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The Price of Transparency: Cost-Benefit Analysis of the EU Sustainability Reporting Standards

On 31 July 2023, the European Commission adopted the first set of EU Sustainability Reporting Standards (ESRS), to become effective as of 1 January 2024, when the first category of companies in the EU is required to use these brand-new standards to report their impact on Environmental, Social, and Governance (ESG) factors under the Corporate Sustainability Reporting Directive (CSRD) legislation.

Understandably, most of the attention is on the standards themselves—the first set consists of 'cross-cutting' general requirements (ESRS 1) and general disclosures (ESRS 2), and topic-specific reporting (ESRS E1-E5, ESRS S1-S4, and ESRS G1)—and who, when needs to be ready—first the large Public Interest Entities (PIEs) now falling under the Non-Financial Reporting Directive (NFRD), then other large companies, and then, phased-in over three years, medium and small companies.

But the EU also published an interesting cost-benefit analysis of the ESRS, giving a somewhat sobering insight into the price of transparency—and making you understand better why the European Commission "watered down" the requirements in the final round to ease the reporting burden for companies and lower the price tag.

Let's dive into it.


The 136-page cost-benefit analysis looks at direct costs and indirect costs.

The direct costs consist of:

  • Administrative costs, i.e., education, training, software (e.g., ESG data management systems and reporting tools), and the execution of the new reporting processes

  • Assurance costs—spoiler alert: these are staggering!

The indirect costs analyzed are:

  • Trickle-down effect, i.e., the costs that businesses (primarily small and medium-sized) not falling under CSRD have to make to share emission and other sustainability data with entities reporting under CSRD because they are in their supply chain.

  • Litigation costs related to the quality of the reported data or to lawsuits because the reported data shows a lack of performance or commitment to achieving specific targets.

  • Impact on international competitiveness. In a global context, there could be a negative impact competitive impact for an EU-based company having to disclose sensitive information when a non-EU competitor doesn't have to do this.

The cost-benefit analysis thoroughly calculates the estimated direct costs, resulting in the following totals:

  • Administrative costs:

    • One-off: 1.7 billion euro

    • Recurring: 1.9 billion euro annually

  • Assurance costs:

    • Limited assurance: between 2.6 and 3.9 billion euro yearly

    • Reasonable assurance: between 6 and 9.7 billion euro yearly

The highest price tag is on the yearly assurance costs, which at the highest end of the range, is estimated at a whopping 9.7 billion.

For a listed company now falling under NFRD, the costs for limited assurance are at least 360.000 euro per year, and probably 30% higher in the first year because of "the need to become familiar with the requirements and to overcome the initial challenges with establishing the assurance procedures." And for reasonable assurance, at least double the costs.

In calculating the total costs for the close to 50,000 companies—or 'undertakings,' as they are called in the CSRD terminology—falling under the CSRD, the assurance costs for the non-listed NFRD and listed non-NFRD categories are 50%, and for non-listed non-NFRD 20% of the costs for a listed company now falling under NFRD.

With its recent "watering down" of the ESRS requirements, the European Commission anticipates the total cost reduction during the phase-in period to be 1.2 billion euro and 230 million euro for the yearly costs.

The indirect costs are hard to quantify. The cost-benefit analysis estimates the trickle-down costs between 0.2 and 1.5 billion euro but doesn't quantify the litigation or impact on international competitiveness.

So, there is a hefty price tag on transparency.

Let's now see what the report sees as the benefits and how they add up.


Like the costs, the report splits the benefits into direct and indirect benefits.

The direct benefits identified are:

  • Costs savings

  • Possible synergies and efficiencies

For preparers, there may be a reduction in ad hoc information requests from large shareholders, investment managers, and civil societies, who can find the information in the ESRS disclosures.

Investors and other users may save on requests to preparers and benefit from time savings and reduced expenses on third-party data providers when all the relevant sustainability information is accessible digitally—watch 'The Future of ESG Reporting' explainer video here to learn more about digital/electronic reporting.

We used 'may' above because preparers see potential savings of 24% in administrative costs but expect to realize only 5% because of different sustainability reporting standards and requirements inside the EU and outside the EU. This "reality check" is also why the European Commission pushed for (even) more alignment of the ESRS with the IFRS Sustainability Disclosure Standards and other global standards in that last round of changes to the ESRS.

Much of the direct cost savings will depend on the alignment of the ESRS with global standards.

The EU will mandate the ESRS, and observers, including Iceland, Norway, and Switzerland, will likely do the same. And the global standard will be the IFRS Sustainability Disclosure Standards—with the UK, Australia, New Zealand, and Singapore already moving towards implementation. However, the US, Japan, and China have indicated that they can not adopt the IFRS standards (as such) because of differences in accounting standards and existing legislation.

The indirect benefits are why the EU has introduced the CSRD: "to allow investors to take environmental and social risks better into account in their investment decisions and allows citizens, trade unions, NGOs, and other societal organizations to hold undertakings accountable for their societal and environmental impacts." 

The cost-benefit analysis does not quantify the indirect benefits.

While there is a considerable price for transparency, transparency leads to a more sustainable future, which is—apologies for using this cliché—priceless.

Introducing Tangelo

Tangelo is a unique end-to-end corporate reporting platform: from building designed reports and connecting to data sources to enterprise-level collaboration and single-source publishing in PDF, microsite, and electronic formats.

The Tangelo platform provides an efficient, cost-effective way to engage with stakeholders through multiple channels while seamlessly connecting to your ESG data, e.g.,

  • a.s.r., The Netherlands (listed insurance company), integrated annual report in microsite and PDF format 

  • CLP, Hong Kong (listed energy company), sustainability report in microsite and PDF format, in English and Chinese

  • AGL Energy, Australia (listed energy company), ESG data center in microsite only

(The above examples are all created 'in-house' on Tangelo.)

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