Mandatory sustainability reporting

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What is this blog post about?

Sustainability and sustainable behaviour on the part of companies are becoming increasingly important and urgent. Annual sustainability reporting is therefore mandatory for companies at EU level in accordance with the CSRD (Corporate Sustainability Reporting Directive).

This is intended to disclose and make comparable the key sustainability aspects, actions and behaviour of companies with regard to the three aspects of environmental protection, social and economic developments in their annual reports.

But what is sustainability? What is the sustainability report and what impact does it have on companies? How can you best prepare for reporting in 2024?

The biggest threat to our planet is the belief that someone else will save it.

Robert Swan

Three dimensions of sustainability reporting

What is sustainability anyway?

In the United Nations Brundtland Report, sustainability is described as development that fulfils the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability is therefore the ability to exist and develop without depleting natural resources for the future.

The concept of sustainability is made up of three dimensions, which are particularly important for companies: Ecology (e.g. emissions and waste management), Social (e.g. equal opportunities and justice) and Economy (e.g. quality management and efficiency).

As part of the sustainability reporting obligation, companies should not only report on how sustainability aspects influence the company, but also how the company affects people and the environment.

Sustainability report in accordance with CSRD

The NFRD (Non-Financial Reporting Directive), which has been in force since 2014 and is mandatory for large companies, will be replaced by the Corporate Sustainability Reporting Directive (CSRD) in future. The CSRD is used for the annual disclosure of important non-financial indicators on environmental, social and employee matters in companies.

Information is requested that relates to various aspects of sustainability. These include the company's sustainability strategy, sustainability goals, risks, potential negative impacts of products and services, environmental factors such as resource consumption, social components and specific governance factors.

But what does this changeover to CSRD mean in concrete terms?

The CSRD Directive is to be managed under binding European reporting standards (European Sustainability Reporting Standards, ESRS) and is made up of sector-independent, sector-specific and organisation-specific standards. By anchoring double materiality, the principle of materiality used in Germany in particular is changed.

The required disclosures must be included in the management report of the annual report, which must be published no later than four months after the end of the financial year.

the most important information for the sustainability report

Who is subject to mandatory sustainability reporting and from when?

The CSRD has greatly expanded the scope of application within the EU. Around 50,000 companies are covered by the EU Commission's new regulation, as it no longer only affects capital market-orientated companies, but also ‘large’ companies. If a company fulfils at least two of the three criteria, it falls under the definition of a ‘large’ company and must report in accordance with the CSRD:

> 250 employees,
> 25 million euros balance sheet total
> 50 million euros in net sales (updated on 17/10/2023)

Micro-enterprises, which are defined as companies, are exempt from preparing a sustainability report. They do not have to prepare a sustainability report if they fulfil at least two of the following three criteria

< 10 employees during the financial year
< 450,000 euros balance sheet total
< 900,000 euros in net sales (updated on 17/10/2023)

When does your company have to prepare a sustainability report?

The reporting date is defined in a phased model:

from 2024 for large companies that are already subject to the NFRD
from 2025 for large companies that are not currently subject to the NFRD
from 2026 for listed SMEs

Objectives and challenges of EU standardised sustainability reporting Mandatory

The standardised European CSRD directive is intended to...
...comparable and reliable information is provided for stakeholders.
...ensure comprehensive, reliable and comparable sustainability information from companies in order to redirect investments towards more sustainable technologies and companies.
...compare non-financial reporting on ESG (environmental, social and governance) issues with financial reporting.
...companies deal with ESG criteria as part of a comprehensive company analysis.
...strategies are derived that are based on the opportunities and risks identified and whose success can be measured using KPIs.
On the other hand, there are challenges...
...for the environment: scarcity of resources, population growth, global warming, biodiversity, etc.
...for companies: initial reporting, derivation of measures, long-term implementation support, etc.
...with regard to the EU Action Plan and Green Deals: channelling capital into sustainable and inclusive investments.
...with regard to the definition of concrete targets, the collection of quantifiable key figures and the progress report.
..., as CSRD reporting is also accompanied by the publication obligation of the EU Taxonomy Regulation. This classification system shows whether a company's economic activity can be categorised as environmentally sustainable.

Contents of the sustainability report

Within the EU sustainability reporting framework, the CSRD provides the guidelines, while the European Sustainability Reporting Standards (ESRS) define the content.

The main or overarching report contents are clustered in the ESG factors (environmental, social and governance) and can be seen as examples in the following illustration.

Sustainability reporting (CSRD) - ESG factors.

What we do today determines what the world will look like tomorrow.

Marie von Ebner-Eschenbach

Why is the sustainability report so important?

