The EU has enacted new rules on corporate sustainability reporting. On January 5, 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This directive requires a broader set of large, small and medium companies, as well as foreign companies with significant revenue from the EU markets to report a wide range of environmental and social parameters.

According to an estimate by PwC, CSRD will apply to about 50,000 businesses within and outside the EU geographic region. As the data and insights pertaining to sustainability become increasingly important for stakeholders – i.e. customers, employees, investors and regulators – this directive is expected to modernise and strengthen the reporting standards. Companies have to apply the new rules from 2024 and their first reports will get published in 2025.

The key objective of the CSRD is not to address the areas within each company, but to bring their entire value chain under itself. As the companies within and outside Europe have been spread across international borders, their value chains have also become global. As a result, many overseas companies, who are suppliers to the European companies or cater to the EU markets are subject to this compliance requirement.

CSRD is expected to impact many organisations in Bangladesh too as they belong to the value chain of many European companies. This is likely to cause a visible change in the readymade garment (RMG) sector, since this sector supplies a significant proportion of manufactured goods from Bangladesh to the EU region. Moreover, some EU-based buying houses have already started rolling out such requirements to their suppliers gradually.

According to PwC's Global CSRD Survey 2024, most companies in the EU region are confident that they will be ready to report under the CSRD. In April-May 2024, PwC surveyed 547 executives and senior professionals across more than 30 countries and territories and prepared this survey report. According to this report, 97 percent of respondents have stated that they are confident about their reporting in 2025.

The survey also revealed that more than half of the respondents who are going to publish their reports in 2025 believe that the CSRD will be instrumental in achieving better environmental performance (57 percent), improved engagement with external and internal stakeholders (52 percent), risk mitigation (51 percent) and better social performance (50 percent).

Therefore, it can be inferred that the organisations in Bangladesh which get covered by these reporting requirements directly or indirectly, will also have to demonstrate good progress in environmental and social sustainability. Not only will they have to report various environmental and social parameters frequently and reliably, they will also have to invest in technology to obtain accurate and frequent data collection and reporting. It should be noted that 59 percent of the respondents of PwC's survey identified data availability and quality as the biggest obstacles in complying with the CSRD requirements.

Most of this data doesn't exist today in the enterprise resource planning (ERP) systems of these companies in Europe, or in the systems of their suppliers who are operating from Bangladesh. As many companies in Bangladesh have been implementing their ERP systems or upgrading their existing ones, it is imperative that they assess their compliance requirements with respect to the CSRD and take affirmative actions. Thereafter, the fundamentals of their strategy on sustainability data – how those will get defined, sourced, governed and processed – must get addressed to maximise their compliance benefits.

In conclusion, organisations in Bangladesh must assess their value chains with respect to the CSRD in order to remain relevant for the EU market. Therefore, it is high time that organisations performed these assessments proactively and recalibrated their strategy.

The writer is a partner with PwC. The views expressed here is his own.