28.10.2024
What is ESG?
Key information:
- ESG is the abbreviation for Environmental, Social, and Governance, a set of criteria that assesses companies' environmental, social responsibility and corporate governance activities,
- CSR (Corporate Social Responsibilty) stands for corporate social responsibility. It brings together all the activities of an organization that affect employees, stakeholders and the community of the place where the company operates,
- CSRD (Corporate Sustainability Reporting Directive). is the Corporate Sustainability Reporting Directive, which applies to all European Union countries and imposes specific ESG reporting obligations,
- From 2024 The CSRD requires ESG reporting from large companies in Poland, employing at least 500 people, with a balance sheet total of more than €20 million and/or having annual revenues of more than €40 million. From 2025 This obligation will extend to all large entities that meet certain criteria, and the as of 2026 Also medium and small listed companies,
- ESRS (European Sustainability Reporting Standards), are sustainability reporting standards that aim to provide European companies with a uniform method of reporting ESG information,
- Implementing ESG principles can enhance a company's reputation, provide better access to financing, attract investors, or optimize costs,
- The impact of ESG reporting regulations on companies is unavoidable and will apply to any business entity, regardless of its size.
Details below!
What is ESG?
In recent years, the concept of ESG (Environmental, Social, and Governance) has been gaining increasing attention in the business world. ESG implementation is an approach to corporate management that aims to Sustainability of the organization based on three key areas: environmental, social and corporate governance. ESG is a topic of particular relevance to business, not only in the context of new sustainability reporting obligations, but also because of the benefits that implementing ESG principles brings to organizations. It's worth learning what the concept is, who should report it, and why it's worth implementing ESG in your company now, even if the reporting obligation doesn't apply to it yet. Keep in mind, however, that starting in 2026, non-financial reporting will become mandatory for many companies, which means that preparing for the process now can be crucial.
ESG, and Sustainability and CSR
CSR (Corporate Social Responsibility) is an approach in which companies voluntarily engage with society and the environment, often focusing on charitable and image initiatives. The genesis of both terms, CSR and ESG, stems from the desire of corporations to implement practices that positively impact the environment. CSR focuses on demonstrating that business can be responsible to the environment, through self-regulation and philanthropic activities that have a positive impact on its environment, consumers, employees and local communities.
ESG, on the other hand, takes these efforts to a measurable level, providing specific metrics to evaluate and compare corporate actions. ESG enables investors and consumers to analyze aspects such as employee management, supply chain, climate change response, diversity and social ties. ESG is thus an extension of CSR, giving it a measurable form and allowing an accurate assessment of corporate social responsibility.
What is included in ESG reporting?
The ESG report should include comprehensive information on the company's activities in three key areas:
- Environmental
The ESG principles in this regard relate to a company's impact on environmental activities, such as reducing CO2 emissions, managing natural resources efficiently and implementing green technologies.
- Social
The ESG criteria for social aspects focus on relations with employees, communities and customers, covering human rights, working conditions, diversity and community involvement.
- Governance
In terms of corporate governance, ESG refers to a company's governance, transparency of operations, business ethics and board structure, which is important for building trust among investors and stakeholders.
The combination of these three aspects is key to the effective creation and implementation of a Sustainability strategy that will enable reliable reporting.
When and who should report ESG?
The CSRD, one of the main pillars of the European Union's Green Deal, took effect in 2024. Who does it apply to? In Poland, reporting for the current year applies only to large entities that are so-called public interest companies, which meet the following conditions:
- employ at least 500 people,
- Their balance sheet total is above EUR 20 million
- and/or annual revenues represent more than €40 million.
However, the ESG Directive will be gradually extended to more entities - a three-stage timetable stipulates that every year more companies will be obliged to implement the ESG reporting procedure into an ESRS-compliant corporate development strategy.
From January 2025, ESG reporting in Poland and the European Union will become mandatory for all large entities Meeting at least two of the following three criteria:
- employ at least 250 people,
- their balance sheet total is above EUR 25 million
- and/or annual revenues represent more than €80 million.
Starting in 2026, medium and small listed companies will also have to disclose their ESG results from business operations.e that meet two of the three criteria:
- employ at least 10 people,
- their balance sheet total is above EUR 350 thousand
- and/or annual revenues represent more than €700,000.
What about companies outside the European Union? As early as 2027, companies based outside the EU with a subsidiary or branch that have annual revenues of more than €150 million within the EU will be subject to reporting obligations.
How does ESG affect the enterprise?
The introduction of ESG can significantly affect a company, especially in terms of sustainability and risk management. Implementation of an ESG strategy not only responds to increasing regulatory requirements, such as the CSRD, but also enhances a company's reputation, which is crucial from the perspective of investors and stakeholders. Sustainability reports and adherence to ESG reporting standards, such as the ESRS (European Sustainability Reporting Standards), allows for a transparent presentation of a company's sustainability efforts for the organization.
Companies that successfully implement a given strategy can count on a number of benefits, including better access to financing, improved employee relations and greater attractiveness in the eyes of investors. It's worth introducing ESG into a company to ensure its long-term growth and stability.
The impact of ESG reporting regulations on companies is inevitable and affects every business entity, regardless of size. Requirements imposed by the European Union oblige companies to take measures to comply with Sustainability standards. In view of this, every company should start implementing appropriate procedures and practices as soon as possible. Delaying this step for too long can lead to serious legal, reputational and financial consequences.
What are the benefits of ESG reporting?
Non-financial reporting is not only an obligation under increasing regulatory rules and standards, but also a significant opportunity to build a competitive advantage in business. The benefits of ESG implementation for a company are many. ESG implementation can help meet customer expectations or attract and retain the best employees.
Looking through an investor's eye, a company with a strategy that takes ESG topics into account will be attractive for potential investment because of its effective management of environmental and social risks.
Other benefits associated with implementing ESG strategies include optimizing energy and raw material consumption, which can lead to lower emissions of greenhouse gases and other pollutants.
ESG as an important part of business management
Understanding what ESG is, and implementing the principles around the concept, is crucial for any company that wants to realize the Sustainable Development Goals and increase its value in the market. Implementing this strategy and ESG reporting not only helps meet regulations and reporting standards, but also attracts investors and builds a positive corporate image. The coming months and years will bring many changes in this area, so it is worthwhile to introduce policies and practices on the issue of organizational sustainability now. If you want not only to increase the value of your company, but also to contribute to building a better future, click here!