In 2024, the European Union made notable progress in strengthening its sustainability reporting framework, with particular focus on the Corporate Sustainability Reporting Directive (CSRD). This year has brought increased clarity on CSRD requirements for businesses and auditors, emphasizing non-financial risk disclosures, materiality assessments, and the scope of reporting. However, several ambiguities remain, particularly in how businesses should manage and report ESG data. This article delves into key updates for 2024, including developments in the EU Taxonomy, the deforestation regulation delay, and the European Sustainability Reporting Standards (ESRS). It also explores global sustainability reporting trends, focusing on the evolving landscape in key regions such as the US, Canada, and beyond. Additionally, we reflect on the key outcomes from COP29, highlighting global climate finance goals and other significant achievements and challenges.

Key Developments in EU Sustainability Reporting

In 2024, the European Union made significant strides in enhancing its sustainability reporting framework, with the Corporate Sustainability Reporting Directive (CSRD) continuing to be a focal point. A major update in 2024 has been the increasing clarity on CSRD requirements for businesses and auditors, highlighting the complexities around non-financial risk disclosures, materiality assessments, and the scope of reporting. While the direction of the CSRD is now more precise, several grey areas remain, particularly around how businesses should manage and report ESG data. The CSRD’s emphasis on transparency is just the beginning—the following steps will require companies to take action based on these disclosures, implementing strategies to align business models with sustainability goals. Auditors are expected to play an essential role in ensuring compliance. Still, many are struggling with the complexities of non-financial data, requiring improved technical expertise and proactive involvement in guiding businesses.

Another major update in 2024 was the EU’s deforestation regulation delay. Initially expected to come into effect sooner, the regulation, which aims to curb imports of products linked to deforestation (e.g., palm oil, soy, timber), has faced prolonged negotiations and is now expected to be finalized in 2025. This regulation will have far-reaching impacts on businesses with global supply chains, compelling them to prove that their products are free from deforestation-linked sourcing. While offering companies more time to adjust, the delay also brings uncertainty, particularly for businesses already preparing for its requirements. This delay underscores the challenge of reconciling differing interests among EU member states on complex environmental matters.

The European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG), also saw further refinement in 2024. These standards are designed to make sustainability disclosures more detailed, comparable, and transparent across industries. With these evolving standards, companies must align their reporting practices with the new guidelines, which may require significant investments in data management systems and internal expertise to meet the technical requirements. The ESRS aims to provide consistency in how sustainability information is presented, thus ensuring more reliable data for investors and regulators.

Furthermore, 2024 marked progress in implementing the EU Taxonomy Regulation, which classifies environmentally sustainable activities. Businesses must report on how their activities align with the taxonomy’s criteria, and this regulation remains critical in guiding investment toward sustainable projects. The EU Taxonomy is becoming increasingly significant as financial institutions look for ways to direct capital to activities that contribute to the EU’s environmental and climate goals, particularly climate change mitigation, water management, and pollution control.

In addition to these updates, the Corporate Sustainability Due Diligence Directive (CSDDD) continued to move forward in 2024. This regulation mandates companies to carry out human rights and environmental due diligence across their value chains, focusing on preventing adverse impacts of supply chain operations, including forced labor. The CSDDD will further expand businesses' responsibilities and push them to implement more rigorous supply chain monitoring and reporting processes. 

Moreover, the Sustainable Finance Disclosure Regulation (SFDR) remains crucial for financial institutions, which must disclose how they integrate ESG factors into their investment decisions, ensuring transparency in the financial sector’s contributions to sustainable development.  In a recent opinion, the European Securities and Markets Authority (ESMA) outlined its vision for the future of the EU’s sustainable finance regulatory framework. ESMA proposes phasing out the SFDR's definition of ‘sustainable investments,’ arguing that it gives too much discretion to market participants, undermining comparability and increasing the risk of greenwashing. The regulator also points out a key weakness: the current rules focus heavily on sustainable finance but fail to adequately address transition finance, which has gained importance since the SFDR's development. To remedy this, ESMA recommends introducing a legal definition of ‘transition investments,’ citing the European Commission's recent recommendation on financing the transition as a positive model. Following this development, in December, the EU Platform on Sustainable Finance, the European Commission's advisory body that crafted the SFDR, published a briefing on the categorization of products under SFDR.  The Platform recommends categorizing products with the following sustainability strategies:

