The European Union’s new strategy for economic growth is the Green Deal – its goal is to transform the EU into a resource-efficient and competitive economy by 2050, with net greenhouse gas emissions reduced to zero. The overarching aim of the Green Deal is also to preserve, protect, and enhance natural capital while safeguarding the health and well-being of citizens from environmental hazards and impacts. A greater objective is to establish a functioning economy for the benefit of people, with sustainable investments as a cornerstone.
However, sustainable investments require corporate reporting on their societal (ESG – environmental, social, governance) impacts. Hence, the European Corporate Sustainability Reporting Directive (CSRD) imposes an obligation on legal entities conducting business activities to report in their activity reports about their sustainability, as well as management and social impacts. Yet, the initially complex-sounding reporting requirement is not mere bureaucracy; it serves to enhance a company’s credibility in the eyes of investors and society.
To whom does the directive apply?
In accordance with the adopted directive, CSRD applies starting from the beginning of 2025 to publicly traded companies (listed companies, credit institutions, and insurance companies) that are already subject to reporting obligations under the Non-Financial Reporting Disclosure (NFRD) framework.
From 2026, the directive applies to large enterprises meeting at least two of the following criteria:
- More than 250 employees
- More than €40 million in annual revenue
- More than €20 million in total assets
Starting from 2027, reporting also affects small and medium-sized enterprises (SMEs) that are listed on the stock exchange, small and non-complex credit institutions, and captive insurance undertakings.
What does CSRD expect from companies in terms of sustainability reporting framework and how to comply with the regulation?
Sustainability reporting is prepared based on the European Financial Reporting Advisory Group’s (EFRAG) European Sustainability Reporting Standards (ESRS). Currently, the ESRS divides the reported information into the following blocks:
ESRS 1 General Requirements
ESRS 2 General Disclosures
E – Environment
ESRS E1 Climate Change
ESRS E2 Pollution
ESRS E3 Water and Marine Resources
ESRS E4 Biodiversity and Ecosystems
ESRS E5 Resource Use and Circular Economy
S – Social
ESRS S1 Workforce
ESRS S2 Employees in the Value Chain
ESRS S3 Affected Communities
ESRS S4 Consumers and End-users
G – Governance
ESRS G1 Business Conduct
When fulfilling reporting obligations, companies must also adhere to two key perspectives established by the directive:
- The societal and environmental impact of the company’s operations.
- How sustainability aspects (such as climate change) affect the entrepreneur.
The specific reporting standards will be endorsed by the European Commission, tentatively on June 30, 2023, following which forward-thinking companies can begin collecting and compiling necessary data. It should be noted that the obligation applicable from 2025 pertains to data from 2024.
Economic benefits for companies
Sustainability reporting should not be viewed merely as a formality; rather, it serves as a strategic management tool for a company if the report is compiled with quality. A high-quality report relies on transparent and timely collection of foundational data or the creation of a system to gather such data when absent.
The report provides an advantage for accessing sustainable investments and financial capital, aids in identifying and managing risks and opportunities arising from sustainability and reduces environmental impacts. It serves as the basis for better dialogue among stakeholder groups, enhances the company’s credibility and reputation in the eyes of various parties, and is crucial information for business partners, investors, and asset managers to comprehend sustainability-related risks across the entire value chain of the company.
Social benefits for companies
The information reflected in sustainability reporting can be utilized by ultimate beneficiaries (individuals and depositors), trade unions, and organizations spearheading social dialogue, as well as partners aiming to hold entrepreneurs accountable for their impact on people and the environment. Policymakers and environmental agencies can utilize the information from the report as a basis for environmental accounting and policy direction. Without the sustainability information provided by entrepreneurs, target audiences would struggle to verify entrepreneurs’ claims, leading to increased administrative burdens due to one-off information requests.
How Miltton can assist you
Sustainability reporting is inherently clear and understandable – it makes corporate operations more transparent and aids in moving closer to the goals of the Green Deal through sustainable activities.
However, in reality, it involves an extremely detailed and potentially complex system that companies need to establish. Miltton can assist you in the following ways:
Training – We introduce the basics of sustainable entrepreneurship (ESG) to your company’s management/employees. We explain what sustainability reporting entails – what data it includes and how to compile it. We describe the global foundations and agreements that lead to legal obligations.
Analysis – We conduct a significance analysis within your company, outlining the current situation; your desired goals (GAP analysis), and align them with the Corporate Sustainability Reporting Directive (CSRD).
Roadmap – We create a roadmap for your company, detailing the timeframe and steps to achieve readiness for sustainability reporting.
Report Framework Creation – We design a sustainability reporting framework for your company based on CSRD requirements. This serves as the basis for report formatting and auditing.
Visualized Report & Strategy – Using your company’s data, we create a visualized report that can be used for internal and external communication with your employees, clients, investors, and the public. Based on the report and ongoing analysis, we help your company establish a sustainable business strategy and metrics for tracking progress towards both your business and global sustainability goals (SDGs).