Companies in the European Union have struggled to come to terms with the “double materiality” demand of new non-financial reporting rules, as well as the data needed to be compliant.

The news comes in a new survey, conducted by European Issuers, an association for listed companies, that looks at implementation of the Corporate Sustainability Reporting Directive (CSRD).

Double materiality asks companies to report not only on the impact of ESG issue on their businesses and strategies, but also on the impact of their commercial activities on the environment and society.

The report says 77% (103 from the sample of 144) of companies have had to seek help from consultancies or guidance from EFRAG, the independent body set up to provide advice to the European Commission on high-quality financial and sustainability reporting.

The report says: “Despite some progress, the survey responses underscored the increased complexity that preparers face in implementing double materiality assessments.”

However, despite the challenges, the report strikes an optimistic note. Luc Vansteenkiste, chair of European Issuers, says: “The journey toward fully realising the potential of the CSRD is one of both complexity and opportunity.”

The introduction of double materiality was a step change for corporate reporting and a principle not used by current disclosure frameworks, such as those mandated in the UK—TCFD (Taskforce for Climate-related Financial Disclosures)—or the two new standards slowly being adopted worldwide from the International Sustainability Standards Board.

Supply side problem

CSRD also asks companies to report on their supply, or “value” chains. Here, European Issuers unearths difficulty in choosing and finding the data needed for reporting.

The report says: “When asked about strategies to ensure comprehensive and accurate data collection from subsidiaries, respondents note persistent challenges.

“Many companies rely on a combination of centralised platforms, third-party tools and manual processes to gather the necessary information.”

In recent weeks, controversy has surrounded CSRD as some politicians, notably from Germany, argue that it will be a burden on companies. They go so far as to call for a revision of the law.

In a report published in September on European competitiveness, former European Central Bank president Mario Draghi highlighted issues with sustainability regulation.

“The EU’s sustainability reporting and due diligence framework is a major source of regulatory burden magnified by a lack of guidance to facilitate the application of complex rules and to clarify the interaction between various piece of legislation.”

Last month, European Commission president Ursula von der Leyen announced plans to merge the CSRD with the Corporate Sustainability Due Diligence Directive and the EU Taxonomy Regulation to create a single piece of “omnibus” legislation to rid them of conflicts and overlaps. Commentators have suggested this may be an opportunity to slim key elements of the legislation.

Companies may be coming to terms with CSRD, but it looks like it may go through some change in the not-so-distant future. Whether that will ease any of the current challenges remains to be seen.