  • Sustainable: EU Taxonomy-aligned Investments or Sustainable Investments with no significant harmful activities or assets based on a more concise definition consistent with the EU Taxonomy.
  • Transition: Investments or portfolios supporting the transition to net zero and a sustainable economy, avoiding carbon lock-ins, per the EU Commission's Transition Finance guidelines.
  • ESG collection: investments excluding significantly harmful investments/activities, investing in assets with better environmental and/or social criteria or applying various sustainability features.
  • All other products should be identified as unclassified products.

In this regard, In the context of these developments, the proposal for the changes to SFDR is expected to be prepared by the EU Commission in 2025.

Global Sustainability Reporting Trends Beyond the EU

Sustainability reporting, as well as the frameworks and legislations around it, go beyond Europe. This global perspective has shaped the developments around the CSRD. In November, EFRAG shared the first glimpses of the Non-European Sustainability Reporting Standards 1, a new draft set of reporting standards developed for non-EU parent companies, which will come into scope in 2029 by reporting on 2028 data. By drafting versions that only focus on impact materiality and products available in the EU and not including Taxonomy reporting, EFRAG is working towards a framework that can balance transparency and feasibility for international companies.

Although the EU is still ahead of the pack regarding sustainability reporting, national initiatives have developed quickly over 2024. The US Securities and Exchange Commission (SEC) has been aligning with TCFD and SASB while adopting requirements to report on scope 1, 2, and 3 greenhouse gas emissions and board oversight on ESG matters, including diversity, equality, and inclusion (DEI). Meanwhile, the California Climate Bill will require businesses to disclose greenhouse gas (GHG) emissions data and climate-related financial risk reports. Canada introduced significant ESG regulations, including updated Clean Energy Regulations and mandatory climate disclosures for large businesses and financial institutions, effective January 1, 2025. The Fighting Against Forced Labour and Child Labour in Supply Chains Act mandated reporting on efforts to eliminate child and forced labor. Canada’s Methane Strategy targeted a 75% reduction in methane emissions from oil and gas operations by 2030.

Various countries took a more aligned approach and announced or implemented sustainability reporting based on ISSB-aligned sustainability reporting standards. Many consultations on draft standards have ended in 2024, including in Australia, India, Canada, Brazil, China, Switzerland, Mexico, Hong Kong, and Indonesia, while Thailand, Japan, and Qatar consultations are planned to end at the beginning of 2025. In September 2024, the UK government confirmed its intention to publish a decision in the early part of 2025 announcing the endorsement of IFRS S1 and IFRS S2 and the adoption of the ISSB standards in the UK by way of the 'UK Sustainability Reporting Standards' or 'UK SRS'.

In addition to ESG reporting holistically, there has been an increase in attention for some specific topics. Beyond environmental concerns, 2024 saw a heightened focus on social and governance metrics: 

  • Diversity, Equity, and Inclusion (DEI): DEI metrics became integral to ESG reporting in North America. Corporate boards were pressured to disclose representation statistics and strategies to improve diversity. 
  • Labor Practices and Human Rights: Supply chain transparency and ethical labor practices gained traction in Southeast Asia, driven by consumer advocacy and regulatory mandates. Canada’s Modern Slavery Act emphasized due diligence in supply chains. 
  • Governance Oversight: Executive compensation linked to ESG performance and anti-corruption measures became focal points in corporate governance reforms, particularly in Canada and Australia.
  • Green Bonds: Green and sustainability-linked bond issuances surged in North America and Asia-Pacific. Japan and China led green bond markets, while Canada prioritized financing for clean energy projects. 
  • Climate Tech: Companies in regions with government incentives, such as Australia and Canada, invested heavily in climate technologies like carbon capture, green hydrogen, and renewable energy systems. The IRA in the U.S. played a critical role in funding clean energy initiatives.

