ESG

Companies are expected to take responsibility for the climate and society. They should not only focus on profitability, but they should also map out the impact of their business on society. As part of this, new (European) legislation has been adopted: ESG legislation. ESG stands for: environmental, social, governance.

New legislation

As of this year, large companies must comply with new ESG legislation. This legislation includes (among others):

• the Corporate Sustainability Reporting Directive (”CSRD”) with the accompanying European Sustainability Reporting Standards (”ESRS”);
• the Corporate Sustainability Due Diligence Directive (”CSDDD’).

The CSRD requires companies to include ESG reporting in their financial statements. Companies must report on the effects of their business operations on the environment and society. This involves the entire value chain. In addition, the company must also report on what impact, risks and opportunities the ESG topics have on the company.

Sustainability reporting must comply with the ESRS. The ESRS contains rules and guidance for framing and disclosing the sustainability report. It is up to the company to perform a double materiality assessment: an assessment of the company’s impact on the environment, as well as the impact of the environment on the company. This identifies which sustainability issues are important to the company and its stakeholders. This analysis requires the right expertise.

The ESRS consists of twelve standards. The first two are general-tempered and contain basic principles. These basic principles contain rules on reporting on strategy, governance and decisions related to materiality. The remaining 10 standards cover various ESG themes, such as employees, climate change and pollution. ESRS reporting requirements vary by theme.

Who must comply with the reporting requirement and from when?

More and more (and also smaller) companies are required to report under the CSRD. The obligation to report under the new standards applies to:

• From financial year 2024: companies required to comply with the requirements of the EU Non-Financial Reporting Directive (only mandatory for large listed companies);
• From financial year 2025: all large companies (turnover exceeding €50 million per year, balance sheet total exceeding €25 million per year and/or more than 250 employees over one year);
• From financial year 2026: listed SMEs;
• From financial year 2028: non-EU companies (turnover within the EU higher than € 150 million, an EU subsidiary that qualifies as large or is an SME or small listed company and/or has a branch office in the EU with an annual turnover of more than € 40 million).

Are you curious as to when the obligations apply to your company? Use the figure below to assess whether and from when the sustainability reporting obligations applies to your company:

De CSRD requires a great leap forward

The reporting requirements are comprehensive, far-reaching and complex. It is considered advisable to be well prepared for these reporting requirements, even if the CSRD does yet not apply to your company. The urgency to take responsibility for climate and society is reinforced not only by strict laws and regulations, but also by more critical consumer and investor behavior.

Are you in doubt whether your company is ready for these new obligations? Then it is considered advisable to seek advice.