Environmental Social Governance (ESG)

What is ESG?

ESG stands for environmental, social and governance. In simple terms, it refers to a set of standards and rules related to business operations aimed to ensure sustainable development that brings social and environmental benefits. These efforts are meant to create a better world, not only for us but for future generations as well.

The concept of ESG emerged in the early 21st century but has gained more relevance thanks to the Corporate Sustainability Reporting Directive (CSRD) adopted by the European Parliament in November 2022. The CSRD replaced previous legislation on non-financial reporting, i.e. the Non-Financial Reporting Directive (NFRD).

To learn more, check out our ESG Newsletter “Introduction to ESG”.

ESG goals

ESG aims to positively impact environmental protection and support the goals set by the European Union, e.g. significantly reducing CO2 emissions and achieving climate neutrality. By implementing an ESG strategy, companies are expected to reduce their consumption of natural resources, encourage recycling and protect biodiversity.

The social dimension of ESG is equally crucial. This includes respect for human rights, ensuring decent working conditions, combating discrimination and promoting equal opportunities for all employees, regardless of gender. The social aspect also encompasses corporate social responsibility, where companies engage with local communities by, for example, funding neighbourhood events, supporting tree planting and maintenance, organising employee volunteering programs, or investing in education.

ESG reporting – what is it?

ESG reporting is a mechanism that involves publicly disclosing information about an entity’s practices in terms of corporate governance, environmental impact and social responsibility. This information should cover the entity’s strategy, actions taken and their results. In simple terms, large entities operating primarily in the financial market – such as listed companies, insurance companies and banks – are required to disclose this information, however, these are not the only groups covered by this requirement. We explore this topic further in our ESG Newsletter “ESG reporting in a nutshell. All the reporting undertaking needs to know and more”.

ESG reporting requirements that apply in the European Union are defined by the CSRD and the related European Sustainability Reporting Standards (ESRS). Data collected may include information on water and energy consumption, greenhouse gas emissions, employee diversity and assessments of the company’s environmental impact.

ESG criteria: When des ESG reporting become mandatory? Which entities are required to publish ESG reports?

The obligation of ESG reporting will extend to more entities over the coming years. Below is the timeline outlining when specific entities must begin ESG reporting.

ESG reporting for 2025 will become mandatory in 2026 for further entities, namely large entities both listed and unlisted, and parent companies of large corporate groups:

• meeting two of the following criteria: over 250 employees, a balance sheet total of over EUR 25 million or net revenue of over EUR 50 million,
• in the case of parent entities – large groups that in consolidated terms meet two of the above criteria.

In 2027, the new legislation will extend to further entities. Importantly, these entities will have the option to delay the reporting for up to two years. Small and medium-sized enterprises (public interest entities) listed on a regulated market, excluding micro-enterprises, will also be covered by the reporting obligation. They must meet at least two of the following three criteria: over 10 employees, a balance sheet total of over EUR 450,000, annual revenues of over EUR 900,000.

The final implementation phase will take place in 2028, when ESG reporting will also become mandatory for non-EU companies with net revenues in the EU of over EUR 150 million and at least one subsidiary or branch in the EU.