Auditors are stepping into uncharted territory. The demand for reliable, transparent, and verifiable ESG data is rising fast, and the rules are shifting just as quickly. Unlike financial reporting, ESG disclosures do not benefit from a century of systems, frameworks, and precedent. Yet the expectations for accuracy, quality, and audit readiness remain just as high. In short, the audit profession must sprint before it can walk.

This article sheds light on the path ahead. Through conversations with sustainability experts, regulatory insights, and real world experiences from the field, we examine the current landscape of ESG reporting, from the growing regulatory pressure to the changing role of the auditor, and from technological breakthroughs to practical lessons learned.

With special thanks to Nart Wielaard, Mujtaba Rai, Patrick de Veer, Maria Bautista, Wim Bartels, Riccardo Altenburg, and Daan Smulders for their invaluable contributions in helping us light the paths to understanding ESG.

Introduction

The pressure is on.  

Regulators now demand reliable information on environmental, social, and governance (ESG) performance. Consequently, organizations—and the auditors evaluating them—must enter a completely new domain to compile this information. And it’s far from easy. Keep in mind, it took more than a century to develop the mature frameworks and systems we use for financial reporting today. In stark contrast, timelines for obtaining reliable ESG data are incredibly compressed.
 Auditors are now tasked with creating effective methods to assess and validate— i.e., audit—this information, ensuring it meets new standards and regulations. Thus, the journey to building a similar level of maturity in ESG reporting is taking place in a pressure cooker.  

The stakes are high.

ESG reporting matters—not just because of strict regulations, but also due to self-interest. Companies with solid ESG data are better positioned to make informed decisions that futureproof their business models. More and more, ESG is becoming a genuine differentiator for investors and commercial propositions.  

The challenges are plentiful.  

Companies must gather and process data from a variety of sources, and unlike financial reporting, there is no standardized infrastructure for this type of information—at least not yet. ESG reporting often involves cross departmental collaboration, but not every department is equipped to enforce strong controls over the information. The absence of standardization in ESG methodologies, coupled with evolving regulations still in development, adds further complexity for auditors trying to ensure data integrity and consistency across an organization. In this whitepaper, we explore the common challenges auditors face in ESG reporting, drawing from a series of expert interviews and our own research. While we can’t promise a foolproof recipe for success, we can and will try our best to guide you, potentially helping you towards solving a crucial piece of the puzzle.

“What gets measured gets managed”

Peter Drucker  

Though more than half a century old, this reasoning still holds true—having the right metrics is crucial to achieving success.

Why ESG Reporting is Crucial  

Environmental, Social, and Governance (ESG) reporting has evolved from a niche interest to a fundamental aspect of corporate strategy, and a critical area of focus for auditors and investors alike.

ESG covers a broad range of criteria:  

• Environmental: A company's impact on the planet, focusing on issues like carbon emissions, resource usage, waste management, and climate change policies.

• Social: How companies manage relationships with employees, suppliers, customers, and communities. Key topics include labor practices, diversity and inclusion, human rights, as well as community engagement.

• Governance: Practices, controls, and procedures a company adopts to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders. This includes board composition, executive compensation, and shareholder rights.

ESG reports should paint a transparent and coherent picture of these core elements. Transparency is crucial for auditors to verify the accuracy and reliability of the data, enabling those using the report to fully grasp a company's long-term value, environmental footprint, and commitment to sustainability.

Investor Demands and Societal Impact

Firstly, investors-from large asset managers like BlackRock to smaller individual investors-are increasingly seeking ESG data to inform their decisions. They recognize that companies with robust ESG practices tend to demonstrate better risk management and financial performance, an area where auditors play a vital role.

Reliable ESG data i.e. ESG data verified by auditors, serves societal interests by promoting corporate accountability, improving societal well-being, and supporting a more sustainable future. ESG reporting is a crucial tool for investors to evaluate a company's ethical practices and risk exposure, shaping their investment decisions.

Commercial Differentiator

Secondly, ESG performance is a differentiator in commercial propositions, for instance in the clothing industry. Customers-from individual consumers to large enterprises and governments-are increasingly choosing to buy from companies with strong ESG performance. In some markets, a robust ESG strategy is now a prerequisite for doing business. This trend isn't confined to larger corporations; smaller businesses are also feeling the ripple effect.