Making a contribution to improvement

With a sustainability report, companies can make a significant contribution to improving processes and the entire system. For example, costs can be saved by analysing the use of materials or energy consumption.

Measurable progress and comparability

The environmental progress of a company can be measured with the regular analyses. The obligation to disclose these key figures also means that the sustainability performance of companies can be compared by stakeholders.

Strengthening the ability to innovate

A sustainability report can strengthen a company's ability to innovate by creating space for new developments and innovations through the analysis and optimisation of processes.

Sustainability as an integral component

By identifying and analysing risks, companies can seize opportunities to initiate new activities or enter new markets, for example, and thus implement sustainability as an integral part of the organisation.

Control instrument

Overall, the sustainability report is a good control instrument for continuously reviewing, evaluating and readjusting your own goals, performance and processes or making changes visible.

Increasing external perception and customer loyalty

Social and sustainability awareness is growing in society. For this reason, a sustainability report and a report on environmental aspects or working conditions, for example, can create a positive external perception that strengthens the emotional bond with the customer.

Transparency

By disclosing the company's activities, transparency is signalled to stakeholders and trust in the products and services is strengthened.

We are not only responsible for what we do, but also for what we don't do.

Molière

Prospects & recommendations

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Prospects
An additional ESRS set, which will be developed by mid-2024, will contain specific information and special standards for small and medium-sized enterprises with reporting obligations as well as standards for companies from third countries.
//
Recommendations
It is advisable to start setting up management systems and processes now in order to generate reliable key figures in accordance with the ESRS and to be well prepared for the process of preparing a sustainability report. When preparing for reporting, it is useful to bear in mind and consider the EU's objectives: It aims to transform economic activities, reaching into the core of business models. Sustainability reporting should make it clear that companies have embarked on this path and are actively participating in the transformation process that will bring about long-term change.

Sustainability reporting - Our conclusion

For companies, sustainability is no longer just an elementary component of successful corporate management, but has also become increasingly urgent. This is why the EU Commission introduced the CSRD Directive for sustainability reporting.

The first sustainability reports in accordance with CSRD must be disclosed from 2025 for the 2024 financial year. This disclosure regulation is expected to make a significant contribution from companies on the topic of sustainability.

A targeted green transformation relies above all on identifying the need for action at an early stage. Sustainability must also be anchored at management level, as only then will an organisation steer in a sustainable direction.

Sustainability must also be systematically measured and recorded, for example as part of the sustainability report, so that it can be implemented and continuously improved. Integrating sustainability into the corporate strategy and innovation processes is also essential.

Key Takeaways

CSRD replaces the previously valid NFRD Directive
CSRD is to be conducted under binding European reporting standards (ESRS) and is made up of sector-independent, sector-specific and organisation-specific standards
Carrying out a materiality analysis to identify relevant factors
The sustainability report must be attached to the management report
Companies that fulfil two of the three size criteria are obliged to do so:> 250 employees> 25 million euros in total assets> 50 million euros in net sales
Key content includes a company's environmental, social and economic activities
First report in 2025 for the 2024 financial year
Objective: Comparability of companies, examination of ESG factors and much more

Key takeaways Sustainability reporting
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LEITWERK takes up the green challenge

The challenges in the areas of climate change, biodiversity and many more are enormous. We at LEITWERK Consulting are not standing idly by and are making our positive, albeit comparatively small, contribution.

Based on our experience in project and process management as well as the transformation of companies, we are building up expertise in the field of sustainability in order to implement sustainable thinking and action in our clients' companies in the future. Specifically, we are expanding our consulting portfolio to include sustainability reporting and climate accounting / corporate carbon footprint.

Both topics are currently being developed. We are therefore entering into co-operations, strengthening the team in a targeted manner and carrying out pilot projects.

We see our positive contribution through the continuous support of our clients. Our many years of experience in implementing complex programmes and projects help us to drive forward even uncomfortable changes in the long term. On this path, we start with ourselves and make LEITWERK Consulting more sustainable. For us, the first step means

Anchoring sustainability even more deeply in our DNA
Involving all LEITWERKERs in this change without pressure or finger-pointing
Determining our footprint and slowly but surely becoming more climate-friendly

References:

World Commission on Environment and Development (1987): Report of the World Commission on Environment and Development „Our Common Future“. Oxford. S. 54.

Do you have any questions on this topic or are you interested in a consultancy service?

Your contact person

Florian Kröger

+49 89 189 235 96

florian.kroeger@leitwerk-consulting.com

...or write us via our contact form.

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Estimated reading time: 10 minutesWhat is this blog post about?