FAQ
FAQ
Sustainable business transformation is a change in how a company is run towards a company that considers its activities – in addition to the financial result – and the impact on the environment and people (society). Companies that conduct business sustainably strive to reduce their negative impact on the environment, care for employees, respect human rights throughout the supply chain, and positively impact local communities.
The process begins with a strategic analysis, definition of the transformation area (WHAT?), and justification of changes (WHY?). As a result of the study, goals and their measures are defined. The second stage is operationalisation and implementation (HOW TO?) – using appropriate structures, tools and a system of incentives. The third stage is implementing, monitoring and reporting pre-selected and defined metrics.
ESG is an acronym for three words derived from English, i.e. Environmental, Social and Governance. ESG refers to several non-financial factors that help companies report activities unrelated to purely economic development indicators. It is a view from an external perspective, allowing investors to assess how the company affects the natural environment in its strategy and daily operations – m.in in terms of resource use, waste generation, emissions (including carbon footprint), impact on biodiversity, water, air and soil pollution. The second ESG area relates to society (Social), focusing, i.e., on respecting the equality and diversity of employees without discrimination, respecting human rights, taking care of the safety and quality of products and services, health and safety of employees and customers, responsible, non-misleading sales (greenwashing) or taking care of relations with the local community. The third area – Governance – aims to show how ethically the company conducts its activities, how it counteracts corruption, whether it has management structures, including ESG management, and whether and how it manages risk, including ESG risk.
These two concepts are often treated identically; in the public space, we even more often refer to the phrase ESG, which is supposed to guarantee the sustainable operation of companies.
Both formulations refer to the impact of an organisation on the environment and people, but there are also some differences. Sustainable development is a look from the inside of the company to the outside (inside-out), i.e. how we as an organisation interact with the environment, including the environment, society and economy. Organisations should answer the following questions: From this perspective, what is essential? Where are our main areas of influence? What does this impact look like (positive/negative)?
ESG, on the other hand, is a look from an outside-in perspective, i.e. primarily investors. This is an answer to the question of how the organisation deals with, for example, the risks arising from the negative impact on the environment, the lack of respect for human rights among our suppliers,
Both perspectives are critical, and combining them as part of a double materiality analysis allows you to identify the essential areas of the organisation's operations.
This is a ubiquitous question. The issue is multithreaded, multi-area, often exceeding the short-term planning horizon. The matter is not made easier by the maze of information on reporting and environmental regulations that are already in force or are still being processed, as well as the various expected levels of aspirations (e.g. the expected pursuit of carbon neutrality, i.e. the so-called net-zero).
Defining expectations, assumptions and constraints well at the beginning is important. This will give you the direction for the level of aspirations and goals you want to set. Adopting the correct expectations, assumptions, and constraints is crucial to determine what we want to change and why. We should answer these questions before we move on to the following steps, i.e. how and through which projects and initiatives we want to act.
At Synergist, we have an arranged process that will allow us to select appropriate actions and define the goals we want to achieve.
The Corporate Sustainability Reporting Directive (CSRD) was approved by the European Parliament on 10.11.2022 and replaced the previously applicable NFRD. The CSRD will apply from the reporting period starting on 1 January 2024 (reporting in 2025) or later, depending on the size of the entity and the geographical zone of its operations.
The CSRD imposes a new reporting requirement on entities that aims to improve the usefulness and reliability of sustainability information, provide a comprehensive view of a company's sustainability performance, and support sustainable investment and decision-making.
CSRD will cover about 50 thousand companies in the EU, including 3 thousand in Poland:
- from 2025 (for 2024) -> all large undertakings subject to the NFRD,
- From 2026 (for 2025) -> other large undertakings
- From 2027 (for 2026) -> all SMEs whose securities are listed on EU-regulated markets
- From 2029 (for 2028) -> non-European enterprises
The reports will be subject to mandatory audits, as is currently the case with financial statements.