Larger corporations that adopt ESG practices will need to collaborate with their vendors I many of whom are small and medium-sized businesses (SMBs). While large and listed companies in the EU are subject to mandatory ESG reporting, SMBs generally face fewer regulatory obligations. However, if these SMBs delay adopting ESG practices, they risk losing key customers who demand

compliance with ESG standards. Moreover, as ESG becomes more embedded in global supply chains, SMBs will increasingly need to align with these practices to stay competitive.

On one hand, this increases pressure and costs for SMBs; on the other hand, it offers them access to more resources and opportunities to capitalize on ESG initiatives allowing them to differentiate themselves from competitors early on.

Investing in ESG and the associated reporting processes is a necessity for futureproof business models. Experts anticipate that ESG reporting will soon become a standard business practice.

How Regulators Raise the Bar on ESG Reporting  

In recent years, many frontrunners—primarily larger listed companies such as Philips and Unilever—have opted for voluntary reports on ESG performance. They have integrated ESG factors into traditional financial reporting to generate a more holistic view of a company's performance, including its sustainability efforts

In addition to environmental concerns, there is increasing emphasis on social and governance issues. Diversity and inclusion, labor practices, human rights, and ethical governance are now central components of ESG reporting.

However, with the introduction of numerous reporting regulations in recent years, ESG reporting is now an obligation for many organizations. The first phase of implementation focuses on larger entities, known as Public Interest Entities (PIEs). By the end of 2025, a broader range of organizations will be subject to these requirements. While voluntary ESG reporting was largely about "telling a story", regulators now demand solid metrics and verifiable data. As a result, companies will need to ensure their ESG reports are both accurate and audit ready.

The Corporate Sustainability Reporting Directive (CSRD}[JO4] is the centerpiece of legislation in this domain. It is a pivotal piece of legislation in the European Union that aims to enhance and standardize sustainability reporting across companies.

Whereas in the United States, while there isn't a direct equivalent, the SEC's proposed climate-related disclosure rules are an important step toward more rigorous ESG reporting, focusing on climate-related risks and greenhouse gas emissions.

It builds upon and significantly broadens the scope of the Non-Financial Reporting Directive (NFRD), which previously regulated ESG disclosures.

"Rushing data collection for CSRD deadlines without clear definitions risks inconsistent interpretations and unreliable information. Even simple terms need careful, shared definitions to ensure data integrity."

Maria Bautista GLOBAL HEAD OF INTERNAL CONTROL, PHILIPS

Key Aspects of CSRD

Broadened Scope. Unlike the Non-Financial Reporting Directive (NFRD), which applied mainly to large public-interest entities with over 500 employees, the CSRD expands its applicability to include all large companies and listed companies, excluding micro-enterprises. For auditors, this means a significantly larger pool of companies will require verification of their sustainability reports, creating new responsibilities and challenges-but also opportunities.

Detailed Reporting. Requirements the CSRD mandates more detailed reporting on sustainability issues, covering not only environmental factors but also social and governance aspects. Companies must provide thorough information on how these factors affect their business and how their operations impact people and the environment. Auditors will need to stay up to date with these new guidelines to ensure reports comply with the required standards.

Standardized Reporting Framework. To ensure consistency and comparability, the CSRD introduced European Sustainability Reporting Standards (ESRS). These standards are developed by the European Financial Reporting Advisory Group (EFRAG) and provide detailed guidelines on the information companies must disclose.

Digitalization and Assurance. The CSRD mandates that companies publish their sustainability reports in a digital, machine-readable format, promoting transparency and accessibility. Furthermore, it introduces mandatory assurance of the reported information by an accredited independent auditor, boosting the credibility of the disclosures. This mandate elevates the role of auditors, making them essential in verifying digital ESG reports and ensuring compliance with the new standards.

Double Materiality. Companies must report on both how sustainability issues affect their business (financial materiality) and how their business impacts society and the environment (environmental and social materiality). This dual focus ensures a comprehensive view of sustainability performance.

"CSRD once more calls for a good dialogue with the auditor. One should be aware that the regime of limited assurance does not mean that companies can lower the standards for the information quality for now and invest in this quality later when reasonable assurance is required. In both cases, quality and reliability of the information must be in order."

