​Turning Tick-Boxes into Value: How to Use Compliance Priorities to Elevate Your CSRD Reporting

 

Tick-box compliance misses the point of the CSRD journey, but by understanding and aligning with assurance and enforcement priorities, companies can focus resources effectively, enhance their CSRD reporting, and support strategic goals.

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We are often asked how companies can most effectively and efficiently support their organizations and clients along the CSRD journey. We of course have never looked at ESRS as just a regulatory obligation—it’s an opportunity to integrate sustainability into core strategy, build stakeholder trust, and create long-term value. 

That said, we recognize the immense investment companies are making, from resources to in many cases internal political capital, to adapt to this new world of reporting.  By understanding the priorities outlined by oversight bodies like the European Securities and Markets Authority (ESMA) and the Committee of European Auditing Oversight Bodies (CEAOB), organizations can move beyond surface-level compliance. These priorities not only highlight where to focus efforts but also serve as a framework for impactful, credible, and resource-efficient reporting. 

 

This article highlights four key areas—double materiality, the structure of the sustainability statement, alignment with the EU Taxonomy, and broader assurance readiness—combining insights from ESMA’s enforcement focus and CEAOB’s assurance guidelines.

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First things first, what does compliance under CSRD look like and who are the main players?

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Compliance to CSRD/ESRS is based on a number of mechanisms, from mandatory assurance, to direct regulatory enforcement, to alignment with market mechanisms such as ESG ratings and stakeholder demand. 

While many elements are still under development and will differ based on how Member States implement CSRD, CEAOB and ESMA are two organizations that will play an outsized and critical role in defining shared parameters that we can already look to.

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CEAOB and assurance guidance

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The CEAOB provides guidance on the assurance of sustainability disclosures, focusing on how limited assurance engagements should be conducted to evaluate the reliability, relevance, and completeness of reported information. 

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The Commission is required by the CSRD to adopt a standard for limited assurance on sustainability information by October 2026. Until the EU Commission adopts the limited assurance standards, the CSRD states that Member States can adopt or employ existing national standards until these EU standards are made available.

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The CEAOB guidelines released in September 2024 have been issued with the intention “facilitating the harmonisation of the assurance of sustainability reporting across Member States” in the interim period before this standard is adopted.

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ESMA and enforcement priorities

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ESMA, on the other hand, plays a complementary role by monitoring compliance with the CSRD through its enforcement priorities, which focus on listed companies. 

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ESMA’s primary role under the CSRD is to promote uniform application of the ESRS by national authorities, focusing on the quality and comparability of sustainability disclosures and encouraging issuers to align their reporting with ESRS requirements and meet investor and stakeholder expectations.

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While enforcement of CSRD and ESRS remains the responsibility of Member States, ESMA provides a framework for harmonized implementation through its guidance on ESRS (July 2024) as well as annual enforcement priorities (released November 2024). 

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What can we learn from these organizations’ priorities?

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Compared to the standards themselves, these guidance documents are relatively streamlined, although they do refer back to the standards, including implementation guidance.

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We’ve drawn a few takeaways from these publications below in four areas: double materiality, the structure of the sustainability statement, alignment with the EU Taxonomy, and broader assurance readiness.

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We encourage all leaders and advisors to review them in more detail and understand their relevance and applicability to their unique contexts.

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In no particular order, here are four critical areas for companies to address.

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1. Conduct a comprehensive double materiality assessment

 

Why It Matters:

Double materiality based on assessment of impacts, risks, and opportunities is foundational to CSRD reporting. Not surprisingly, assurance and enforcement will look closely at the materiality process as a basis for both material IROs/topics (material matters) and specific disclosures associated with them (material information).

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What Oversight Groups Will Look For:

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• ESMA: Highlights the importance of transparent, well-documented materiality assessments and recommends companies “pay attention to EFRAG’s Implementation Guidance on Materiality Assessment (IG1)” when applying the requirement. Companies should disclose in sufficient detail how material topics are assessed and defined. This includes all DRs and datapoints related to DR IRO-1 in topical standards, whether or not the related topics are eventually found to be material as a result of the materiality assessment process, as defined in the ESRS (and overlooked by many companies). Such topic-specific IROs are included in all Environmental topics as well as G1.

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• CEAOB: Section 8 of the CEAOB guidance, "Process carried out and described by the entity," notes that assurance providers will evaluate whether materiality processes are appropriately designed and documented. They will also assess whether identified material topics align with the qualitative characteristics outlined in ESRS 1, such as relevance and completeness.

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Actionable Advice:

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• Design and Document Your Process: Follow ESRS 2 guidance to structure your materiality assessment. Be transparent about your methodology, including criteria, thresholds, and stakeholder engagement processes.

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• Integrate Assurance Expectations: Prepare for assurance by ensuring the materiality assessment is well-documented and auditable. Section 8 of the CEAOB document highlights the need for clear descriptions of the processes carried out to support assurance engagements.

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• Address Both Dimensions: Double materiality requires balancing impact and financial perspectives. Overlooking either could raise concerns during enforcement or assurance.

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2. Structure the Sustainability Statement with ESRS appendices as your guide

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Why It Matters:
 

A well-organized sustainability statement facilitates clarity, stakeholder engagement, and digital accessibility. It is the primary tool for communicating compliance with CSRD/ESRS requirements. While many companies have used other structures for many years, keep in mind that compliance with the ESRS structure matters.

