Luxembourg’s financial regulator has warned that companies’ first attempts at sustainability reporting under EU rules risk overstating green progress, citing inconsistent practices and weak transparency.
In a review of sustainability reports for 2024, the Commission de Surveillance du Secteur Financier (CSSF) found that almost 60 percent of Luxembourg-listed issuers had adopted the European Sustainability Reporting Standards (ESRS) ahead of their formal transposition into national law. The regulator welcomed the early move but flagged an uneven interpretation of reporting obligations.
Entity-specific risks
A particular concern is the widespread use of entity-specific topics. Nearly half of the issuers in the sample added issues such as customer experience, innovation or cybersecurity. The CSSF said there was “room for doubt” as to whether these were truly material or convenient add-ons designed to present companies in a favorable light.
“The distinction between what is genuinely entity-specific and what is already covered by ESRS is often blurred,” the CSSF noted in its 18 August review. It urged issuers to tighten their materiality assessments and apply stricter thresholds.
Disclosure gaps
The CSRD, adopted in 2022, aims to standardise ESG reporting across Europe and make companies’ impacts and exposures more comparable. But the EU directive has yet to be transposed in Luxembourg, where draft legislation remains under review following the EU’s reassessment of reporting requirements that were announced earlier this year. As a result, the first wave of reports remains voluntary and lightly supervised.
This has led to gaps that risk undermining investor confidence, CSSF said. The supervisor found that most issuers failed to provide meaningful information on the financial consequences of their sustainability risks and opportunities. Fewer than three in ten quantified potential impacts on performance, cash flow or access to capital. Almost none of the companies reported the full scale of their negative impacts before accounting for reduction measures. ESRS requires this “gross before mitigation” approach so that stakeholders can first see the total footprint and only then the effects of mitigation.
Such omissions make it difficult for investors and other stakeholders to assess the true scale of a company’s exposure. In several cases, the CSSF observed that issuers confused positive impacts with mitigation actions, creating further inconsistencies.
Limited assurance
The regulator did acknowledge improvements in structure compared with 2023, with more than 60 percent of reports now subject to limited assurance by auditors. Yet comparability remains elusive. Methodological flexibility has led to “a wide range of practices” even among companies in the same sector.
The CSSF said it would apply “proportionate and realistic” supervision as issuers climb the CSRD learning curve. At the same time, it reminded companies that EU policymakers are already considering revisions to the scope and detail of the reporting rules under an Omnibus directive now before co-legislators. That proposal has drawn criticism from investor groups such as Eurosif, which warned that cutting too much from the ESRS framework would leave investors less informed and undermine the reliability of sustainability disclosures.
Uneven maturity
The CSSF review focused on a sample of nineteen issuers that prepared 2024 reports in line with CSRD, either fully or partially. These firms, drawn from across sectors and supervised under the existing Non-Financial Reporting Directive, represent the first wave of Luxembourg entities to voluntarily embrace the ESRS before it becomes mandatory.
Seventeen issuers followed the framework in full, a positive sign in itself. But the diversity of approaches within the sample, ranging from detailed materiality matrices to boilerplate disclosures, underscores the uneven maturity of sustainability reporting in the market and highlights the challenges ahead for comparability and credibility.