Wim Bartels EUROPEAN SUSTAINABILITY SENIOR PARTNER

Other legislative frameworks

Over the past few decades, the landscape of ESG reporting has evolved significantly, driven by the emergence of various legislative frameworks and global standards. Governments and regulatory bodies are increasingly mandating ESG disclosures, signaling a shift away from voluntary reporting.

In addition to the aforementioned CSRD, some key legislative frameworks include:

• Global Reporting Initiative (GRI). One of the most widely adopted standards, the Global Reporting Initiative (GRI) offers comprehensive guidelines for reporting on various ESG aspects. It emphasizes transparency and accountability, enabling organizations effectively communicate their sustainability performance.  

• Sustainability Accounting Standards Board (SASB). SASB standards focus on industry-specific ESG issues that are financially material. They provide a clear framework for disclosing information that may affect a company’s financial performance.  

• Task Force on Climate-related Financial Disclosures (TCFD). The Task Force on Climate-related Financial Disclosures (TCFD) provides recommendations for disclosing climate-related financial risks and opportunities. Its framework is structured around governance, strategy, risk management, and metrics and targets.  

• European Union’s Non-Financial Reporting Directive (NFRD). This directive requires large public-interest companies in the EU to disclose information on how they manage social and environmental challenges. It aims to enhance transparency and promote sustainable business practices.  

• Sustainable Finance Disclosure Regulation (SFDR). Also an EU regulation, the SFDR mandates financial market participants to disclose how they integrate ESG factors into their investment decisions

These legislative frameworks are continually evolving, driven by the need to address emerging sustainability challenges and enhance the robustness of ESG reporting. As part of this evolution, ESG reporting focuses on three critical dimensions:

About Double Materiality

This directive requires large public-interest companies in the EU to disclose information on how they address social and environmental challenges. It aims to enhance transparency and encourage sustainable business practices.  

Inside-Out Impact

This focuses on how a company’s activities impact the environment and society. It covers the social and environmental consequences of a company’s operations, products, and services. Examples include carbon emissions, waste production, labor practices, and community relations. Companies are required to disclose information on elements such as their environmental footprint, social impact, and governance practices to demonstrate their responsibility and accountability toward broader societal goals.  

Outside-In Impact

This focuses on how environmental, social, and governance factors affect a company’s financial performance. It includes both the risks and opportunities that ESG factors pose to the company’s business. Examples include regulatory changes, climate risks affecting supply chains, and shifts in consumer preferences toward sustainable products. Companies are required to report on how external ESG factors influence their financial health, offering investors and stakeholders relevant information to assess potential risks and opportunities.

The Real Challenge of ESG Reporting

While the benefits of ESG reporting are widely recognized and supported by many in the corporate sector, its implementation is no easy task. Based on our research and interviews, the challenges include (but are not limited to) the following areas:

Standardization vs. Flexibility

On one hand, standardization ensures comparability and consistency in reporting. While on the other hand, there is a need for flexibility to account for industry-specific and regional differences. Striking a balance between these aspects remains a challenge in the current framework landscape.

Some experts argue that the multitude of regulatory frameworks threatens the primary goal of providing holistic insights. Regulators are aware of this much-debated issue, and the release of the new ISSB (International Sustainability Standards Board) standards is a step toward creating a common language and promoting consolidation. However, at present, full standardization remains a distant prospect.

This issue also includes the proliferation of ESG rating agencies and methodologies, which has caused inconsistencies

in how companies are assessed. Differing criteria and weightings can result in varied ratings for the same company, creating confusion among investors.

'Rushing data collection for CSRD deadlines without clear definitions risks inconsistent interpretations and unreliable information. Even simple terms need careful, shared definitions to ensure data integrity.'

Maria Bautista, GLOBAL HEAD OF INTERNAL CONTROL AT PHILIPS

Materiality

Determining which ESG issues are material to a company's financial performance and sustainability is a complex task that requires careful audit consideration. The concept of double materiality varies across frameworks, sparking debates over what should and should not be included in ESG reports.

