The Challenges of ESG Reporting: Navigating the Complexity of EU CSRD
While the USA is going in different directions, and the EU considers streamlining and integrating requirements later this month, the global landscape of Environmental, Social, and Governance (ESG) reporting has fundamentally changed with the European Union’s Corporate Sustainability Reporting Directive (EU CSRD) first wave of corporate reports being published in 2025. Last week was intense and enlightening in my journeys across Europe, engaging with nearly 60 organizations across multiple ESG and CSRD discussions.
The journey toward effective ESG reporting is complex, costly, and evolving—but those who embrace it with the right mindset will find not just compliance, but a strategic advantage. The question is no longer if ESG will shape business operations, but how organizations will rise to the challenge.
But there are challenges . . . unlike traditional financial reporting, which historically required around 200 data points, ESG reporting under CSRD necessitates over 1,100 data points, and that number is growing exponentially as companies consider complexities across subsidiaries, divisions, locations, and third-party relationships. This shift is not just a European challenge—CSRD has global implications, impacting approximately 50,000 companies worldwide, including non-EU firms with significant operations in Europe.
One of the most pressing challenges of EU CSRD is the requirement for third-party assurance on ESG reports. Organizations are already experiencing a one-third increase in audit fees due to limited assurance requirements, and these costs will escalate significantly once reasonable assurance becomes mandatory. Unlike traditional audits, ESG assurance involves validating complex, qualitative, and often subjective data points, adding further strain on internal resources.
Two Approaches: Strategic Advantage vs. Checkbox Compliance
One striking observation from my recent workshops across London, Utrecht, and Stockholm is the variation in how companies structure ESG ownership. Some firms have designated ESG controllers or sustainability officers, while others distribute ESG responsibilities across finance, compliance, risk management, legal, audit, and internal control teams. In certain cases, ESG leaders report directly to the Board or CEO, underscoring its strategic significance, while in others, ESG remains a compliance function buried within operational silos.
Among the organizations I engaged with, there was a clear divide in approach:
- Principled Performance – Companies that see ESG as an opportunity for better governance, risk management, integrity, and corporate strategy, aligning with OCEG’s concept of Principled Performance.
- Checkbox Compliance – Organizations that view ESG solely as a regulatory requirement, focused only on meeting minimum compliance thresholds rather than leveraging ESG for competitive advantage.
The ESG & EU CSRD Insomnia: What Keeps Organizations Awake at Night
During my workshops in Utrecht and Stockholm, I facilitated discussions on what keeps organizations up at night regarding ESG and CSRD compliance. Below are the top concerns voiced:
Regulatory & Compliance Challenges
- Understanding the complexity and breadth of EU CSRD.
- Evolving internal control frameworks for ESG reporting.
- Managing assurance requirements, shifting from limited to reasonable assurance.
- Competing with other major EU regulations (e.g., DORA, CSRD, CSDDD, AI Act, NIS2) under constrained resources.
- Navigating the subjective nature of ESG requirements.
- Preparing for regulatory consequences and enforcement actions.
Data Challenges
- Identifying data sources for the 1,100+ ESG reporting requirements.
- Ensuring data accuracy, quality, and reliability.
- Managing subsidiary cooperation in ESG data collection.
- Addressing disparate data sources and lack of standardization.
- Integrating ESG reporting into broader GRC (Governance, Risk & Compliance) systems.
- Determining how far down the supply chain ESG reporting should go.
- The potential role of AI and automation in ESG data management.
Financial & Resource Constraints
- Rising audit and assurance costs.
- Limited ESG expertise and resources within organizations.
- Balancing ESG priorities with other business objectives.
- The unexpected scale of compliance costs and resource allocation.
- The impact of ESG disclosures on corporate reputation and investor relations.
Strategic and Cultural Implications
- Integrating ESG into corporate culture and risk management.
- Understanding the role of internal vs. external audit in ESG.
- Aligning ESG strategies across different global cultures and industry sectors.
- Establishing benchmarks for ESG compliance and reporting.
Where Do Organizations Go From Here?
With the first CSRD-aligned reports already being released, it is evident that ESG reporting is more than a regulatory requirement—it is a fundamental shift in how businesses operate and disclose their impact. Leading companies are integrating ESG into their core business strategy, governance frameworks, and risk management processes. Those that take a checkbox approach risk increased costs, reputational damage, and regulatory scrutiny.
As ESG and EU CSRD continue to evolve, organizations must focus on smarter, data-driven approaches that align ESG reporting with broader business objectives. Whether through automation, AI-powered compliance tools, or integrated risk and compliance (GRC) solutions, the key to ESG success lies in principled performance rather than reactive compliance.