KPMG Reports US Companies Will Have to Issue Sustainability Reports in Line with the European Union’s Disclosure Standards
NEW YORK, 4 December 2024 – The European Union Directive on Corporate Sustainability (CSRD) is ready to transform the global sustainability reporting landscape, with radical implications for US companies. According to a recent KPMG report, thousands of US companies with major European operations will have to meet these standards by 2029. This is a key step towards global alignment of reports on environment, society and governance.
Extended scope of the CSDD
The CSRD, promulgated by the European Union, entrusts some 50,000 companies, including those established outside the European Union, but generates significant revenues within its borders. These requirements go beyond climate change to cover pollution, biodiversity, water management and social governance. The Directive also requires companies to adopt the principle of “double materiality”, which integrates financial impacts with broader social and environmental considerations.
Mandatory safety and reporting standards
According to the CSDD, sustainability revelations must comply with EU sustainability reporting standards (ESRS). Companies are also required to ensure these disclosures, ensuring the reliability and accuracy of the data. For US companies, this implies a shift from voluntary reporting practices to ESG regulations, a movement already adopted by the first drivers of the European market.
The progressive implementation of the Directive starts in 2025, with the first reports expected from companies currently governed by the EU Non-Financial Directive 2014. By 2027, large EU companies will follow demand, with non-European companies, including those in the US, scheduled to meet in 2029. These stagnant deadlines are intended to provide a buffer for companies to adapt to new and stringent standards.
Early adoption Trends
KPMG’s research highlights an early trend towards voluntary adoption among European companies, particularly in line with ESRS. Although only 2% of the world’s 250 largest companies (G250) report complying with ESRS, this figure represents 12% of the largest European companies. Spain is leading the preparation of ESRS, with 66% of its top 100 companies aligning its revelations with new standards.
The EU taxonomy, a system of classification of environmentally sustainable activities, is also gaining in popularity, almost half of European companies integrating their guidelines into their reports. However, adoption remains limited outside Europe, indicating a regional lag that may change as the CSDD deadlines approach.
Challenges and opportunities for US companies
For U.S. companies, compliance with the CSDD is both a challenge and an opportunity. The Directive requires investments in ESG data infrastructure, independent guarantee processes and governance frameworks to ensure harmonisation with EU standards. Companies must comply with complex requirements, such as important assessments and sectoral disclosures described in the ESRS.
Despite these challenges, alignment with the CSDD could offer competitive advantages. According to John McCalla-Leacy, global GSS leader at KPMG, the rapid adoption of solid GSS practices increases investor confidence and places companies as sustainability leaders. This is particularly relevant because stakeholders are increasingly focusing on GHG results in their investment and operating decisions.
Implications for global reporting on ESG
The CSR should influence sustainability reporting practices well beyond the EU. Its strict requirements set a precedent that would probably inspire similar regulatory frameworks in other regions. It should be noted that the Directive is closely aligned with global standards, such as the International Sustainability Standards Board (ISSB) IFRS S2 for the dissemination of climate information, paving the way for further harmonisation of GHG reporting.
As the world’s largest economy, the United States is facing increasing pressure to establish federal ESG information standards. The Committee on Values and Change has already proposed rules for climate disclosure and harmonisation with the CSDD could speed up the adoption of general environmental management standards at national level. This would further integrate U.S. companies into a global framework for sustainable development.
While the path to compliance may be complex, the long-term benefits of standardizing EG information, including greater transparency, investor confidence and market access, take into account DRDS’ transformation potential. As the timelines are exhausted, U.S. companies need to act quickly to integrate these standards into their business and reporting strategies, setting the conditions for a more sustainable and accountable future.
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