Auditors must ensure reports align with these varied standards. Balancing the diverse and sometimes conflicting interests of various stakeholders can be challenging. To complicate matters further, measuring the actual impact of ESG initiatives is difficult in certain areas. While many companies already report on their activities and policies, quantifying the real-world effects of these efforts on the environment and society remains an area of ongoing debate and development. As of now, clear working definitions of materiality are lacking.

Greenwashing

As ESG reporting gains prominence, there is a risk of companies engaging in greenwashing misrepresenting or exaggerating their ESG efforts. For auditors, ensuring the credibility and authenticity of ESG reports is critical to addressing the significant concerns of stakeholders.

Overall, the CSRD aims to drive sustainability by improving transparency and accountability, helping investors, consumers, and stakeholders make informed decisions based on standardized and reliable ESG information. Auditors play a key role in preventing greenwashing, as an environment rife with greenwashing undermines this objective and hinders progress toward meaningful sustainability goals.

Data Collection

Many organizations struggle with the complexity and cost of collecting, verifying, and reporting ESG data. Accuracy and consistency in these reports is crucial, with regulations often demanding a level of control and management comparable to that required for financial and non-financial disclosures.

Currently, many companies are not fully equipped to meet these demands or can only manage a limited set of data. Additionally, the need for independent assurance means that businesses must raise their standards for the accuracy and reliability of their ESG data.

Businesses must navigate a complex landscape. Perhaps most importantly, they should not focus solely on compliance with reporting obligations but should start with the "why."

ESG reporting serves as a strategic instrument to enhance a company's reputation and attract investment, while also contributing to a more sustainable future. Auditors can help verify that these efforts are both genuine and impactful, assuring their clients they remain competitive and resilient in an ever-changing market.

Businesses need to commit to authentic, transparent, and comprehensive ESG practices, integrating them into their core strategies rather than treating them as a checkbox exercise.

The Evolving Role of the Auditor

Stakeholders, including investors, customers, employees, and communities, rely on CSR reports to make informed decisions. The CSRD, therefore, specifies that ESG reports must be audited by a third-party provider. This can include traditional audit firms (mandatory in the Netherlands) as well as specialized sustainability assurance providers.

The assurance comes in two "flavors":

Limited Assurance provides a moderate level of assurance. The auditor or assurance provider conducts a review to determine whether anything has come to their attention that causes them to believe the information is not prepared, in all material respects, in accordance with the applicable criteria. The review primarily involves inquiries and analytical procedures, and the conclusion is typically phrased in terms of negative assurance, such as, "nothing has come to our attention that causes us to believe...".  

Reasonable Assurance provides a much higher level of assurance. The auditor or assurance provider performs a comprehensive set of procedures—taking a deep dive into various systems that contain the data—to conclude whether the sustainability information is free from material misstatement. The auditor's work is broader and more detailed, including more extensive testing and verification of data. The conclusion is expressed in positive terms, such as, "in our opinion, the information is prepared, in all material respects, in accordance with..." For financial reporting, auditors typically provide this level of assurance.

Under the CSRD, limited assurance is currently the minimum requirement for most sustainability disclosures. Over time, as companies and assurance providers build more experience and capability, the CSRD envisions a transition toward reasonable assurance for more aspects of sustainability reporting. An evaluation will take place to decide on this transition. One thing is certain, however: auditors face the daunting task of auditing ESG reports without a playbook, using approaches where traditional audit methodologies fall short. It may call for some creativity. An inspiring example can be found back in 2009. The Port of Rotterdam published an integrated report to give stakeholders insight into financial performance and sustainability. The report was signed off with one audit opinion, signed by two auditors.

“Start with the why of ESG. This is especially true in the SMB segment. Many entrepreneurs in this segment will not be motivated by the stick of regulations but will be willing to invest in smaller or bigger initiatives if the why – the commercial and strategic motives – are crystal clear.'”

Patrick de Veer Founder Greenaumator

How Technology Can Help  

Currently, companies lack mature data infrastructure for ESG data. The vast number of data points—often exceeding a thousand—are scattered, incomplete, and not standardized. Many companies still attempt to manage this information using spreadsheet solutions, which is unsustainable

Technology can be a powerful enabler to drive change in this respect. Advanced data analytics, blockchain, and artificial intelligence can simplify data collection, enhance accuracy, and ensure transparency.

