The EU will lead the way on sustainability reporting in 2025

When it comes to sustainability, in the press all eyes are on the US.

Among corporates, though, at least as much attention is on the European Union (EU), and, in particular, the EU’s new mandatory sustainability reporting standard, the Corporate Sustainability Reporting Directive, or the CSRD as it is known.

Until now, sustainability reporting has been a Wild West of different approaches, allowing companies to cherry-pick what to report, how to report it, and what to quietly ignore.

From 2025, however, all larger EU-based firms need to report on Environmental, Social and Governance (ESG) standards the way the EU dictates, not the way the firm wants to. Within a couple of years, that will reach smaller companies too.

These reports are radically different from reporting to the main ESG indices in that they are based on ‘double materiality’. That means covering not just the impact on the firm of sustainability issues through increased risk and so on (known as ‘financial materiality’), but also the impact of the firm on society and the planet (the concept of ‘impact materiality’).

Furthermore, by 2028 all non-EU companies with significant EU operations will have to report similarly. These reports will also be audited, like a firm’s financial reports.

Because virtually every larger firm worldwide will therefore be affected, I predict that CSRD will be very close to an eventual global standard for sustainability reporting.

Indeed, CSRD is closely based on the latest standards from the International Sustainability Standards Board (ISSB), the emerging global international standards body for sustainability. (Another 2025 trend will surely be that CEOs will have to mug up on a whole new set of acronyms!).

China has already announced that it intends to follow CSRD’s lead. In time, it seems likely the US will be forced to follow – though for now, the politicisation of sustainability in the US means that its reporting is generally on financial materiality only.

The US is also some way behind the EU in focusing mainly on carbon, whereas the EU’s new reporting also reaches deeper into social issues such as human rights as well as wider environmental topics in the supply chain such as deforestation, with the complementary Corporate Sustainability Due Diligence Directive kicking in for larger companies in 2026.

There should be a few words of caution here. Like the US, the EU is lurching to the right, and this year began with German Chancellor Olaf Scholz – under pressure from the Alternative for Germany (AfD) party – lobbying European Commission President Ursula von der Leyen for a two-year postponement in CSRD reporting.

It is not yet clear what impact if any that will have, but, all things being equal, the EU should still be setting the pace globally in 2025. China won’t look to exert itself diplomatically until it has turned the corner on its own carbon emissions, which won’t happen quite yet, though it probably will happen some time in advance of its official 2030 target; after that, a de facto alliance with the EU seems likely on the basis of common interest.

Will there be better ESG reporting in the future?

Meanwhile, there is a mountain of tracking and reporting work in 2025 for firms and their consultants. Sustainability teams will become far more focused on putting their houses in order for this reporting, with far less time spent on philanthropic ventures on the side of their core business. Some of these are commendable; others are so incidental that they would be best described as ‘purpose-washing’.

What remains to be seen is whether all this achieves the intended objective of greater transparency for investors. One of the greatest barriers to achieving a sustainable future is the opacity of good information on what firms are actually up to. Given better information, time will tell whether investors – such as those of us lucky enough to have pension schemes – are prepared to be more selective in where they put their money, or whether they would rather keep their heads firmly in the sand and just ask asset managers to maximise returns.

My bet is on the latter for the time being, until the present impacts of environmental degradation and social injustice are in an order of magnitude more apparent to voters than they are currently.

That may not take long – though the survival of a free press to hold businesses and governments to account will be critical in what happens next.

Further reading:

Predictions for 2025: a bleak outlook but with glimmers of light and hope

What will 2025 bring for energy and climate action?

How employee wellbeing will move up the agenda in 2025

Social economy to gain ground in 2025 as companies see the benefits

Hugh Wilson is Professor of Marketing, and teaches Creating Sustainable Organisations on the Executive MBA, Executive MBA (London), the Global Online MBA and the Global Online MBA (London). He also teaches Succeeding in a Sustainable Future on the MSc Marketing and Strategy degree.

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