Sustainability reporting, what tech businesses need to know…

With all eyes on Net Zero targets, organisations are having to focus increasingly on sustainability, with regulation steadily increasing.

There's recently been something of a reprieve, with the news that the European Commission is to delay sustainability reporting requirements in the EU until 2028, and that it's narrowing their scope. But 2028 isn't that far away, and companies will have to get in gear.

Changes to CSRD

The new, scaled back version of the Corporate Sustainability Reporting Directive (CSRD) means that now only companies with more than 1,000 employees and €50 million in turnover will need to report on their carbon emissions.

It also scales back the financial penalties for failing to comply and damages, and restricts who can bring civil action. 

For companies no longer in the scope of the legislation, the Commission says it's planning a voluntary reporting standard, comparable with that of the European Financial Reporting Advisory Group.

"We are taking concrete steps to cut red tape and make EU rules more accessible and effective for citizens and businesses. Today’s package is the first step of our far-reaching simplification efforts across all sectors of legislation," said Commission executive vice-president for prosperity and industrial strategy, Stéphane Séjourné.

"This proposal delivers real simplifications — less administrative burden, easier access to funding, and clearer, more predictable rules. We keep our objectives but change the way to better achieve them."

At the same time, there are to be changes to the Corporate Sustainability Due Diligence Directive (CSDDD), which covers everything from child labour to damage to ecosystems in the supply chain.

Organisations, for example, will only need to carry out a full due diligence of their value chain when they have reason to believe that there's been an adverse impact.

However, the requirements are still pretty detailed. And while the UK is no longer an EU member, the rules will apply to UK companies if they have securities listed on an EU regulated market, or if they have a net turnover in the EU of more €150 million and an EU subsidiary or branch.

And also in the UK, meanwhile, new UK Sustainability Reporting Standards (UK SRS) are set to be endorsed later this year, coming into effect sometime next year or later.

There are requirements in terms of sustainability risks and opportunities, climate-related disclosures, integration into financial reporting and certain industry-specific metrics.

The CSRD, meanwhile, has already been incorporated into many countries' national legislation. And this means that the proposed modifications and delays - and they are only proposed - don't yet stand, with the national legislation remaining the default. It's risky, in other words, to count on the changes coming into effect.

"This is still a proposal, not a final decision. The European Parliament and the Council of the EU must still approve it, and reaching a consensus will take time," warns Gemma Sánchez Danes of the European Financial Reporting Advisory Group.

"Companies need to stay calm and focus on why they are reporting in the first place. Sustainability reporting is not just a compliance exercise, it's a strategic tool for risk management and value creation."

The tech industry was an early pioneer in terms of sustainability - four years ago, KPMG found that 83% of firms were reporting on sustainability, putting the sector ahead of oil and gas, construction and even forestry and paper.

How to prepare

PwC recommends that tech firms preparing auditor-ready, thorough and reliable reporting should plan early, and collaborate across teams. The emerging role of the ESG controller will likely take centre stage in these processes as they work with tech CFOs, says the firm.

It's a good idea to seek independent third-party assurance for sustainability reports to improve their credibility.

Adopting a proactive, tech-enabled approach can help by automating data collection processes, boosting accuracy and simplifying reporting - and generative AI can really come into its own here, streamlining data collection and making it easier to comply with regulations and audits without the need for too much manual labour.

"Despite the influx of disclosure requirements, tech companies should remain focused on the big picture when it comes to reporting and use the exercise as an opportunity to shape their broader sustainability strategy," says the firm.

"Sustainability transformation is not just a regulatory requirement. It’s an opportunity for tech companies to further drive innovation, reduce risks and build long-term value."

Is your sustainability strategy aligned with your insurance coverage?
As reporting requirements evolve, so do the risks, and the opportunities. From regulatory compliance to reputational protection, your insurance programme should reflect your sustainability journey.