"Workaround solutions (such as spreadsheets) are to be avoided for generating ESG information. It may be a solution in the short term but will probably turn out to be disappointing in the longer run. One reason for this is that the bar for assurance by third parties will be raised throughout time. Workarounds will probably be insufficient to live up to the quality expectations at that point. This will then be a clear case of penny-wise pound foolish."

Daan Smulders PARTNER TECHNOLOGY RISK EV

Automated systems can track and report ESG metrics in (near) real-time, reducing the burden on organizations and minimizing human error. Blockchain technology can create immutable records of ESG activities, boosting trust and accountability within the supply chain. Additionally, Al can analyze vast datasets to identify trends, predict risks, and provide actionable insights, enabling companies to continuously enhance their ESG performance.

At the time of writing, ERP system vendors are preparing their systems to better support the generation of specific ESG information.

Concurrently, a range of niche products are emerging in the market, offering services such as consolidating information from various group companies, providing specialized data like satellite imagery, and utilizing Al-driven tools to extract data from systems and PDFs, centralizing the results. That being said, the technology landscape is still far from mature.

How DataSnipper Simplifies ESG Audits

DataSnipper is an intelligent automation platform in Excel that boosts the efficiency, accuracy, and reliability of ESG reporting and audits. As corporate focus on sustainability grows, DataSnipper provides a comprehensive solution for extracting, validating, and analyzing ESG data.  

Automated Data Extraction from Sustainability Reports  

Organizations often publish sustainability reports with key ESG data like greenhouse gas emissions and energy consumption, but manually extracting this information can be time-consuming and error prone. DataSnipper embeds these reports into Excel and uses OCR technology to extract data, eliminating manual entry and ensuring accurate, efficient capture of ESG metrics such as greenhouse gas emissions, energy consumption, waste management data, and more

Streamlined Cross Referencing and Validation of ESG Data  

When auditing ESG, verifying the accuracy and completeness of the reported data against source documents is an essential but often challenging and time-consuming task. DataSnipper simplifies and expedites this with its cross-referencing feature, enabling auditors to link data points in Excel to the corresponding information in embedded documents.

For example, in governance and economics, DataSnipper enables auditors to embed key documents such as financial statements board meeting minutes, governance reports, and more directly into Excel. This empowers auditors to efficiently cross-reference reported data with the specific details contained in these embedded documents.

For instance, auditors can verify the accuracy of reported revenue figures by comparing them with financial statements or sales records, validate a company's reported board diversity metrics by cross-referencing director profiles and meeting minutes, and ensure that disclosed policy influence activities align with the company's stated policies.

In the social dimension, key documents DataSnipper can help with include program documentation, employee feedback surveys, training attendance records, employment contracts, payroll records, and more.

Automating Materiality Analysis Determining material ESG issues is crucial for effective ESG reporting and audits, but it is often a complex and subjective process. DataSnipper assists in automating materiality analysis by extracting relevant data from sustainability reports, industry specific guidelines, and stakeholder engagement documents.

By consolidating this information in Excel, DataSnipper enables auditors to assess and compare material ESG issues across different sources. This automation simplifies the materiality analysis process, enhances consistency, and allows auditors to focus on analyzing results and identifying key sustainability priorities.

In the environmental space, the same embedding and cross-referencing can be done with key documents such as renewable energy contracts, waste management reports, energy consumption records, emission reduction targets, and more.

In the social dimension, key documents DataSnipper can help with include program documentation, employee feedback surveys, training attendance records, employment contracts, payroll records, and more.  

Automating Materiality Analysis

Determining material ESG issues is crucial for effective ESG reporting and audits, but it is often a complex and subjective process. DataSnipper assists in automating materiality analysis by extracting relevant data from sustainability reports, industry specific guidelines, and stakeholder engagement documents. By consolidating this information in Excel, DataSnipper enables auditors to assess and compare material ESG issues across different sources. This automation simplifies the materiality analysis process, enhances consistency, and allows auditors to focus on analyzing results and identifying key sustainability priorities.
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Five Practical Takeaways

As stated earlier, there is no single recipe for success. However, we can offer some guidance on how to approach this challenge with confidence

1. ESG reporting starts with the why, not with compliance

Yes, while a stick is effective, the carrot is more important. Keeping an eye on the overarching objectives of laws and regulations is crucial. These laws are designed to promote a sustainable future by improving insights into sustainable performance. In turn, this allows customers and investors to make more informed and sustainable decisions.

