ESG reporting: What changes are expected in 2024?
What does “ESG reporting” mean?
ESG reporting stands for the documentation of data from the areas of environment, social & governance.
ESG reporting is used to check how sustainable companies really are. The aim is for companies to develop a sustainability strategy and for climate protection to become an important part of the economy.
Companies are obliged to report on their sustainability measures in order to be able to evaluate their efforts. Reporting is to be standardized and digitalized - throughout Europe - so that the quality of companies’ sustainability can be compared.
ESG reporting, which is subject to the new CSRD Directive, will make significantly more companies accountable in 2024.
When was ESG reporting introduced?
Strictly speaking, the reporting obligation has existed for some time. Only the reporting requirements and standards changed in 2023.
The CSR Directive has been in force since December 2014. This obliges companies to provide non-financial statements in their management report. This involves declarations on how they regulate economic, environmental and social aspects of the company and what measures they take to preserve human rights and combat corruption. These are measures that are implemented voluntarily.
The companies previously affected by the CSR reporting obligation were defined by the NFRD (Non-Financial Reporting Directive) until January 2023.
The new CSRD came into force in January 2023. A directive that both significantly tightens the rules for ESG reporting and expands the group of companies affected by the reporting obligation.
Why does the CSRD Directive exist?
The reporting information under the CSR Directive was primarily of a qualitative nature. This made it rather difficult to assess the measures, let alone monitor them in the form of a sustainability comparison between companies. This is the reason why the CSRD Directive was introduced:
The aim of the new ESG reporting is to achieve better comparability of companies’ sustainability reporting. Therefore, the new ESG reporting includes opportunities and risks of sustainability measures as well as financial indicators that measure the development of companies’ environmental, social and corporate performance.
In short, the new ESG reporting guideline makes companies’ sustainability efforts transparent for everyone.
Who does ESG reporting apply to?
Previously, only capital market-oriented companies with more than 500 employees were affected by the CSR reporting obligation. In addition, all banks, credit institutions, insurance companies and investment companies. This was regulated by the NFRD Directive, which was valid until 2023. The new CSRD EU Directive has been in force since January 2023. This replaces the NFRD and tightens the existing reporting requirements. From 2025, companies that are not capital market-oriented will also be responsible.
What will change for companies in 2024?
For those already subject to the NFRD, more extensive and detailed ESG reporting requirements now apply (insert link to components of ESG reporting later). The new form of reporting must already take place from January 1, 2025 for the year 2024.
From 2025, ESG reporting will no longer only apply to capital market-oriented companies, but also to large companies that meet at least two of the following criteria:
- more than 250 employees
- more than 20 million euros in total assets
- more than 40 million euros net turnover
The reports for 2025 must be available by 2026.
From 2026, small and medium-sized capital market-oriented companies with ten or more employees will also be affected by the reporting obligation.
At a glance: When does the reporting obligation apply?
- From January 1, 2024 - all companies that are already subject to the NFRD
- From 1 January 2025 - all large companies that are not currently subject to the NFRD and that meet two of the following three criteria: more than 250 employees, more than EUR 20 million in total assets, more than EUR 40 million in net turnover
- From January 1, 2026 - all small and medium-sized capital market-oriented companies, including captive insurance companies
- From January 1, 2028 - all non-EU companies that fall under the CSRD reporting obligation
Components of ESG reporting
In ESG reporting, companies report on environmental, social and management-related measures.
Examples of ecological measures in ESG reporting:
- Environmentally friendly waste disposal
- Protection of our forests and waters
- Conservation of biodiversity and ecosystems
- Efficient use of natural resources such as water, energy and raw materials
- Measures to combat climate change
- Reduction of GHG emissions
- Reduction of energy consumption
Social measures in companies:
- Supporting local communities
- Commitment to equal opportunities, diversity and inclusion in the company
- Creating healthy working conditions
- Security concepts for employees
- Protecting the private data of customers and employees
- Protecting the privacy of consumers/customers
Examples of management-related measures:
- Compliance with tax laws
- Transparent remuneration of board members and executives
- Disclosure of donations and lobbying activities
- Measures against corruption and bribery
- Diversity within the board of directors and management level
ESG reporting stands for the documentation of environmental, social and governance-related data in your company. It serves to evaluate and promote the sustainability of companies. The CSRD Directive, which came into force in January 2023, has tightened the ESG reporting requirements for 2024 and expanded the group of companies affected. From 2025, more companies will therefore be obliged to report on their sustainability measures. The aim of the CSRD is to improve the comparability of reports and transparently communicate the progress of a clear sustainability strategy. This means that ESG reporting is not only mandatory, but also supports sustainability and trust in your company.
We recommend preparing for ESG reporting at an early stage. In our blog, we will guide you through the most important steps in future and provide you with the most important information.