Making choices: determining the organisational level for sustainability reporting
The process of reporting sustainability-related information is long and complex. Can organisations maximise efficiency by reporting at group level?
The sustainability reporting landscape is complicated and extensive, with organisations having to align to a number of different frameworks and regulations. In the European Union, the Corporate Sustainability Reporting Disclosure (CSRD) is now live and organisations must decide at what organisational level to report. Organisations may find it more efficient to report once at group level, ensuring organisational alignment and coherence. However, this bring risks in terms of disclosing information about the wider group, which would not otherwise be in the public domain.
Under the CSRD, organisations are expected to report in line with their financial accounts. However, exceptions can be made, with organisations being able to opt into reporting at group level, so if all in-scope entities are covered.
Why would you voluntarily report at group level?
Reporting at group level can maximise efficiency since it will mean reporting once, instead of issuing several entity-specific reports. A singular CSRD report reduces the risk of differences in reporting, some of which include:
- information discrepancies
- internal methodology differences (e.g. impacts, risks and opportunities (IRO) assessments, transition planning)
- alternative data calculations
- differences in reporting periods
- variations in data presentation (e.g. emissions or social data).
Additionally, organisation policies are typically easier to implement on a group-wide basis. One consistent overarching set of policies at group level can be cascaded down and adjusted only for minor jurisdictional differences. This creates consistency across the group, enabling a clearer governance structure.
Finally, from a broader perspective, reporting at group level may align with other reporting requirements. For instance, CSRD is linked to the Taskforce of Climate Financial Disclosures (TCFD), International Financial Reporting Standards (IFRS) and UK Sustainability Reporting Standards (SRS).
What are the challenges of reporting at group level?
If CSRD reporting is conducted at group level, all entities within the group must report on their metrics and targets, which may prove to be challenging. This will require entities to report in line with the group, even if they are outside the scope of CSRD. All information disclosed under the CSRD regulations is subject to limited assurance by external auditors; broadening the scope of disclosures, expands the scope of their review work.
Organisations also risk omitting material information or becoming non-compliant with local legislation. Under CSRD, if entities within a group have materially different information, they must report the differences. Furthermore, care will be needed if entities span multiple jurisdictions. Legislation can differ across jurisdictions, so ensuring each entity remains compliant with their reporting obligations will require engagement with local compliance teams.
For larger organisations, CSRD will apply on a group-wide, extra-jurisdictional basis starting in 2028. Therefore, not reporting at group-level may just be delaying the issues, which could be tackled while new reporting processes are being implemented.
Recommended steps to decide between group or entity reporting
There are several steps organisations should take to assist with the reporting decision-making.
- The first step should be to understand which entities have to comply with CSRD and similar regulations, to understand possible efficiency in reporting.
- Identify if there are any material differences between CSRD requirements and other regulations applying to the group.
- Substantially different entities, such as those offering a different product or service, will likely have different materiality assessments driving variations in reporting on sustainability matters.
- This will impact the CSRD report and the decision on the reporting level.
- You need to understand what your unique opportunities and threats are, in reporting at group level or at an entity level. This will help take advantage of potential opportunities, but also mitigate against the potential risks.
- Disclosure of certain data for entities outside the direct scope of the CSRD may prove sensitive, particularly when related to disciplinary or litigation-linked activities. This brings the information within the scope of external auditors' assurance reviews.
- After assessing what matters are material, there will be a number of datapoints which will need to be identified and reported. Reviewing existing data across the various entities will ensure awareness of what data is available in-house and whether each entity collects data in the same way. Discrepancies in data will either result in a decision to report at entity level or will require additional actions to ensure data comparability and minimise inconsistencies.
- Reporting on specific datapoints will be recognised as a risk for most organisations. It is useful to undertake an implementation assessment for each material data point under CSRD to understand any associated challenges. We expect the main challenges for many organisations to be around reporting any social and governance data with potentially sensitive information, i.e. fines and penalties, and complaints and grievances.
- Engaging with stakeholders from the offset will be crucial. Effective change management is a key step in any regulatory reporting exercise and this sustainability reporting is no different. Some stakeholders may be onboard with the decision, but others may feel a sense of nervousness from the amount of work required to align systems, or about reporting information they are not legally obligated to report on. Starting these conversations early and conducting education sessions will ensure that stakeholders are provided with a sense of comfort and understanding and are involved in the decision-making process.
Figure 1: Illustrative example of a threat and opportunity assessment.
CSRD reporting is known to be complex and deciding on the reporting level is one of the first critical steps to take. The decision between reporting at a group or entity level will vary from organisation to organisation, depending on the data available, risk appetite and organisational structure. However, taking our five recommended steps outlined above will aid your organisation in making the right decision.
Through our practical and experienced team, Crowe continues to support our clients in setting their own agenda to address rapidly changing sustainability and climate-related reporting requirements. Please get in touch with Alex Hindson or your usual Crowe contact for more information.
