ESG Reporting: Current Status and Relevance for companys

In order to shape a common "green" Europe, a first basis was created in 2020 with the EU taxonomy. This includes climate protection, adaptation to climate change, water and marine resources, the circular economy, environmental pollution and biodiversity and ecosystems as six key environmental goals. Since then, further innovations have been introduced, which must be gradually implemented by companies. For example, the European Commission presented a first draft for the new Corporate Sustainability Reporting Directive (CSRD) as early as April 2021. This was adopted by the EU Parliament in November 2022 and, when it came into force on 5 January 2023, it replaced the previously applicable Nonfinancial Reporting Directive (NFRD). The NFRD has been in force since 2017 and already obliged some companies to publish a sustainability report. The EU nations now have 18 months since the adoption to transpose the directive into national law.

The CSRD affects a large proportion of European companies:

1. All large companies with an annual average of 250 employees or more, regardless of capital market orientation. Furthermore, the following characteristics also apply to large companies: having a balance sheet total of more than 20 million euros and a turnover of more than 40 million euros. To fall under this category, two of these three characteristics must be exceeded. They are subject to reporting requirements as of 01.01.2025.
2. All capital market-oriented small and medium-sized enterprises with more than 10 employees, a balance sheet total of more than 350,000 euros and a turnover of more than 700,000 euros. Two of these three characteristics must apply. They are subject to reporting requirements as of 01.01.2026. Micro-enterprises are excluded for the first time.
3. Non-European companies that achieve a net turnover of more than 150 million euros in the EU and have at least one subsidiary or branch there must also publish a sustainability report. They are obliged to report as of 01.01.2028.

With the exception of capital market-oriented subsidiaries, subsidiaries are still exempt from their own reporting obligation if the reporting takes place at group level. In this case, the subsidiary must refer to the group report.

In addition to the six fundamental environmental goals, social and governance aspects are also to be taken into account in the CSRD. For a corresponding framework, the European Reporting Advisory Group (EFRAG) submitted the final drafts to the European Commission on 23 November 2022.  The framework contains both sector-independent, sector-specific and organisation-specific standards that should make it possible to classify corporate activities as environmentally sustainable. In addition, a digital taxonomy will appear at the same time, which will make the reports machine-readable and thus easier to evaluate.

The replacement of the NFRD by the CSRD also brings changes in terms of format with the introduction of the new sustainability standards. In the past, the sustainability report was often published as a separate report. This option will no longer exist and integration into the final report will become mandatory.