Conal Kennedy writes: Sustainability is probably the most important issue of our times. However, when it comes to sustainability reporting, your first questions may well be how and when does this affect you, your firm and your clients? The short answer is that sustainability reporting will directly affect a large proportion of members in practice, and sooner than they may think. The Corporate Sustainability Reporting Directive (CSRD) has been passed by the European Union and it is in the process of being transposed into Irish legislation. It applies to a number of categories of entities, but of most immediate interest to readers of Practice Matters may be its application to large private Republic of Ireland registered companies, as defined by the Companies Act. Amongst a number of requirements, these must provide detailed information in electronic format in their annual management reports under CSRD for years commencing 1 January 2025 and thereafter. Furthermore, these companies will need to obtain independent assurance that the information is presented in compliance with the Directive. This assurance, which initially will be at the level of limited assurance, will be given and reported on only by properly authorised individuals and firms.
A very large proportion of practices have at least one large company client. The impact of inflation in recent years has brought many more companies into the large category, and the future impacts on balance sheets of the proposed changes to lease accounting under FRS 102 will bring in some more marginal cases. These clients may well engage your firm for assistance with reporting under CSRD or the provision of assurance. This will mean applying the European Sustainability Reporting Standards (ESRS), and reporting on their application. These standards are currently published in draft, and are available at this link. As can be seen, the standards are substantial and detailed, and obtaining a working knowledge of them will require a large commitment of time and resources. Assurance standards will also be published in due course. Even if a firm has no large Republic of Ireland company clients, the firms may need to assist clients with the provision of “upstream and downstream” reporting of sustainability information to customer or supplier entities with broader reporting obligations under CSRD.
You should determine what level of knowledge you need to obtain regarding sustainability reporting and assurance. I would suggest the following broad categorisation for the purposes of this article:
Level 1 – This applies to firms who have no large Republic of Ireland company clients. Knowledge of upstream and downstream reporting requirements sufficient to assist clients to provide this information.
Level 2 – Firms with large company clients. A general understanding of the reporting and assurance requirements, reporting dates, size limits as applicable to these clients.
Level 3 – A level of knowledge sufficient to assist a large company to report correctly under CSRD. This will mean obtaining a detailed knowledge of the CSRD, the transposing legislation, and the final versions of the ESRSs.
Level 4 – The knowledge set out at level 3 above, together with the knowledge, training and authorisation to provide assurance on sustainability reporting. Individuals who are statutory auditors (responsible individuals) on 1 January 2024 or are undergoing the approval process at that time and are approved before 1 January 2026 will be eligible to be grandfathered as assurance providers. Grandfathered sustainability assurance providers will be required to undertake sufficient and appropriate CPD to demonstrate competence. Once the grandfathering window has closed, subsequent applicants will need to follow a set procedure, which will include obtaining sufficient relevant training and practical experience and passing an examination.
If your firm has one or more clients who are large companies likely to be affected by CSRD, some of the courses of action open to firms could be set out as follows:
- Key partners and staff within the firm will obtain the knowledge to provide assistance to relevant clients.
- One or more partners within the firm may obtain authorisation to provide independent assurance to relevant clients.
- The firm may recruit staff or partners who have a knowledge of sustainability reporting and assurance in order to provide these services.
- The firm may decide that it will not provide services related to sustainability reporting, and engages with its large company clients to determine how their needs will be met.
- The firm may decide that the needs of its large company clients are best served by others who are in a position to provide a full range of financial and sustainability reporting services, and engages with the clients to ensure a smooth transition to new service providers.
All of the above courses of action require informed decisions, planning and implementation. A key consideration is the future availability of trained and suitably qualified people to provide sustainability related services. Many firms will see the potential to provide these services to their clients and will make their plans accordingly. Other firms are currently having difficulty in resourcing their current range of services, and this will influence their current and future courses of action. Firms in Northern Ireland, many of whom are registered as Republic of Ireland auditors, may be interested in providing sustainability reporting assistance services and assurance to Republic of Ireland companies.
The acquisition of knowledge and training is essential to all firms to enable them to make effective decisions and to provide services to their clients as needed. The Institute is committed to supporting its members though its Technical, CPD and Specialist Qualification offerings. We have had a strong uptake of the Certificate in Sustainability Strategy, Risk and Reporting which first ran in 2022 and is continuing. We expect to launch a Sustainability Reporting Qualification with an assurance aspect in due course. Have a look also at our Sustainability Centre and look out also for our upcoming Sustainability Reporting Hub, which will be supplemented by a selection of Q&As to answer your key concerns. In Practice Consulting, we will ensure that you obtain the supports and toolkits that you need as practitioners.
I have concentrated in this article on large private companies. Other entities affected include entities already subject to the Non-Financial Reporting Directive, Public Interest Entity SMEs, and ultimately small and medium sized companies which have a further three years to comply. These have different requirements and timelines, with which you should familiarise yourself if relevant.
The important point is that this is an issue that cannot be ignored. If you have already put plans in place, I hope that this article was helpful to you. If your firm is affected by the issues dealt with in this article, and you have not started the planning process, then the message I have is that the Sustainability Reporting train has already left the station. Don’t underestimate the scale of this project and the benefits to be obtained from timely actions.
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