After addressing various sectors' approaches to carbon emission reduction in the previous articles, let us now delve into the proactive steps taken by government organizations to attain a net-zero target by 2050.

Last July 31, 2023, The European Commission activated the European Sustainability Reporting Standards under the Corporate Sustainability Reporting Directive. European Sustainability Reporting Standards (ESRS) were developed by the European Financial Reporting Advisory Group (EFRAG) to guide companies in reporting non-financial and sustainability information. While ESRS is purely voluntary for companies, the EU has set the ESRS as the standard for ESG reporting across all large companies and listed companies under EU as part of the Corporate Sustainability Reporting Directive (CSRD). The goal of CSRD is integrated into the bigger European Green Deal that commits to zero emissions by 2050. With this directive, companies are expected to submit detailed reporting of risks and opportunities on social and environmental issues as well as the impact of their activities on the people and the environment (European Commission, n.d.).

The ESRS includes 12 facets of reporting, as illustrated below. The initial pair of standards categorized as "general standards" encompass broad prerequisites that are universally applicable to all aspects within the CSRD framework, while the remaining standards are subdivided to address environmental, social, and governance issues individually. To date, general disclosures under general standards are mandatory for all companies qualified under CSRD.

Source: PwC “Details of the European Sustainability Reporting Standards”

The ESRS aims to provide investors, consumers, and policymakers with essential information to understand the financial risks and opportunities surfacing from climate change and other sustainability issues among companies where they invest.

So far, the CSRD covers not only EU companies but also those from the US and non-EU headquartered companies in the region. The classification of companies that are included in CSRD is illustrated below:

January 1, 2024, will be the first year of implementation of ESRS adherence with reports due the following year, particularly for EU-based companies, but eventually, other eligible enterprises will follow suit.

How can CSRD become a solution to greenwashing?

As the focus on climate change is increasing, consumers are becoming more concerned with the brands and products they use. Companies take advantage of this by releasing “sustainability” or “carbon-neutral” claims to gain consumers' favor despite minimal efforts to reduce their environmental impact. UN Secretary-General Antonio Guterres has recognized its prevalence and even mentioned at the COP27 climate summit in Sharm el-Sheikh, Egypt, that “we must have zero tolerance for net-zero greenwashing” (World Economic Forum, 2022).

Greenwashing occurs in two main areas – misleading marketing strategies and inaccurate reporting (Sandin, 2022). Companies can imply sustainability by way of nature-like imagery and eco-friendly communication while inaccurate reporting can occur by providing incomplete information or concealing figures. The EU’s reporting standards will allow investors and consumers to have a better discernment of companies that authentically care for the environment and those that are luring people with their false claims. These are some of the solutions that enable the CSRD to prevent greenwashing:

1. Sustainable messaging in marketing promotions can no longer be claimed without a verifiable report that follows a strict framework. A mere change to recyclable packaging or incorporating “green labels” can no longer justify a company’s commitment to sustainability.

2. Transparency through extensive disclosure of environmental, social, and governance topics. CSRD allows the EU and other stakeholders to fully evaluate the authenticity of their sustainability initiatives. Despite the absence of financial audits, it will still be scrutinized by an external agency.

3. The CSRD can serve as a guide for companies seeking sustainability. The ESRS also upholds a “double materiality” perspective, which mandates companies to provide reports on both their effects on the people and the environment and on how social and environmental matters give rise to financial risks and opportunities for the company (Smith, 2023). By reviewing these reports, non-EU incorporated companies can also improve their corporate sustainability plans and avoid implementing "notions" of sustainability.

In light of the mandatory submission of substantial reports as part of the CSRD, companies must now prepare extensively, particularly those not based in the EU. Becoming familiar with CSRD regulations is the first step to better understanding the critical information and documents to collate. Hiring a legal expert will also be beneficial to determining if your company is covered under CSRD. The second is to subscribe to ESG risk assessment software to calculate scope 1, 2, and 3 carbon emissions and analyze risk factors that the company may have regarding social, governmental, and environmental impact for accurate reporting.

In conclusion, the EU's Corporate Sustainability Reporting Directive represents a significant milestone in the battle against greenwashing and the overall goal of zero emissions by 2050. By setting rigorous standards for corporate transparency and accountability, it empowers investors, consumers, and stakeholders to make informed decisions and hold companies accountable for their environmental and social practices. We can expect a more robust framework that offers a view of genuine environmental and social progress in the coming years. However, for now, we must ensure that all stakeholders commit to this directive so that it may ultimately fulfill its promise and deliver a greener and more sustainable future.