER_01: So it is possible, and I know that this company has been at it for a number of years and has been really working very closely with their assurance provider, in that case, their financial auditor, um, to get there step by step.
29:30
SPEAKER_01: But it is possible, and I hope that that will still be the future for many companies as they see how the information is actually being used.
29:41
SPEAKER_02: Yeah, I share on that point, Nadia, and this isn't about the omnibus, but as I mentioned, and we've mentioned in other forums, one of the proposals in the content proposal is to take away the move from limited assurance to reasonable assurance.
29:56
SPEAKER_02: Again, we'll see what happens with that.
29:58
SPEAKER_02: But what I have found so interesting about that is if I think of other conversations you and I have had, all your investor surveys and that work, one of the areas where we see the highest level of percentage of respondents agreeing with the statement is that they would like reasonable assurance over this type of information.
30:18
SPEAKER_02: So it's almost like the EU is moving in one direction that actually, in this case, is opposite from what the investors were looking for.
30:27
SPEAKER_02: Maybe.
30:27
SPEAKER_02: And let's see.
30:28
SPEAKER_02: Let's see about that, right?
30:29
SPEAKER_01: So if you think about it, what is proposed to be removed is a mandate to consider the move to reasonable assurance.
30:39
SPEAKER_01: That does not mean that it's not going to happen.
30:43
SPEAKER_02: It's a good point.
30:43
SPEAKER_02: And again, I think it will be interesting to see, as you said, what investors do with this information, what we continue to find in investor surveys.
30:50
SPEAKER_02: Now that they've seen it, do they want, you know, more?
30:53
SPEAKER_02: Do they want more assurance?
30:54
SPEAKER_02: So uh going on.
30:56
SPEAKER_02: So we we've mentioned this a bit that obviously there are potential changes expected.
31:03
SPEAKER_02: I think a lot of interest in the potential changes in terms of what may happen with the ESRSs.
31:08
SPEAKER_02: But in the meantime, you have companies, these Wave One companies, that are still going to be looking ahead to their 2025 reporting, following most highly most likely the same set of standards.
31:22
SPEAKER_02: So, what are some of the things that you would recommend for those companies or for companies that are still in the midst of preparing their reports?
31:31
SPEAKER_01: Yeah, and I think that is around stay the course, right?
31:35
SPEAKER_01: So take those insights from those first reporters and take a good look at what you're doing, but really double down on what is really important to you.
31:47
SPEAKER_01: And when I say that, I don't only mean important to you from an external communications and engagement with stakeholders' perspective, but also what makes sense for you as a company to actually internalize and manage appropriately?
32:03
SPEAKER_01: Where are the benefits from decarbonization as you reduce your energy consumption and therefore you have cost reductions?
32:11
SPEAKER_01: What are the benefits of taking a good look at your tax structure and how you are dealing with that and how do you want to appear towards society as a taxpayer or not?
32:22
SPEAKER_01: What are the benefits of really engaging with your own workforce and making sure that all the practices that you think are in place are really in place?
32:30
SPEAKER_01: Because that is something that we're finding as well.
32:32
SPEAKER_01: The due diligence that companies do internally when producing these data also yields insights that they might be surprised about.
32:41
SPEAKER_01: So really stay the course on what is really material for your business and for your sector and take a good look at these opportunities and positive impacts as well.
32:51
SPEAKER_01: Yes, we do not forget about risks.
32:53
SPEAKER_01: Yes, we do not want to engage in greenwashing, but we also do not only want to see risks and negative impacts.
33:01
SPEAKER_02: So, Nadia, if you were talking then to a wave two company, and you know, we've seen the stop the clock proposal was uh put into law, and now we just have to have it transpose.
33:13
SPEAKER_02: So, more time for those companies.
33:15
SPEAKER_02: Now, I've definitely heard from some companies more time just means they will have enough time.
33:20
SPEAKER_02: It doesn't mean you can stop.
33:21
SPEAKER_02: But nonetheless, sort of with that context, given what you've seen here, what advice will you have for these wave two?