This overarching objective should be central to all efforts to improve ESG reporting, rather than merely ticking the box of detailed requirements. In fact, it would be more accurate to speak of ESG insights rather than ESG reporting; language matters. Authenticity in these insights is crucial. Genuine efforts in sustainability and governance will resonate with stakeholders, while superficial reporting will have the opposite effect.

The common perception in the market is that the CSRD imposes very stringent requirements on how to report various topics. However, the

opposite is true. There is considerable flexibility to align external reporting and the associated definitions with the information used internally for management purposes.

Regulators have adopted this approach to ensure that external reporting is a separate exercise but an integral part of executing the ESG strategy. In fact, the CSRD encourages companies to implement information processes that support the entire cycle of planning, measuring, and managing sustainability goals.

Companies must generate information that adds value to decision-making for their ESG strategy, rather than just meeting compliance requirements. Our advice is simple: start with "why". This is especially true in the SMB segment, where many entrepreneurs may not be driven solely by regulatory pressures but will be more inclined to invest in initiatives-whether small or large-if the "why," or the commercial and strategic motives, is crystal clear.

"Start with the why of ESG. This is especially true in the SMB segment. Many entrepreneurs in this segment will not be motivated by the stick of regulations but will be willing to invest in smaller or bigger initiatives if the why - the commercial and strategic motives - are crystal clear."

Patrick de Veer FOUNDER GREENAUMATOR

2. Obtain clarity and awareness on responsibilities

Who is responsible? The ESG information spectrum is broad. Much of the data has a cross departmental nature, extending far beyond the traditional scope of finance and control, which makes it harder to ensure the reliability of the data. Traditionally, finance professionals have focused strongly on control, guided by legislative frameworks from the recent past, such as SOX.

In contrast, professionals in other domains, such as commercial departments or human resources, do not have the same tradition or experience in establishing an audit trail that clearly demonstrates how information is generated and controlled. This is why it's vital to clarify responsibilities for the data and raise awareness of the need for reliable data across the company.

Defining these responsibilities is part of data governance, a critical step that should be addressed before establishing new infrastructures and systems. It's essential that these efforts align with the requirements of ESRS (European Sustainability Reporting Standards); only a

structured and systematic process for gathering the right data will enable companies to meet ESRS standards.

"Finance has a strong tradition and experience in establishing an audit trail that clearly shows how information is generated and controlled. But other departments do not have that heritage. This is why it is vital to be clear about responsibilities for the data and to raise awareness of the need for reliable data throughout large parts of the company. Defining these responsibilities is part of Data Governance, which is a key step that should be addressed before defining new infrastructures and systems."

Riccardo Altenburg DIRECTOR DIGITAL TRANSFORMATION ESG TECH KPMG

3. Aim for shared and unequivocal definitions of data

Define first, collect data later. It's always tempting to start with rapid data collection to meet the tight timelines of the CSRD. However, this approach can lead to disappointment, resulting in a mishmash of interpretations and information of limited value. Even definitions that seem straightforward at first glance require careful consideration and a shared understanding.

For example, the CSRD requires companies to report on the percentage of women in management roles. While defining "woman" may seem straightforward, defining "management" is more complex.

In practice, there will be numerous interpretations of what constitutes a management role. Similar challenges will arise for many of the potentially

hundreds of data points. Another example is the definition of a Full-Time Equivalent (FTE), where weekly working hours vary across Europe and may not even be strictly defined.

Therefore, it is crucial to start with a thorough analysis of definitions. This is important not only within organizations but also across sectors and supply chains. In an ideal scenario, a common understanding of these definitions would allow companies to create data hubs for seamless data collection throughout the supply chain, fostering consistency in reporting.

While some global initiatives are working towards these "macro definitions," this ideal scenario remains a distant reality.