Companies covered by the directive must present their business model and ESG strategy. The new elements of the ESG strategy will include m.in:
- the significant, actual or potential adverse impacts associated with the company's value chain, including its operations, its products and services, its business relationships and its supply chain;
- any action taken and the results of such actions to prevent, mitigate or remedy actual or potential adverse effects;
- The company plans to ensure that its business model and strategy are in line with the transition to a sustainable economy and limiting global warming to 1.5°C in line with the Paris Agreement;
- a description of the company's policy about sustainability issues;
- A description of the main risks associated with sustainability issues.
The CSRD is complemented by the EU Taxonomy, i.e. Regulation (EU) 2020/852 of the European Parliament and the Council on establishing a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088. The EU taxonomy aims to further enhance the transparency of companies in their non-financial statements by m.in. by requiring obliged entities to disclose information on how and to what extent their activities are related to economic activities that qualify as environmentally sustainable.
Other effects of regulation
• According to the new regulations, companies will be guided by the double materiality rule.
• A uniform reporting format will apply.
• One integrated report – the information contained in the management report.
• Reports will be mandatorily audited with a similar regime as is currently the case with financial reports.
ESG reporting is the disclosure of non-financial information by the CSRD and the EU Taxonomy. Reporting will cover environmental, social and governance issues. This reporting will be in force as early as 2025 (for 2024) and will first cover large EU items previously subject to the obligations of the NFRD and then successively cover non-listed companies and smaller entities, as well as non-European entities. Reporting will cover four areas, i.e., corporate governance, strategy, impact, risks and opportunities, and indicators and objectives.
The CSDD Directive is also being processed, which will supplement the disclosure guidelines and ensure due diligence by entities in implementing and reporting ESG activities.
In addition to meeting regulatory requirements, ESG reporting has two more important functions:
- It is becoming increasingly important for investors – issues such as climate risk, employee policies, sustainable supply chains, and cybersecurity are now increasingly being considered in the due diligence of investment advisors and asset managers.
- Provides transparency for other stakeholders – ESG disclosure allows companies to be fully transparent with their stakeholders. The growing interest in ESG issues observed in the research of customers and potential employees means that positive information regarding the practices used and the intentions in ESG areas can be an essential element of competitive advantage.
In addition, measuring and disclosing ESG indicators makes it possible to assess how realistic the companies' presented plans and strategies are.
In line with the principle "What gets measured gets managed" - we manage if we measure, reporting is essential to sustainable transformation programs. At the same time, at Synergist, we make sure not to fall into the so-called reporting trap, i.e., when we become so busy with collecting data and reporting that there is a lack of time and resources for effective implementation of planned activities.
The Sustainable Development Goals (SDGs) are a set of 17 goals developed by the United Nations, which were adopted on 25 September 2015 by the leaders of 193 world countries and are part of the 2030 Agenda. They comprise 169 tasks and 304 indicators, designed to become a universal guideline for all countries, organisations and enterprises.
The objectives have been broken down to achieve its huge ambitions so that they can cover a wide range of topics in the three main dimensions of sustainable development: economic growth, social inclusion and environmental protection. They are geared towards addressing global social, economic and environmental challenges and aim to improve the quality of life of people worldwide.
The double materiality analysis required under the ESRS standards, which complement the CSRD, is a process that includes:
- Impact materiality, i.e. an assessment of the impact of a company and its value chain on environmental and social issues. In the case of both negative and positive effects, aspects such as the severity and likelihood of impact (in the case of the potential effects) are taken into account
- Financial materiality, i.e. the assessment of the impact of social and environmental aspects and trends on the company's financial condition.
In addition to meeting the ESG reporting requirement, it is a process that we recommend using as an element of the company's strategic analysis that is important not only for stakeholders but also for the organisation itself as an element of a comprehensive risk analysis. It allows you to identify key ESG areas that should be addressed in sustainable transformation programs.
Greenwashing refers to the deliberate or unintentional misleading of customers, investors, and other stakeholders about products and services that are presented as sustainable. The use of greenwashing practices entails significant financial, reputational and legal risks.
It occurs when, for example, a company presents unbelievable plans for a transition to net zero, when actual actions do not back up the claims, or when it offers sustainable products that have not been produced sustainably (e.g. human rights in the supply chain have not been respected).
