How can tax consultants and auditors help with ESG reporting? Interview with Christian vom Ende from Afileon

The EU's Corporate Sustainability Reporting Directive (CSRD) sets out which companies are obligated to report on environmental, social and governance (ESG) aspects and when.  The regulations have already applied to large capital market-oriented companies since January 1, 2024.

For large companies that are not capital market-oriented, the CSRD is set to apply from January 1, 2025. However, the European Parliament has suspended this obligation as part of a "stop-the-clock" proposal.

Despite this, Christian vom Ende, Director from Dr Schwarz | Harrer | vom Ende GmbH, which is part of the Afileon Group, is advising companies to start systematically recording ESG KPIs now. The auditor and tax consultant has undergone extensive further training in this specialised field. For him, ESG reporting is by no means just a chore, but rather offers a wide range of opportunities.

We spoke to him about how companies can benefit from ESG KPIs and how Afileon can support them in this undertaking.

Why is CSRD so challenging for many companies?

It entails an enormous amount of reporting obligations. Depending on their business model and size, companies potentially have to report on up to 1,200 data points. This wealth of information relates to a very wide range of topics – from environmental and social aspects to governance structures – which adds to the complexity.

In addition, there are scarcely any empirical values for dealing with CSRD. Many companies are therefore faced with the task of establishing completely new processes and structures for data collection and analysis. This information has often not been systematically recorded adequately or even at all. This not only leads to a high organisational effort, but in many cases also requires a rethink within the entire company management.

How can auditors and tax advisors support companies with ESG reporting – especially with regard to data preparation and verification?

As auditors, we can help companies with ESG reporting primarily by providing specialist support – for example in workshops where we explain the requirements of the CSRD and highlight potential implementation routes.

Even if we are not allowed to help with implementation and auditing at the same time for professional reasons, we can audit ESG systems that have been introduced voluntarily and help build trust by issuing a certificate. In this way, we create transparency and strengthen the credibility of reporting for stakeholders.

To what extent do traditional auditing / consulting and ESG reporting actually overlap? Are there any synergies here?

There are definitely overlaps and synergies between traditional auditing and ESG reporting. In both cases, it is essential to understand the relevant processes and visualise the data flows within the company in a way that is comprehensible. The principle of materiality also has an important part to play in both cases.

In addition, we examine both areas objectively and without judgement. This means: We assess whether the statements in the report are correct and comprehensible – and not, for example, whether a company's ESG targets are ambitious enough or even meaningful.

However, the main difference lies in the nature of the reporting: While the financial statements are strongly driven by figures and focussed on the past, ESG reporting is much more text-heavy, qualitative in nature and focuses more on the future – in particular with regard to the development and achievement of long-term sustainability goals.

What areas of expertise do tax consultants/auditors need to develop in order to become active in this field? How have you trained and gained additional knowledge, so that you can provide your clients with the best possible advisory services in this area?

Anyone wishing to operate as a tax consultant or auditor in the field of ESG reporting should undergo targeted further training, ideally on an ongoing basis, as the regulatory requirements are constantly evolving – and will continue to do so in the future.

There are now a large number of basic and advanced training courses on offer, for example from the Institute of Public Auditors in Germany (IDW) or from specialised providers. I personally opted for a comprehensive training programme from AudFit. The training comprised six modules totalling around 40 hours and covered all the key ESG topics – I would particularly like to emphasise the SME-oriented approach and the practical work aids here. I also regularly use the IDW podcasts and the specialist news to stay up-to-date with the latest developments.

However, practical experience was also very important for us at the law firm: We have already performed a complete voluntary ESG audit and have been involved in multiple implementations in an advisory capacity. These insights have helped us better understand the specific challenges – for example when selecting and using various ESG software solutions.

Why does it make sense for companies to start systematically recording ESG KPIs now?

If a company is required to report in future – or decides to report voluntarily on ESG – it should start systematically collecting data as early as possible. The regulations are complex, the requirements extensive and there is hardly any empirical data available, especially outside of listed companies.

Those who get started early have the opportunity to build up the necessary expertise internally, set up processes properly and gradually approach the new requirements – before the pressure of mandatory reporting increases.

Do ESG KPIs also play a part for companies outside the scope of the CSRD?

We are seeing that companies are increasingly being confronted with ESG KPIs independently of the regulatory ESG reporting obligation – for example through enquiries from financing banks.

This is forcing many companies to deal with the relevant ESG requirements at an early stage. At the same time, however, it also offers opportunities: Those who systematically record ESG KPIs can integrate them into their regular reporting and add an ESG component to their own management system.

Why should companies even address the topic of ESG at all?

ESG is no longer a purely regulatory issue. Companies that exceed certain thresholds are obligated to report anyway. In addition, professional ESG management has very specific financial implications: Banks are increasingly incorporating ESG criteria into their lending conditions, and ESG aspects will in future also be an assessment criterion in public tenders.

In other words: Those who tackle ESG early on not only gain legal certainty, but also a clear competitive edge in the market.

What should companies look out for when seeking support from their tax consultant/auditor?

It is important for the tax advisor or auditor to have in-depth ESG expertise. This can, for example, be demonstrated with certificates from relevant further training. The consultant should ideally also have practical experience – for example having already conducted ESG audits or having worked with various software solutions. This helps to better understand individual requirements and develop perfectly tailored solutions.

What should tax consultants/auditors do now in order to prepare their clients for the future?

Firstly, we should clarify with our clients whether and from when they are affected by the ESG reporting obligation – or whether they are looking to report voluntarily. In both cases, a clear sustainability strategy is the first key step.

If they intend to engage in reporting, classic project steps are recommended: a rough timetable, formation of an ESG team, clear responsibilities and defined communication channels.

In terms of content, every ESG report starts with sustainability due diligence, which leads to a double materiality analysis. This helps set the right focus – in other words, to avoid unnecessary effort and make sure that no key topics are overlooked.

At Afileon, we are ideally prepared for the new ESG reporting obligations. Several of our partner law firms, such as Dr. Schwarz | Harrer | vom Ende GmbH, the navigator Group and SH + C, are already in the starting blocks and are helping clients make their business models sustainable, socially responsible and future-proof using ESG KPIs.