ESG reporting – what is its purpose and who does it concern?

ESG reporting, resulting from the CSRD directive, has become a requirement for many companies. ESG reports cover environmental, social, and governance issues aimed at promoting sustainable business practices. The significance of these reports for companies and investors is substantial, impacting risk assessment and business strategy.

Legal background and context

The CSRD (Corporate Sustainability Reporting Directive) is an EU regulation that mandates companies to report on sustainability issues. The directive aims to enhance transparency regarding companies' environmental, social, and governance activities.

The directive came into effect on January 5, 2023, and many companies will soon be required to report on their ESG activities. ESG stands for three key aspects used to evaluate companies beyond financial metrics: E – Environmental, S – Social Responsibility, and G – Corporate Governance.

What is ESG reporting?

ESG reporting is a process where companies disclose information on three areas. ESG reports aim to illustrate how companies manage risks and opportunities related to these aspects, which are crucial for sustainable development.

In the environmental area, reports may include data on greenhouse gas emissions, energy consumption, waste management, and biodiversity impact. In the social area, reports cover issues such as human rights, working conditions, diversity, and inclusion. In governance, reports might include information on board structure, anti-corruption policies, and internal control systems.

ESG reports not only help companies measure and manage their impact but also provide valuable information to investors and other stakeholders, potentially influencing their investment decisions.

Who is required to report ESG?

ESG reporting requirements, as detailed in the article “What is ESG and Why is it Important? How Does it Impact Companies?”, began on January 1, 2024. Initially, this requirement applies to large enterprises and listed companies with annual revenues exceeding PLN 170 million and a balance sheet total of at least PLN 85 million. In the following years, the number of companies required to report will gradually increase, with all companies operating in the EU required to comply by 2026.

From January 2025, ESG reporting will be mandatory for all large companies meeting at least two of the following criteria:

• Employing 250 people,
• Annual revenues of EUR 80 million,
• Total assets of EUR 40 million.

By 2026, the obligation will also extend to medium and small listed companies. The gradual implementation allows companies time to prepare for reporting and to present their ESG strategies to the public. This can help enhance their market position and competitiveness by optimally leveraging the new regulations.

Benefits of implementing ESG reporting

The new ESG reporting regulations will provide businesses with significantly greater access to reliable, high-quality data on their sustainability efforts. Stakeholders will gain an additional tool to influence business practices in local communities.

Transparent presentation of corporate social responsibility can contribute to business growth and provide added value to investors and business partners. Thus, sustainability reporting should not be seen merely as a requirement but as an opportunity for growth. To seize this opportunity, companies should integrate new standards into their business strategies as soon as possible.

Steps in reporting key sustainability issues

The reporting process largely relies on the ESRS (European Sustainability Reporting Standards), particularly ESRS 1 and ESRS 2. Here are the steps to consider:

1. Assessment of double materiality
   • Identify significant impacts, risks, and opportunities related to ESG using the principle of double materiality.
   • It is also important to identify and minimize the negative impact of the organization on sustainability issues.
   • Involve stakeholders in this process.
2. Management of sustainability issues
   • Explain how the company manages sustainability issues.
   • Describe the roles of the management board and supervisory board regarding these issues.
3. Strategy and business model
   • Provide the context of the company’s business activities by describing the business model and strategy in relation to significant sustainability issues.
4. Policies and actions
   • Describe implemented policies and actions, as well as financial expenditures related to managing significant ESG impacts, risks, and opportunities.
5. Goals and indicators
   • Describe goals set concerning significant ESG issues and progress towards achieving them.
   • Disclose relevant key performance indicators (KPIs).

ESG reporting, as mandated by the CSRD directive, not only fulfills regulatory obligations but also represents a strategic opportunity for companies. It enables enhanced transparency, builds trust, and increases competitiveness. For both employees and employers, it is a step towards a more responsible and sustainable business, providing social and economic benefits.