4. Map the need for systems and tools

Minding the gaps in your capabilities. The hard work of preparing for ESG reporting involves mapping the data flow and analyzing how current systems and tools support the collection, calculation, enrichment, and reporting of data. Based on our discussions with experts, we've identified the following:

Firstly, there is no single application or platform that can manage all aspects of ESG reporting for you, despite the vast array of niche and impressive products available.

Secondly, many organizations have more capabilities than they realize, not only within their current ERP systems but also in other applications. Existing solutions, such as those used for financial reporting, are often well suited for collecting and consolidating ESG data. In fact, most of the required functionality is typically already present in these systems. The real challenge is often not generating or storing data, but obtaining a proper audit trail and enriching the data, and this may require specialized platforms.

Thirdly, it's generally unwise to rely on workaround solutions, such as spreadsheets. While these may seem like a quick fix, they are likely to disappoint in the long run.

One reason is that the standards for third-party assurance will likely become more stringent over time. Workarounds are expected to fall short of meeting these evolving quality expectations.

Finally, a well-thought-out data architecture can provide a solid foundation for the future. One example from our interviews featured an infrastructure built on three pillars -data source, data warehouse, and data reporting-with a stringent 'toll gate' at the data warehouse. If data quality is in question, the CFO can deny access until the data professionals responsible for the source address the issues.

All in all, defining data flows and capabilities is a daunting yet necessary task. It requires examining both systems and specific requirements. Conducting this analysis thoroughly will result in a gap analysis that identifies where action is needed.

"Workaround solutions (such as spreadsheets) are to be avoided for generating ESG information. It may be a solution in the short term but will probably turn out to be disappointing in the longer run. One reason for this is that the bar for assurance by third parties will be raised throughout time. Workarounds will probably be insufficient to live up to the quality expectations at that point. This will then be a clear case of penny-wise pound foolish."

Daan Smulders PARTNER TECHNOLOGY RISK EV

5. Invest in dialogue between company and auditor

The mantra should be "No surprises." Currently, the infrastructure for ESG information is often inadequate to support audit evidence. This inadequacy arises not only because the information may be unreliable and incomplete, but also due to the lack of a consistent audit trail to document controls. Additionally, the control mindset is often insufficient in various parts of the organization, particularly outside the financial domain.

On top of this, the definition of materiality largely remains uncharted territory. Financial materiality can be expressed in formulas, but the double materiality defined in the CSRD is far less linear and objective. A timely and transparent dialogue between auditors and companies will therefore be essential. It's crucial to align expectations and efforts to improve the information infrastructure. Plus, it's important to understand what it actually means to achieve the expected level of reasonable assurance in the coming years.

Experts warn of a common misperception in this domain. Many auditors (and their clients) believe that the limited assurance permits companies to temporarily relax their information quality standards and address improvements later. This reasoning is flawed.

The transition from limited assurance to reasonable assurance requires a different approach by the auditor. However, in both cases, the quality and reliability of the information must be satisfactory.

Experts expect that many organizations may not receive unqualified, "clean" opinions from their auditors. However, not receiving an unqualified opinion is not always detrimental. The worst-case scenario is receiving such news as a surprise.

'CSRD once more calls for a good dialogue with the auditor. One should be aware that the regime of limited assurance does not mean that companies can lower the standards for the information quality for now and invest in this quality later when reasonable assurance is required. In both cases, quality and reliability of the information must be in order.'

Wim Bartels EUROPEAN SUSTAINABILITY SENIOR PARTNER

Final thoughts...

ESG reporting is a daunting challenge. The stakes are high, the requirements are still evolving, and the implementation is complex. There are no surefire recipes for success on this journey, and perfection is likely unachievable— it will be a process of iterative learning.

However, this shouldn’t deter you from preparing for the road ahead. As the saying goes, "Fail to prepare, prepare to fail." We hope this whitepaper has provided enlightening insights as you embark on your ESG reporting journey.  

And as you prepare, there’s one platform that makes the road ahead much clearer...

Transform Your ESG Audits with DataSnipper  

DataSnipper transforms ESG audits from complex and time-consuming into seamless, precise workflows. With automated data extraction, streamlined validation, and advanced materiality analysis, you can revolutionize your ESG reporting and elevate your audit process. Discover how DataSnipper can transform your approach to ESG by booking a demo of our AI-driven platform.

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