CFOs and the CSRD: A strategic opportunity for resilient growth

CFOs are feeling the regulatory pressure. From the 2023/24 fiscal year, large and listed EU companies must comply with the Corporate Sustainability Reporting Directive (CSRD), which mandates disclosure of the carbon footprint of direct operations, energy use, and emissions along the supply chain.

Although the CSRD applies primarily to large entities listed in the EU, it extends to EU subsidiaries of foreign firms, potentially affecting up to 10,300 companies outside Europe, including over 3,000 in the US. California’s new climate bills further complicate the US regulatory landscape, compelling businesses to disclose both emissions levels and climate-related financial risks.

While these mandates bring additional challenges for CFOs, they also present them with an opportunity to secure a strategic advantage for their companies. To seize this opportunity, finance leaders must ensure their sustainability reporting is effective by addressing any issues with skills gaps, data quality, interoperability, and technology readiness.

Skills gaps. Finance teams, experts in regulated financial reporting, must now also navigate the less familiar territory of nonfinancial disclosures. CFOs will need to reinforce capabilities within their teams, particularly in emerging areas such as carbon accounting and sustainability reporting regulations. Financial controllers and other finance professionals must gain a solid understanding of environmental metrics and their implications for corporate strategy.

Data challenges. Unlike financial data, which has long been subject to stringent internal controls, nonfinancial data comes from a variety of sources across the business, including HR, operations, and supply chain, which may have a less rigorous approach to data collection and reporting than the finance function. This inconsistency can prompt questions around data quality, leading the CSRD to require independent third-party assurance. Consequently, it is crucial the CFO ensures that the company’s nonfinancial data is sufficiently robust to withstand external scrutiny.

Complexity and interoperability. The CSRD requires companies to align themselves with European Sustainability Reporting Standards (ESRS), but this is only one aspect of evolving global standards. CFOs may need to navigate other frameworks, such as those of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI), each with distinct metrics and requirements. Managing compliance across these frameworks without creating redundancies or inconsistencies will be challenging.

Technology IT infrastructure gaps. The effective management of sustainability data requires advanced digital tools that many companies currently lack. Traditional ERP systems and software, built to manage reporting of structured financial data, may struggle with the unstructured data typically produced by sustainability metrics.