Various risks are becoming more prominent as companies are managing the landscape of ESG reporting obligations. Since transparency obligations include measures to ensure the accuracy of information published, greenwashing accusations and litigation are rising. As transparency is more than compliance, informing the public of an organization's ESG performance and progress may cause various risks if stakeholder expectations are unmet. 

Although an apparent increase in global ESG reporting has been observed over the past year, a slowdown may be expected in the future. Outcomes of major elections in the EU and US, amongst others, indicate a shift in the political climate, reducing ambitions regarding ESG in general. Staying aware of (upcoming) obligations and regulatory developments in the geographic areas where your company is active will require appropriate action. 

To further streamline reporting, interoperability guidelines for the ISSB and GRI standards have been published in 2024. Such efforts to align widespread reporting frameworks go hand-in-hand with developing new reporting regulations in countries worldwide. Although there are differences between standards, this streamlining is expected to allow companies to adopt a reporting framework, allowing them to comply with all relevant frameworks. Businesses must consider what is the most effective reporting strategy for them through options including publishing multiple regional reports or drafting one global report to cover regional obligations if accepted by regional standards. 

Key Takeaways from COP29

In November 2024, COP29 took place in Baku, Azerbaijan. The summit was full of controversies stemming from its host country, participants' agendas, the shadow cast by the US elections, and various other factors. Despite the criticism, there were also various notable achievements.

One of the key goals of COP29 was adopting a new climate finance goal to help vulnerable and developing countries combat climate change. Developed nations pledged to contribute at least $300 billion annually to fight climate change. Developing nations, who had sought over $1 trillion in aid, referred to the agreement as disappointing and insulting. They argued that this amount does not provide them with the vital resources they need to address the complexities of the climate crisis. Moreover, various energy pledges related to energy storage and grids, green energy zones, and hydrogen were made. Furthermore, a consensus was reached on standards and rules for creating a UN-backed global carbon credit market, which will facilitate the trading of carbon credits, incentivizing countries to reduce emissions and invest in climate-friendly projects. COP29 also highlighted the potential of digital technologies like AI and big data to optimize energy use, improve climate monitoring, and support adaptation and mitigation efforts, as the Green Digital Action Declaration emphasized. The rapid growth of digital technology increases energy consumption, water use, and e-waste, raising concerns about its environmental impact despite its potential benefits.  Finally, transparent climate reporting was another focus area of COP29. Efforts were made to build a more substantial evidence base to strengthen climate policies over time and facilitate identifying financing needs and opportunities.

Overall, the agreements reached at COP29 have been called a base on which to build. During the summit, former leaders, climate experts, and scientists published an open letter calling for the COP process to be reformed, arguing it "cannot deliver the change at exponential speed and scale, which is essential to ensure a safe climate landing for humanity." The agreement reached in Baku did not meet all Parties’ expectations, and significantly more effort will be required at next year’s COP30 in Belem, Brazil.

Forward Thinking 

The EU's sustainability reporting landscape in 2024 has been marked by significant updates and the sharpening of reporting requirements, offering clarity and new challenges for businesses and auditors. While progress has been made in aligning reporting standards, the path forward is fraught with complexities, from managing ESG data to reconciling conflicting regulatory interests. Globally, nations are increasingly focusing on social and governance metrics, and there is a rising awareness of the need for greater transparency in corporate reporting. The evolving landscape of sustainability regulations requires companies to stay agile and well-informed to navigate upcoming challenges, particularly the potential political shifts that may alter ESG ambitions. Looking ahead, businesses must adopt more effective and aligned reporting strategies to meet regional and global obligations while managing the risks of greenwashing and litigation. The developments of 2024 set a foundational base for future progress, but much work remains to achieve meaningful, impactful sustainability outcomes.

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