FAQs for companies starting with ESG reporting

Are you about to implement ESG reporting in your company, but have more questions than answers? You are not alone. We've summarised the most common questions from ESG novices in our article. 

Which reporting methodology should you choose?

The draft European Sustainability Reporting Standards were published at the end of April. They are now being consulted on and should be finalised in November this year, but the basis will not change. Therefore, companies can already follow them. For certain areas (e.g. employee issues, energy, emissions, waste), GRI standards - which the European standards are partly based on - can also be consulted. However, we recommend that you only consult the areas that overlap with the European standards.

Otherwise, you would be doubling your work and tracking data that is not relevant. It only makes sense to follow GRI more broadly if there is a clear reason to do so, such as requirements from a business partner. 

Which ESG areas should you to focus on most?

It also depends on the specialisation of the company and the sector in which it operates.

However, the following topics are generally the most critical for companies:

A) climate: energy consumption and emissions 

B) employee issues 

C) human rights and environmental due diligence

‍Is there any framework that defines exactly what companies must disclose? When does reporting according to the CSRD become mandatory?‍

For companies in the European single market, the framework is the European Sustainability Reporting Standards. Reporting according to these standards will be mandatory as of 2024, partly depending on the speed of transposition in individual member states.

The legal requirements apply to large companies meeting at least two of the following three criteria: net turnover of at least €40 million, more than 250 employees, and assets on the balance sheet of more than €20 million. The obligation will also apply to all listed companies (except micro-companies). It can be expected that other SMEs will also be required to provide key ESG data by financial institutions and large buyers, for example, to calculate their carbon footprint (Scope 3).

Do you need to install ESG reporting software to collect data for reports? If so, which one?

Software is not a necessity, it depends on the circumstances and needs. Overall, it has two added values. First, it replaces the Excel spreadsheets you would create to track data, making your job easier. The second added value is data visualisation. But these are "nice to have" items that need to be considered according to actual needs. Don't start by choosing software. First, prepare your data records and subsequent reporting manually, and then assess what you actually need. It will also be important for you to know what data tools you already use and how they are interlinked. It is essential that your systems are interoperable and the data collection process is automatized. 

Is it necessary to gradually improve your company's performance in each area of ESG reporting?

No. In general, it's all about reporting and transparency. 

But it is important to take a closer look at two areas in this regard:

A ) sustainability due diligence

You should address the risks of human rights violations through what is known as ‘due diligence’ process. In this case, in addition to reporting, legislation is being developed that will make it mandatory for companies to act. The first step is to have a corporate due diligence system in place. This is particularly crucial for large companies with production outside the EU that operate in risky sectors such as agriculture, clothing, or mining.

B) Climate targets and climate transition plans 

Companies will have to disclose firstly information on their strategies, risks, policies and targets, and secondly standardised ESG data. For the first category, mandatory standards will define what information is to be provided, but the specific content will depend on the company's approach. For example, it is legitimate to state that a company does not have a climate target or climate transition plan. However, when a company indicates that it wants to achieve climate neutrality, it needs to report against the comparable criteria for framework climate transition plans that the EU standards establish.

Companies will then explain their plans against these criteria, including whether they are consistent with the achievement of climate neutrality in 2050. This is to avoid the greenwashing that currently dominates this area of reporting. Secondly, the standards set out specific indicators against which companies will have to report ESG data. Thus, there will be a need to report on the ongoing progress of performance towards climate neutrality. Again, this is not a hard requirement, but a transparency requirement. Ultimately, however, it is likely to be essential information for investors when deciding to finance companies in sectors that are critical to the transition.

What should the report look like in practice? What form should it have? 

ESG reports will have to be published as a separate chapter in companies’ annual reports, must be made freely available, and include an assurance opinion. The format is flexible, but the information must be marked to correspond with the categories of the requirements in the EU standards. Digitisation will also become more important in the future - data is to be reported in XHTML format with XBRL tags, similar to financial reporting (a standardised way of transmitting financial records worldwide).

Get in touch with Frank Bold

We can provide you with guidance and support for your human rights and environmental due diligence process and your reporting concerning ESG disclosures. It is a precondition for the sustainable activities defined by the EU Taxonomy and green financing under the Sustainable Finance Disclosure Regulation, including green bonds.

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