ESG reporting in Europe

ESG reporting in Europe: a complete, premium-member guide running through everything you need to know. Environmental, social and governance (ESG) is a central part of the governance playbook in Europe. It is widely accepted, and most prominent lawmakers (in national governments and Brussels) proudly embrace it. Because of that, the attention on ESG reporting is already large and likely to grow. This guide will tell you everything you need to know about it. Remember, though: while it focuses on the European Union, the breadth of reporting requirements can easily spill over into non-EU companies doing business within the bloc. ESG reporting in Europe and why it’s important ESG reporting has shifted from an optional extra to a fundamental part of corporate strategy and communication. To recap: ESG reporting is language companies use to show their risk and opportunities in the concept’s three central pillars. It enables firms to demonstrate impact to stakeholders, investors, regulators, customers and employees. Today in Europe, sustainability is the buzzword that doesn’t quit - just look at the EU’s ambitious plans to be a net-zero jurisdiction by 2050. And while ESG and sustainability are technically separate, they are so interwoven that ESG easily gets much of the limelight. The reporting aspect of ESG is what turns principles and strategies into demonstrable progress. The ESG reporting landscape in Europe EU regulations tend to get technical, with many four-letter acronyms covering huge collections of rules. It’s no different for ESG reporting, but here’s a quick summary of the relevant directives and what they mean: The corporate sustainability reporting directive (CSRD): Remember this - it’s now the go-to in Europe for ESG reporting. It has been in force since January 2023 and requires all large and listed companies to disclose specific information on ESG risks and opportunities. The European Sustainability and Reporting Standards (ESRS): This is the framework ESG aspects and metrics companies must use in their reporting to comply with CSRD. Think of CSRD as the destination and the ESRS as the map to get there. Non-financial reporting directive (NFRD): For the context of this guide, the NFRD was essentially a previous version of the CSRD. It set rules for specific companies around sustainability reporting, too. The difference is that the CSRD is newer, affects more companies, and requires more thorough reporting than NRFD. How do these rules work These rules are directives, meaning it’s up to each member state to transpose the rules into their national laws. The governments of these states will set the legal standards and penalties if you don’t follow them. Remember Today, the CSRD may require some companies outside the EU but doing business with an EU entity to also report on ESG. This is part of the bloc’s effort to shine the light on supply chains which may stretch further overseas but otherwise go unnoticed. So, if you’re running a UK business, for example, and work with companies inside the EU, you may be affected by CSRD. What kind of data do I need for ESG reporting in Europe? Here are some common categories below, and remember: the updated rules require you to be detailed as far as possible. Greenhouse gas emissions (covering scopes 1 (from sources the company controls directly), 2 (from the energy the company uses to function) and 3 (from other sources throughout a company’s value chain, for example, suppliers.) Waste management Gender equality Working conditions Human rights policies Management structures The integration of sustainability into business strategy. Remember, your focus on the above areas will fluctuate depending on the kind of business you are. What happens if my company doesn’t follow reporting rules? You’ll be penalised. Because CSRD is a directive, it’s up to each member state to decide on their own penalty policies, but they all need to support the directive’s primary goals. Initial penalties can come from regulators through legal action or fines - sometimes to a significant percentage of your company's worldwide (not just European) turnover. Other penalties can come from elsewhere, such as reputational damage from public knowledge that your company could not follow standards. This could impact your company’s ability to do business in future, angering shareholders and reducing confidence in your ability to govern. What does the future look like for ESG reporting? First, remember that although the CSRD came into force in 2023, there is a “warming-up period” for companies to get used to the rules. Because of that, the first reports under CSRD will be expected in January 2025, covering the 2024 fiscal year. During the rest of the decade, we will definitely see a more expanded and refined system around CSRD as problems are fixed and holes are plugged. For example, the rules will apply to more companies by 2029, and there will be a greater standardisation of reporting frameworks by then. The goal of the EU is to make this kind of reporting more reliable for any stakeholder. That means every company will be expected to operate in the same way. While it might be a big adjustment for some, it will dramatically enhance communication going into the 2030s - when the EU expects to reach the first of its climate goals. In summary The introduction of the Corporate Sustainability Reporting Directive (CSRD) heralds a new era of transparency, accountability, and sustainability in corporate operations. The significant development is that the EU is effectively making rules for companies outside its borders and makes no apology for it. The result is that corporate leaders worldwide need to seriously examine their reporting strategies to ensure they’re fit for purpose. From now on, the key is to look at these rule changes as an opportunity rather than more annoying red tape. The former will allow companies to better communicate with investors and governments; the latter will only feed a culture of tick-boxing and greenwashing.

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