The EU CSRD imposes an obligation on companies to produce ESG reports, according to an agreed calendar. If we think we still have time, we are sadly mistaken. Non-financial reporting is an engaging process that additionally requires time for adequate preparation.
The CSRD (Corporate Sustainability Reporting Directive) introduced mandatory ESG reporting for a much larger group of companies than was previously required. New uniform standards – the ESRS (European Sustainability Reporting Standards) – have also been adopted to which we will report in a consistent manner.
The implementation of the new rules is spread over several years. For 2024, companies covered by the existing NFRD (Nonfinancial Disclosure Reporting Directive) that employ more than 500 people will report. The following year, the obligation will extend to the remaining companies, including those not subject to the NFRD. All companies with more than 250 employees and a turnover of EUR 40 million or with a balance sheet total of more than EUR 20 million will already be reporting. Smaller listed companies with more than 10 employees and meeting certain financial conditions will also join the group of reporting companies for 2026. Subsequently, the obligation will extend to companies outside Europe but with branches here.
It may seem that there is still some time to go, especially when we meet the conditions of this second or third group of companies. Unfortunately, nothing could be further from the truth. Time is running fast and non-financial reporting is an advanced process.
It is estimated that we will have to include more than 1,100 different types of data – descriptive and numerical – within the 84 disclosures defined by 12 standards.
These are the so-called cross-cutting standards (general rules and information), environmental, social and management standards.
So we have to involve a lot of people and prepare our processes accordingly in terms of collecting the data and information with which we will fill the report.
How to start?
ESG reporting according to the new EU standards will give an answer to investors, banks, counterparties and other stakeholders as to the overall state of the company. Is the business developing in a sustainable way and taking environmental and social goals into account? Does it not degrade the environment, is it aware of its impact on the climate? What it does to minimise its negative impact? How it cares for its employees, whether it operates fairly in the supply chain, whether it is ethical and working with it will not create risks for partners or bring trouble? Whether the business practices undertaken are appropriate and have a positive impact on the environment?
Certainly, if you are not already operating within an ESG framework, it is best to start with a diagnosis of your current operating model. Conducting an analysis of the current state of all areas of the company in terms of environmental, social and management requirements will provide answers to where we are, what works, what needs to be improved, changed, what is missing, what needs to be supplemented. Such knowledge will allow the construction of an ESG strategy, the setting of targets and metrics, and the building of a responsibility structure within the company for this area. Non-financial reporting will be easier from this perspective and the whole process will be fully understood by the company.
It is worth mentioning that the process of preparing the report is lengthy, usually taking several months, and involves going outside the company to find out what stakeholders think. In addition, the new EU reporting methodology introduces a double materiality analysis.
This involves not only defining the impact on the environment, but also analysing the impact of social and environmental trends on the financial health of the company. Companies should also monitor their activities against the criteria of the EU Taxonomy and report their impacts in accordance with its requirements. Throughout the process, time must also be allowed for auditing the report produced.
The status of preparation of companies operating on the Polish market for the new legal requirements varies. We have a group of organisations already involved in the topic of sustainable development. There is also a group for whom the ESG slogan is a complete novelty. The report 'Impact of Trends on Sustainable Development Goals’ issued by Infuture Institue in September 2023 states that 57 % of Poles know absolutely nothing about ESG. It is certainly not worth waiting and implementing yourself in this important topic as soon as possible.
Author: Beata Konecka