Karen Abramson (She/Her), CEO of Wolters Kluwer Corporate Performance & ESG.
In April 2021, the European Union (EU) proposed the Corporate Sustainability Reporting Directive (CSRD), marking a bold shift toward greater transparency in sustainability. The CSRD will soon require all companies conducting business in or operating within the EU to disclose an extensive range of detailed environmental, social and governance (ESG) data. This reporting goes beyond typical compliance requirements, mandating that companies disclose not only the data itself but also its projected impact on society, the climate and the organization’s vulnerability to ESG risks.
The scale of this undertaking cannot be understated, particularly for the estimated 10,000 non-EU companies—including 3,000 U.S. companies—that the regulation will affect.
While the EU announced in spring 2024 that non-EU companies can delay their CSRD compliance until 2026, this extension should not be mistaken for leniency. The delay is, at best, an acknowledgment of the complex challenges involved in gathering, analyzing and ensuring the accuracy of such vast and varied data. For U.S. companies, it’s critical to seize this two-year window as a strategic opportunity, not an excuse for procrastination.
Why U.S. Companies May Be Less Ready Than They Think
Overconfidence could be a major pitfall for many corporate leaders. According to the 2024 PwC Global CSRD Readiness Survey, 97% of the 550 executives surveyed expressed confidence that they would be able to comply with CSRD by 2025. However, this optimism doesn’t align with the survey’s findings on actual preparedness.
Low completion rates were reported for key initial steps, such as scoping activities necessary to determine what data needs to be collected, from where and on what timeline. Additionally, the survey revealed a lack of senior stakeholder involvement in many organizations, as well as low adoption rates of the technologies needed to ensure high-quality, accurate and efficient ESG reporting. These gaps are concerning, as they reflect the very foundation of a robust ESG reporting framework. U.S. companies may not be as ready for CSRD as they appear on the surface.
CSRD Compliance: Far More Complex Than Financial Reporting
Many U.S. CFOs may misjudge the complexity of CSRD compliance by comparing it to previous financial regulations, such as Sarbanes-Oxley (SOX) in 2002. While SOX compliance required substantial effort, CSRD compliance is in a league of its own—broader in scope, more intricate and deeply rooted in non-financial performance metrics.
Unlike SOX, which focuses primarily on financial governance, CSRD demands reporting on a wide array of topics, from climate change and pollution to workforce safety and human rights. It even requires disclosures on biodiversity and workers within the value chain—areas unfamiliar to most U.S. companies. Gathering this level of data from across diverse organizational departments and supply chains, many of which have never been subject to such rigorous reporting, poses a considerable challenge.
Talent, Technology And Time: Critical Resources For CSRD Readiness
Preparing for CSRD is not just a compliance project—it’s a cross-functional initiative that requires the support of executive leaders across the organization. It demands collaboration between sustainability teams, finance, operations, procurement, technology, legal and other departments. In many cases, companies will need to hire and train new talent specifically for ESG reporting, as well as invest in centralized technology platforms to collect, report, analyze and assure ESG data.
Implementing these changes—whether new roles, new technology, or new processes—takes time. Waiting until the last minute could prove disastrous, as the 2026 deadline will approach much faster than companies anticipate.
The Competitive Advantage Of Getting CSRD Right
While the consequences of non-compliance remain somewhat unclear, penalties will likely vary by EU member state. France, for instance, has already introduced severe penalties for non-compliance, including fines and potential jail time for executives. Beyond legal risks, non-compliance can lead to litigation, exclusion from public contracts, supply chain disruptions, reputational damage and increased scrutiny from investors.
However, the companies that treat CSRD compliance as more than just a reporting requirement stand to gain significant competitive advantages. For organizations with mature ESG practices, CSRD reporting offers a chance to differentiate themselves, drive value and even boost profitability. Companies with consistently strong ESG performance have been shown to score 2.6 times higher in total shareholder returns and experience 4.7 times higher operating margins than those with weaker ESG metrics.
The Time To Act Is Now
U.S. companies must take immediate action to invest in the people, processes and technology necessary to meet CSRD compliance requirements by 2026. Addressing the scope and complexity of CSRD requires a major cross-functional, enterprise-wide effort, which starts with answering a few key questions:
• How do our current ESG data disclosures and controls compare to CSRD requirements, and where are our key gaps and weaknesses?
• How do we define our board-level and senior leadership governance and oversight of our CSRD reporting processes?
• What technology and data architecture investments do we need to make to collect, report, analyze and assure that our ESG data is just as accurate and audit-ready as our financial data?
• Are we prepared for double materiality? Does our current technology enable us to report not just on business risks, but social and environmental risks, too?
• What investments do we need to make in recruiting, training or external support to ensure we have the right talent in place to understand CSRD metrics and comply with its requirements?
• What is our approach to providing the third-party data assurance that CSRD requires?
Those that move quickly will not only mitigate the risks of non-compliance but also unlock opportunities for improved efficiency, cost savings and revenue growth. By positioning themselves as leaders in ESG reporting, companies can weather regulatory pressures while driving sustainable success in the evolving global marketplace.
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