What is ESG implementation in business?
ESG is a view from an external perspective, allowing investors to assess how a company affects the natural environment in its strategy and daily operations – m.in. Use of resources, waste, emissions (including carbon footprint), impact on biodiversity, water, air, and soil pollution. The second area, dedicated to ESG reporting, relates to society (Social), focusing on respecting the equality and diversity of employees without discrimination, respecting human rights, taking care of the safety and quality of products, health, and safety of employees and customers, responsible, non-misleading sales (greenwashing) or taking care of relations with the local community. The third area – Corporate Governance – aims to show how a company ensures ethical operations, counteracts corruption, has management structures, including ESG management, and manages risk, including ESG risk.
Who and how will be affected by the new regulations on the implementation of the ESG strategy?
The Corporate Sustainability Reporting Directive (CSRD), replacing the current NFRD, will include:
- from 1.01.2024 entities currently subject to the reporting
obligation, - from 1.01.2025 large companies, currently not subject
to the reporting obligation, - from 01.01.2026 small and medium-sized companies listed on the stock exchange.
The new elements of the ESG strategy will include m.in:
- the major, actual or potential adverse impacts associated with the company’s value chain, including its own 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;
- 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 in relation to 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 of the Council on the establishment of 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 regulations:
- 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.
If you want to learn more and prepare for the new regulations, please contact us. Together, we will develop an action plan to prepare for the new ESG reporting, but we will also show you how to use the new requirements to build your company’s value.
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