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What Oversight Groups Will Look For:

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• ESMA: ESMA underlines that the sustainability statement shall be for the same reporting undertaking as the financial statements and advises companies to structure sustainability statements using Appendix D and F of ESRS 1, ensuring logical organization under general, environmental, social, and governance headings. It’s clear this structure matters, as ESMA recommends “issuers which have relied extensively on alternative presentation formats for their sustainability statements carefully consider the compliance of their approaches with the relevant ESRS requirements.”

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• CEAOB: The CEAOB guidance emphasizes that the sustainability statement should meet qualitative characteristics. Assurance providers will examine whether disclosures are structured to allow meaningful evaluation of data and consistency across reporting sections (including information in the broader management report) and address, for example, whether items incorporated by reference meet ESRS requirements.

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Actionable Advice:

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• Follow ESRS Guidance on the Statement, including Appendix D and F: Use the format to align general, environmental, social, and governance disclosures under separate sections. Avoid duplication by using cross-references while maintaining comprehensiveness but ensure that references meet ESRS 1 requirements.

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• Ensure Connectivity: Highlight how sustainability metrics relate to financial disclosures. ESMA’s enforcement priorities stress the importance of integrating these disclosures for stakeholder clarity.

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• Prepare for Digital Reporting: Ensure the statement is machine-readable (e.g., in the European Single Electronic Format). This also supports traceability and understandability, key characteristics noted in the CEAOB guidelines.

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3. Don’t overlook reporting against the EU Taxonomy

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Why It Matters:

EU Taxonomy reporting is required for many companies subject to CSRD. For example, Article 8 of the Taxonomy Regulation mandates disclosure of turnover, CapEx, and OpEx associated with environmentally sustainable activities for non-financial institutions. Proper alignment demonstrates regulatory compliance and builds investor confidence.

What Oversight Groups Will Look For:

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• ESMA: ESMA focuses EU Taxonomy guidance on the use of mandatory templates, avoidance of double counting, scanning of activities in relation to all environmental objectives, qualitative disclosures on the assessment of compliance with the technical screening criteria and reporting on CapEx plans. ESMA provided previous guidance on EU Taxonomy reporting in its 2023 enforcement priorities that remains relevant.

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• CEAOB: CEAOB references that limited assurance engagement covers the EU Taxonomy disclosures to be reported in the sustainability statements and emphasizes assessing the alignment of the EU Taxonomy disclosures with financial reporting. Section II (subsections 14-16) provides detailed information on understanding the processes used to determine eligibility and alignment, the presentation of information, and potential areas of misstatement to address.

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Actionable Advice:

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• Map Activities to the Taxonomy: Identify activities aligned with taxonomy objectives. Document alignment processes, including technical screening criteria and “do no significant harm” assessments.

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• Ensure Connectivity: ESMA recommends reconciling taxonomy-aligned metrics with financial reporting data to enhance clarity and consistency and assurance will also focus on consistency and coherence with disclosures under E1, E2, E3, E4 and E5 as relevant.

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• Consult Guidance: Leverage the European Commission’s Draft Notice FAQs (November 2024) to navigate sector-specific or other complexities.

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4. Build foundations to support assurance 

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Why It Matters:

Limited assurance of sustainability disclosures is a CSRD requirement, ensuring credibility and accuracy. Meeting qualitative characteristics under ESRS 1, such as comparability, relevance, and verifiability, is crucial to assurance and meeting enforcement expectations.

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What Oversight Groups Will Look For:

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• CEAOB: Assurance providers will examine internal controls, data governance, and whether reported information aligns with qualitative characteristics under ESRS 1. They specifically highlight the importance of “ensuring processes are in place to produce reliable and relevant sustainability information.”

• ESMA: Reinforces the need for robust controls, highlighting the need to ensure processes are sufficiently robust to meet qualitative characteristics and to support assurance engagements, which it outlines as a critical part of the learning curve for companies.

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Actionable Advice:

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• Strengthen Internal Controls: Establish data governance frameworks aligned with assurance expectations, drawing on existing processes and expertise of finance, risk management, and internal audit.

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• Ensure Data Consistency: Maintain alignment between sustainability and financial disclosures to meet both ESMA and CEAOB criteria.

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• Engage Assurance Providers: Collaborate early to address gaps and improve reporting quality.

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A Final Note: Leverage Ongoing Guidance

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Both ESMA and CEAOB stress that good reporting is an iterative process (or in other words, a journey). ESMA highlights the importance of consulting implementation guidance and FAQs published by EFRAG, which provide practical support for navigating the complexities of CSRD and ESRS reporting. The European Commission’s FAQs also offer additional clarity.

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CEAOB similarly advises entities to monitor regulatory updates and adapt reporting frameworks accordingly, emphasizing continuous improvement over time.

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While CSRD and ESRS remain every bit a journey and team sport that will continue to transform transparency and practice, focusing on enforcement and assurance priorities can help companies streamline efforts and get the fundamentals right.

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New and notable

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The end of the year is typically a time for new publications and guidance, and the last month hasn’t disappointed. A few resources to be aware of

• EFRAG FAQ Compilation (January-November 2024)

• Draft Implementation Guidance on Transition Plans (IG4)

• ESMA Enforcement Priorities

• CEAOB Draft Assurance Guidelines

• EC FAQ on EU Taxonomy Disclosures

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Don’t forget – we are here to help

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Check out our resources on our CSRD Hub and LinkedIn group, including information about our upcoming masterclasses and our free webinar in January 2025. 

Also see how smartly SmartCSRD can help you answer your CSRD questions.

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