With the ongoing CSRD simplification process (Omnibus) Europe has a unique opportunity to make sure that the objectives of CSRD can be achieved.

The Corporate Sustainability Reporting Directive (CSRD) represents a remarkable step forward in enhancing transparency and accountability across European companies. By requiring the audit and verification of sustainability reports, the European Union is paving the way for more transparent and comparable sustainability disclosures.

However, the current implementation of this directive presents challenges that bring unnecessary complexities and burden for companies which are asked to report. A diverse, competitive, and high-quality market for non-financial audits is key to keep the directive’s implementation affordable and cost-effective for companies.

Building a Truly Open Market for Sustainability Assurance

Historically, Europe’s financial audit market has been concentrated among a small group of firms, ? commonly known as?the Big Four. The CSRD was designed to promote competition in sustainability assurance by allowing a broader range of qualified actors, notably the accredited Independent Assurance Service Providers (IASPs), to verify the reports.

Yet, only a quarter of Member States have authorized these independent providers to offer their services, creating a?de facto?fragmented and concentrated market for financial auditors. Fully opening the market to IASPs will not only align with the CSRD’s initial intent but also bring tangible benefits to European businesses and sustainability efforts.

Why a Competitive Market Matters

1. Affordable and Accessible Verification: Encouraging competition will make sustainability audits more affordable, especially for smaller companies. A wider choice of providers ensures timely access to verification services, enabling businesses of all sizes to meet reporting obligations without undue strain and without undermining their competitiveness.
2. Benefitting from a Diverse Expertise pool: Sustainability reporting cannot be approached in the same way as financial reporting. Materiality assessments encompass complex environmental, social, and governance (ESG) factors that require specific knowledge and experience in sustainability brought in by IASPs. Besides, the double materiality assessment under ESRS need to be based only on the material topics of the companies, not on a complete analysis of all data points of ESRS. IASPs focus only on the specific materiality, avoiding a burdensome data collection exercise and extra resources for companies to comply.
3. Ensuring Independence and Quality: A clear separation between financial and non-financial audit providers prevents potential conflicts of interest. Allowing IASPs to play a greater role fosters impartiality and strengthens the credibility of sustainability disclosures.

Recommendations for Meaningful Reform

To uphold the spirit of the CSRD and build a well-functioning assurance market, decisive action is essential. Independent assurance service providers, represented by TIC Council, call on the European Commission to capitalize on the momentum of the ongoing CSRD simplification process to foster greater competitiveness in the market. The omnibus proposal presents a timely and crucial opportunity to address current challenges and implement reforms that will foster a transparent, competitive, and effective sustainability assurance landscape across Europe.

We recommend the following measures:

• Mandatory Authorization of IASPs:?All EU Member States should authorize accredited IASPs to conduct sustainability assurance services. This will enhance competition, create a harmonized market and provide companies with a broader range of qualified verifiers.
• Safeguarding Independence:?To preserve audit integrity, the same firm should not be allowed to conduct both financial and sustainability audits for the same company.
• Recognizing Specialized Expertise:?Sustainability audits should be performed by providers with proven knowledge of ESG matters, ensuring meaningful and material-focused assessments.

Looking Ahead

Europe has a unique opportunity to make sure that the objectives of CSRD can be achieved, by keeping the competitiveness that are mandated to report. By embracing these recommendations, the EU can support businesses in their sustainability journeys while ensuring high-quality reporting for all stakeholders.

We urge the European and national policymakers to act decisively, aligning the CSRD’s implementation with its original goals and ensuring a fair and open market that benefits both companies and the wider community.

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