ESG: Companies gear up to meet new social responsibility reporting rules
Who needs a report, what needs to be in it, and how much does it cost? (Q&A).
In recent years, some large companies have started to add non-financial information about corporate social responsibility activities, known as ESG (environmental, social, governance), to their annual reports. Thus, amid complaints over a lack of standardisation among current reporting, the European Union last summer adopted uniform reporting rules – the European Sustainability Reporting Standards (ESRS).
The Index magazine has prepared answers to the most frequently asked questions about the new reporting obligations for companies.
1. What should ESG reports contain?
2. Which companies will have to report?
3. When do companies have to start reporting?
4. What is the purpose of an ESG report?
5. Who is involved in preparing an ESG report?
1. What should ESG reports contain?
Companies will have to disclose what energy mix they use in production, including how much of their energy comes from renewable sources and how much from fossil fuels. They also have to explain the impact their business has on people in the company as well as on society.
They will be assessed on the suitability of working conditions, equal opportunities and gender equality, and as regards the long-term training of employees.
How the company approaches fraud prevention and money laundering, whether it offers fair employee remuneration and practises ethical behaviour, and how it prevents unfair competition, for example in the form of greenwashing, will also be important.
The ESG report is a comprehensive document which covers processes across a whole company, from the management structure to corporate emissions and from waste recycling to water management.
2. Which companies will have to report?
Reporting under the new rules will be mandatory for large companies with more than 500 employees as well as for small and medium-sized enterprises that meet specific criteria, such as annual sales of more than €40 million or assets of more than €20 million.
In Slovakia, this obligation will apply to hundreds of large companies and thousands of small and medium-sized enterprises. The former includes banks, insurance companies and investment funds, as well as industrial enterprises and electricity and heat producers.
3. When do companies have to start reporting?
Large companies will have to report for the first time in 2025 for the previous year, while smaller companies will not be obliged to do so until 2027, although this may be delayed until 2029.
For companies that already produce ESG reports as part of their existing practices, Brussels officials say they should try to align their current reporting with the new EU rules as soon as possible.
4. What is the purpose of an ESG report?
The report is designed to provide customers and potential investors with information on whether a company is operating in accordance with environmental and socially sustainable development rules.
Property developer Corwin is not yet required to produce an ESG report, but it has nevertheless already issued its second sustainability report to transparently communicate how it does business.
“We did a major audit of our own data,” said Michal Hájek, marketing director at Corwin. “Thanks to this we now have a better understanding of the impact of our activities and can set measurable goals for the future.”
Hájek said it was very important to be transparent in reporting financial data, but also in relation to business partners. This has also helped Corwin prevent so-called greenwashing.
“The ESG report has also increased the attractiveness and credibility of our company in the eyes of candidates for vacant job positions,” explained Hájek.
Conversely, if a company is not considered green or at least temporarily sustainable, it could have problems with financing and development in the future. Banks and potential investors will be reluctant to provide it with capital. Conversely, access to more favourable loans will give firms a competitive advantage.
5. Who is involved in preparing an ESG report?
Most firms do not have dedicated teams or proper data to prepare ESG reports. Marketing people, data analysts, IT specialists, as well as emissions and energy experts will need to work together on the reports, the cost of which can range from tens to hundreds of thousands of euros.
At Corwin, officials decided to build an ESG team because they did not just want to meet spreadsheet criteria. Team members spent two years getting the certifications needed for the reporting.
But the extra expense will pay off in the long-run, the company says. The assumption is that investors would rather put their money into a firm with a sustainable business than into a competitor without a clear ESG goal.
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