33:27
SPEAKER_02: That there's also this sense of, well, but if ESRS is changing, maybe I don't want to move full seam ahead.
33:34
SPEAKER_02: So, how how are you thinking about that, particularly in the light of this broad diversity we saw uh with these findings?
33:42
SPEAKER_01: I think companies are quite aware in general of what is really material to them.
33:47
SPEAKER_01: And I think companies are well advised to really then double down on the data quality, the data granularity, the frequency with which they can actually collect these data.
33:59
SPEAKER_01: And that is what I would recommend.
34:01
SPEAKER_01: Um, it's highly unlikely that climate change altogether will go away.
34:05
SPEAKER_01: It's highly unlikely that own workforce will no longer be a significant sustainability topic.
34:12
SPEAKER_01: So it's also quite obvious that if you produce using chemicals and all of that, um, that pollution might be something that you really want to take a good look at and tell a positive story.
34:26
SPEAKER_01: A lot of companies, also, wave two companies, have done that in the context of their voluntary sustainability reporting already.
34:35
SPEAKER_01: This is the opportunity to really get real with data and embed the thinking into their whole business processes, right?
34:43
SPEAKER_01: To really manage the related risks, to really unearth the related opportunities, and therefore also tell that connected story to their financial prospects that result from managing risks and unearthing opportunities.
34:59
SPEAKER_02: So, Nadia, you mentioned this at the beginning, but I think it's worth diving into a little bit more, which is if you step back, and I know you looked at a lot of these reports, and you think about the efforts companies made in prior years on sustainability reporting, where it's very focused on their message and what they're intending to do and their strategy and otherwise, and then you line up these reports where maybe in some cases some of that message may not be coming through as clearly.
35:27
SPEAKER_02: So, again, as you're thinking about effective sustainability reporting, how can someone, I'll use the word marry, marry up the idea that it's important to share your strategy, but while still complying?
35:42
SPEAKER_02: And do we think that's possible?
35:43
SPEAKER_02: And did we see some good examples of that?
35:47
SPEAKER_01: I have to really We saw a few good examples of that where companies took their sustainability statement, which is the compliance piece, the CSID report, um, and the financial statements, and then really managed to combine this in a cohesive, coherent, well-explained story about their strategy, how they manage risk, how they unearth opportunities, and what that tells about the prospects of the company.
36:19
SPEAKER_01: So this overarching narrative, um, we can call it MDNA, you can call it the glossy part of the annual report, um, however you want to characterize it.
36:29
SPEAKER_01: But stepping back from the compliance pieces, which are the financial statements and the sustainability statement, and then telling your story, I think is really the opportunity that companies should be grabbing.
36:42
SPEAKER_01: Um there was one company that did receive disclosure um awards in the last year for their sustainability reporting.
36:51
SPEAKER_01: When you then look at their compliance reporting, it's it's miles away from the really good reports that they did before.
36:57
SPEAKER_01: And and getting back to that, yeah, um, I I think is is quite imperative.
37:03
SPEAKER_01: And one pointer actually could be um I understand that most companies, and understand we know that most companies really know exactly where users spend time on their websites, right?
37:19
SPEAKER_01: Oh yes, yeah, and and that is by a paragraph almost.
37:24
SPEAKER_01: So analyzing the data on where users spend time on their sustainability statements gives you a lot of information about what your stakeholders really are interested in, what is really material to you as well from their perspectives, and then double down in these areas and really make sure that you have reviewed, have I told my story right, how it links to my strategy, and so on.
37:48
SPEAKER_02: So a couple maybe two last questions for you.
37:52
SPEAKER_02: One, just again, taking a step back, coming from a financial reporting background, which I come from, and I I I alluded to this, I think, at the beginning, where you think you issue your 2024 annual report, and then now you're starting to plan for 2025, and maybe you'll have some changes because your strategy changed, or there might be a new accounting standard, but there won't be really substantial changes to reporting.
38:17
SPEAKER_02: Now, for some of these companies, I would imagine they look at their report, they start to look at their competitors' reports, they look at just other good example reports and think, wow, I I could have done much better.
