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ESG reporting is becoming more and more relevant for all companies as we get closer to the day it becomes EU law.
But what is ESG, and how will new regulations affect you?
ESGstands forEnvironmental, Social, and Governance and implies quantifying an organization’s environmental and social impact that it causes in its daily business.
Recently, the EU parliament has adopted mandatory sustainability reporting for all companies of a specific size by the beginning of 2024 with the long-term goal of having all companies report their impact in the future.
The new regulation coming into effect is called the Corporate Sustainability Reporting Directive (CSRD). It will expand current rules by addressing more companies, approximately 50.000, and requiring more specific reporting from them.
ESG as a whole contains 12 topical reporting standards:
For Environmental standards on
- Climate Change,
- Pollution,
- Water and Marine Resources,
- Biodiversity and Ecosystems,
- Resource Use, and
- Circular Economy.
Social standards include
- Own Workforce,
- Workers in the Value Chain,
- Affected Communities, and
- Consumers and End-Users.
Governance covers Business Conduct, such as
- Corruption,
- Bribery, and
- Lobbying.
Even though the CSRD requires all these standards, companies will only have to report on what is material for their business and, therefore, will be expected to conduct a Double Materiality Analysis. Particularly important is that in connection to the environmental aspect, companies will have to report on scopes 1, 2, and 3 (if applicable) of their carbon emissions.
Who needs to respond first?
The CSRD also determines which companies will be targeted at which point in time.
Large public interest companies with over 500 employees will have to report from the financial year 2024 for reports published in 2025.
For the financial year 2025, all large companies with over 250 employees or €40 million in turnover or €20 million in total assets must submit reports in 2026.
Finally, from 2026 all publicly listed SMEs and other undertakings will have to publish reports in 2027.
Why is this necessary, and how can you use mandatory ESG reporting to your advantage?
By requiring public ESG reporting, the government aims to standardize disclosed information about businesses’ impact for all stakeholders. It should also open up competition for sustainability in the market, creating a strategic incentive for companies to decrease their environmental footprints. These new developments are fuelling expectations that sustainability will become the new performance indicator of the future.
Working with these ESG regulations and helping customers comply with them is the daily business at BeWo, and they have become experts in the process.
It can be quite a complex procedure, so feel free to reach out if you have any questions. Check out their website for more resources and our contact information: BeWo
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