CSRD Auditing: How and Why You Need to Audit?

CSRD auditing involves an independent, external review of a company’s sustainability report. The Corporate Sustainability Reporting Directive (CSRD) is EU legislation that aims to standardise sustainability reporting across Europe as part of the EU Green Deal and sustainable finance action plan. It aims to enhance transparency and help investors identify companies engaged in sustainable activities. To ensure the information’s reliability, an external auditor must audit the sustainability report.

What is CSRD Auditing?

CSRD requires assurance by an external auditor. There are two levels of audit available for CSRD: limited assurance and reasonable assurance. From the financial year 2024 onwards, companies mandated by CSRD must audit their sustainability statements according to the limited external assurance procedures.

Auditing the sustainability statement involves an independent, external review of a company’s sustainability report. This process ensures that the information disclosed is accurate, complete, and in accordance with the European Sustainability Reporting Standards (ESRS). The audit offers stakeholders confidence in the reported data, which is crucial for informed decision-making.

Key takeaways for CSRD Auditing

• Scope and Standards: The CSRD requires companies to report on a wide range of sustainability issues, including environmental, social, and governance (ESG) factors. Auditors must verify that the reports adhere to the ESRS and that the process has resulted in disclosing all material sustainability-related impacts, risks, and opportunities.

• Audit Process: Auditors assess the company’s internal processes, the sustainability statement’s content, and data collection to ensure the reliability of the reported information.

• Independence and Objectivity: For a reliable audit, auditors must stay independent and objective, without conflicts of interest, and follow professional standards and ethical guidelines.

• Assurance Levels: CSRD audits can offer different levels of assurance. Limited assurance involves less scrutiny and is less comprehensive than reasonable assurance, which requires a more detailed examination of the sustainability report.

• The EU law does not specify a format for the audit report. Companies must submit the assurance report to the relevant ESAP collection body in 2028 in a data extractable format, along with relevant metadata.

Benefits of CSRD Auditing

An audited sustainability report enhances a company’s reputation, builds trust with stakeholders, and ensures compliance with the CSRD and ESRS, helping to align with EU sustainability goals.

Engaging with stakeholders throughout the reporting and auditing enhances the quality of the sustainability report. This involves communicating with investors, customers, employees, and other relevant parties to understand concerns and expectations and gather necessary data.

CSRD auditing is not a one-time activity but an ongoing process. Companies should continuously monitor and improve their sustainability practices and reporting mechanisms to comply with evolving regulations and standards.

A Digital Approach to CSRD Auditing

Advanced technologies such as automation, data analytics, and artificial intelligence can streamline the entire CSRD reporting process, making it more efficient and accurate. These tools also aid the auditing process, providing the auditors with a more straightforward and organized look into the company’s reporting system.

Due to the complexity of the ESRS standards, it is optimal to apply electronic CSRD reporting from the beginning. Therefore, traditional reporting methods are no longer efficient or appropriate. The sustainability report must be submitted through national contact points to ESAP from January 2028 onwards, when the reporting data must meet the electronic marking standard (ESEF) requirements. The sustainability report must be prepared in XHTML format, and its information must be marked with an electronic XBRL tag. When implementing sustainability reporting under CSRD, the focus should be on the finish line. Enter Ecobio Manager: Your all-in-one solution for sustainability reporting.