Navigating regulatory ambiguity: evolving challenges and the sustainability expectation gap in assurance under the corporate sustainability reporting directive

What is it about?

In Europe, new rules require companies to report not only on their financial results but also on how their activities affect people, industry, and the environment. These reports increasingly include social issues such as gender equality and working conditions (SDG 5), the sustainability of production systems and supply chains (SDG 9 and SDG 12), and environmental and climate impacts (SDG 13). The aim is to give investors, regulators, and the public a clearer picture of a company’s overall impact. However, in countries such as Germany and Austria, it is still unclear how these sustainability reports should be checked and verified by auditors. Our study examines how auditors deal with double materiality, which means companies must report both on how sustainability issues affect the company and how the company affects society and the environment. We interviewed auditors to understand how they approach these new responsibilities. The results show that most assurance work is still based on limited checks of the information provided by management, following methods similar to traditional financial audits. Instead of testing whether a company’s sustainability impacts are real or significant, auditors often review whether the reported information appears reasonable. To explain this situation, we introduce the Sustainability Expectation Gap (SEGAP). This gap describes the difference between what stakeholders expect from sustainability audits and what auditors can currently provide under limited assurance and still-developing regulations. Our findings show that assurance plays a key role. It can either strengthen or weaken trust in sustainability reporting under the CSRD. Because sustainability information matters not only for investors but also for employees, communities, and policymakers, clearer rules, stronger standards, and more robust audit methods are needed. Only then can sustainability assurance move beyond a formal requirement and become a real source of accountability.

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