38:30
SPEAKER_02: Do we think there's any potential issue with making substantial change as you look from year to year?
38:38
SPEAKER_02: Maybe not substantial change in, you know, the foundation of the report, but the way you present things, maybe the risks, impacts, risks, and opportunities, or is this it's evolving?
38:49
SPEAKER_02: And we heard that from Esma, we've heard that from others.
38:52
SPEAKER_02: So I'm just curious again, you think so much about reporting, what your thought would be is if you were that company that thought, hmm, I I want to do better, I want to make substantial change.
39:03
SPEAKER_01: I really hope that companies are courageous enough to really perform this analysis and then do change their reporting.
39:14
SPEAKER_01: We know of companies that even in the voluntary reporting space have moved to an integrated report, which really means they look at the various pieces of their strategy and they pair up financial data with sustainability data.
39:32
SPEAKER_01: And they've done that pre-CSID.
39:35
SPEAKER_01: Really, really drastic changes, very courageous changes.
39:39
SPEAKER_01: I'm not necessarily lobbying for integrated reports in that matter or following this particular example.
39:47
SPEAKER_01: But again, I hope that companies do evaluate what they've been doing, what they could do better, what competitors have been doing, what stakeholders are expecting, and do make those changes.
39:58
SPEAKER_01: I think key to success also will be a dialogue with the assurance providers so that it doesn't get stuck next year in November because somebody is throwing in an exception to these plans, right?
40:11
SPEAKER_01: So take your um assurance providers into that conversation and work out something, right?
40:19
SPEAKER_02: Yeah, so it's truly not a wait and see.
40:21
SPEAKER_02: You can't think, oh, I'm done.
40:22
SPEAKER_02: Okay, I can deal with this in six months.
40:25
SPEAKER_02: Companies really should be planning now, obviously, for next year.
40:28
SPEAKER_02: And again, looking forward to wave two.
40:31
SPEAKER_02: So just to wrap things up, I always like to ask final words of wisdom or advice.
40:36
SPEAKER_02: It's interesting in listening.
40:38
SPEAKER_02: The data was a bit all over the place, but you still saw some trends.
40:42
SPEAKER_02: And so just keeping this in mind and keeping in mind the current environment, what what advice would you give to companies right now?
40:49
SPEAKER_01: So take a look at the data and the reports.
40:53
SPEAKER_01: You know which are your peers and competitors, right?
40:56
SPEAKER_01: So so have somebody really do a good analysis, think about the areas that you want to really get some insights on that really bother you.
41:04
SPEAKER_01: Analyze the direction that the new ESRS, as they are being reworked, are going to.
41:12
SPEAKER_01: Analyze what the competent authorities reviews um will yield in terms of number one areas of focus, but also maybe just questions, less findings, um, but maybe just really questions that are being asked.
41:27
SPEAKER_01: And and continuously evolve your reporting, right?
41:30
SPEAKER_01: We do that in financial reporting, by the way, as well, right?
41:34
SPEAKER_01: Maybe the IFRS or use gap doesn't change that dramatically, but the way we tell our story as companies does evolve as well.
41:43
SPEAKER_01: So take that same approach and don't exactly have that sigh of relief, put it aside and pick it back up next December.
41:51
SPEAKER_01: That that is not a good way to spend your energy on the reporting um because that will then be a scramble and yet another annoying exercise.
42:04
SPEAKER_01: Try to find the positivity in this analysis.
42:07
SPEAKER_02: All right.
42:07
SPEAKER_02: Well, Nadia, it's always a pleasure to talk to you.
42:09
SPEAKER_02: It definitely will be interesting to see the market reaction to this different reporting and then how things evolve over the next few months.
42:16
SPEAKER_02: So, again, as always, it's a pleasure.
42:18
SPEAKER_02: Thanks so much for joining me.
42:19
SPEAKER_02: My pleasure.
42:20
SPEAKER_02: Thank you, Heather.
42:21
SPEAKER_02: That's our show for today.
42:24
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42:44
SPEAKER_02: From Thought Leadership at PwC, I'm Heather Horn.
42:48
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42:59
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