What should you know about this directive and sustainability reporting? What is ESG reporting and who does it apply to?
What is an ESG report?
An ESG report is known as a sustainability report, which contains information on a company’s activities in three areas:
- E – Environment – i.e. data on greenhouse gas emissions, energy consumption, waste management and impact on biodiversity;
- S – Social – e.g. issues relating to human rights, employment, working conditions and safety, and diversity;
- G – Governance – this may include information on the structure of the board of directors, corporate management and relations with shareholders.
The essence of ESG reporting
Annual ESG reports are intended to enable a reliable assessment of a company’s sustainability, verify compliance with regulations, and allow for comparison with competitors. Companies will be required to report, amongst other things, data on greenhouse gas emissions, environmental and social impacts, and potential risks associated with their operations.
The ESG report will also show which ESG strategy the company has adopted, how it aligns with sustainability goals, and to what extent it is being implemented. The ESG report will enable greater transparency in the company’s operations, enhance trust, reputation and competitiveness, allow for the assessment of risks and opportunities within ESG areas, and ensure compliance with legal regulations.
A clear presentation of a company’s social responsibility can support its development and provide added value for investors and business partners. Therefore, ESG reporting should not be viewed merely as an obligation, but also as a potential opportunity for growth.
Who does the CSRD apply to and when does it come into force?
The CSRD will apply to a wide range of entities across the European Union. The new regulations will directly affect all large companies, listed companies and organisations acting in the public interest within the European Union. Consequently, various sectors, ranging from multinational corporations to start-ups, will have to adapt to the new reporting requirements.
From 2025 -> all large enterprises and public-interest entities employing at least 500 people, with a balance sheet total exceeding €20 million or net sales revenue exceeding €40 million, will be required to prepare an ESG report for the year 2024.
In 2026 -> companies meeting at least two of the following three criteria will join this group: employing more than 250 staff, having a balance sheet total exceeding €20 million, or net sales revenue exceeding €40 million.
In 2027 -> small and medium-sized enterprises listed on regulated markets in the European Union will also be required to submit reports for 2026 if they meet, as above, at least two of the three requirements: more than 10 employees, a balance sheet total exceeding €350,000, or net revenue exceeding €700,000. Importantly, these entities will have the option to defer ESG reporting until 2028.
Potential challenges associated with ESG reporting
- preparing an ESG report using the principle of double materiality (financial perspective and environmental impact issues);
- the complexity and multitude of legal regulations;
- a lack of appropriate expertise and human resources within companies;
- striking a balance between profitability and environmental responsibility;
- availability of tools supporting ESG reporting in the appropriate format.
Summary
ESG reporting brings numerous benefits to companies, including increased transparency of operations, which improves the trust of investors and business partners. It also helps to identify risks and opportunities in environmental, social and corporate areas, and can have a real impact on improving a company’s reputation and competitiveness in the market. We encourage you to familiarise yourself with the topic and take steps towards ESG reporting to reap these numerous benefits and strengthen your company’s market position by striving for sustainable development.
She specializes in civil, commercial and business law. In the corporate and energy department, her activities are mainly based on providing corporate services to companies, reviewing and preparing commercial contracts, drafting litigation and non-litigation pleadings and preparing analyses and legal opinions, particularly in the sphere of business law and energy law. She also has professional experience in administrative and civil proceedings, which she gained in Warsaw law firms. She supports the Firm's…
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