Companies are exposed to accusations of greenwashing even when they have many initiatives that do not lead to a real, sustainable business transformation.
To prevent greenwashing, in 2022, at the initiative of the European Commission, work began on the CSDD Due Diligence Directive.
The Corporate Sustainable Due Diligence Directive (CSDD) is a European Union directive on corporate sustainability due diligence, which is currently under consideration. It obliges large companies to identify, assess and manage the negative impacts they may have on the environment and society. Among the issues covered in the regulation m.in are child labour, slavery, labour exploitation, pollution, deforestation, excessive water use or degradation of ecosystems. The directive will apply to EU companies and parent companies with more than 500 employees and a total turnover of more than €150 million. In some cases, companies with more than 250 employees and a turnover of more than €40 million may also be subject to its requirements. The proposal for a directive must be approved by the EU's legal affairs committee, the Council and the European Parliament.
The European Sustainability Reporting Standards (ESRS) are 12 (including 10 ESG standards and two general standards) issued as a delegated act, complementing the CSRD. They set out mandatory rules to which sustainability reporting companies will have to adapt their sustainability statements. In their reports, companies will disclose three levels of indicators: sector-independent, sector-specific and entity-specific.
The ESRS aims to improve the sustainability reporting of companies in the EU in terms of accuracy, consistency, comparability and standardisation.
While greenwashing refers to environmental claims, social washing refers to misleading information about the social responsibility of a company's products or services and its production, logistics, sales, etc. Examples of harmful practices may include hiding/omitting negative information. These marketing activities mislead the customer, seemingly caring for employees by offering them a benefit package without caring about their well-being, etc. Effective counteracting social washing requires thorough examination and verification of the organisation's activities and practices to ensure that the declared commitments to social responsibility are authentic and have a real impact.
According to the International Integrated Reporting Council, integrated reporting is "the concise communication of relevant financial and non-financial information and all the relationships between this information in the context of determining the overall value of an entity." An integrated report is a communication tool for an organisation showing how its strategy, corporate governance, and results, in the context of the external environment, allow it to create value in the short, medium, and long term.
Carbon footprint refers to the amount of greenhouse gases, especially carbon dioxide (CO2) and other gases associated with greenhouse emissions, emitted into the atmosphere as a result of the activities of an organisation or entity, including those related to the processes of production, logistics, and sales of a given product or service. It measures the impact of a given project on climate change.
The carbon footprint includes emissions not only from direct sources, such as the burning of fossil fuels, but also from indirect sources, such as the production and transportation of raw materials, production, transport and disposal of products, and energy consumption. Carbon footprint calculations aim to understand the total environmental impact of an activity or product in terms of greenhouse gas emissions.
Organisations, businesses, and individuals can strive to reduce their carbon footprint by adopting greener practices, sustainable energy sources, energy efficiency, or innovative approaches to production and consumption.
Taxonomy is the colloquial name for Regulation (EU) 2020/852 of the European Parliament and the Council of 18 June 2020 on establishing a framework to facilitate sustainable investment. It aims to increase environmental protection by redirecting capital from environmentally harmful investments to greener alternatives. The taxonomy does not prohibit investment in activities that harm the environment but grants additional preferences for green solutions. This means that an organisation that implements pro-environmental goals and projects in line with the objectives of the Taxonomy will have an incomparably greater chance of obtaining capital,
Including preferential European funds, then entities that do not care about it. As financial market participants will also be subject to reporting, raising capital for purposes and activities not in line with the Taxonomy and ESG will be increasingly difficult and expensive. The environmental objectives of the Taxonomy are:
- climate change mitigation;
- adaptation to climate change,
- sustainable use and conservation of water and marine resources;
- transition to a circular economy;
- prevention and control of pollution, and
- protection and restoration of biodiversity and ecosystems.
An economic activity qualifies as environmentally sustainable if it meets four cumulative conditions, i.e.:
- makes a significant contribution to one or more of the above environmental objectives;
- does not cause significant harm to any of the environmental objectives;
- shall be carried out by the minimum safeguards
- meets the technical eligibility criteria.
