Sustainability pays. Latest studies show benefits of ESG reporting by business

Sustainability data disclosures enhance competitiveness and save companies' costs, including SMEs. These are the results of recent research on non-financial reporting. Why is sustainability becoming so valuable for companies? 

In 2022, the European Union will adopt the Corporate Sustainability Reporting Directive (CSRD), which will extend the number of companies under reporting obligations four-fold compared to existing rules. The upcoming legislation is critical for companies to leverage the business opportunities derived from the EU sustainable finance strategy and Green Deal - without reporting relevant ESG data, companies will not be able to access finance mobilised to support sustainable activities. 

The European Commission's impact assessment on the CSRD and linked research from the Centre for European Policy Studies (CEPS) on the previous Non-Financial Reporting Directive (NFRD) show that mandatory sustainability reporting is both affordable for business and actually leads to a reduction in cost in the medium- and longer-term.

The additional or incremental cost from the legislation is calculated to be just 0.005% of turnover on average for the first year, and is calculated to further reduce in subsequent years, once systems are set in place. According to the Impact Assessment, the CSRD will lead to an average saving of EUR 24,200-41,700 per company each year in streamlining requests for sustainability information to the business from other sources. 

Common European standards will generate savings

The CSRD and evolving European reporting standards should clarify what sustainability data companies need to report, and simplify the process of obtaining data from business partners and suppliers. The new directive will also reduce the amount of additional ESG information required by a growing number of banks, investors, rating agencies, and others. The benefits of sustainability reporting are amplified by the EU's sustainable finance strategy, which aims to channel €1,000 billion a year to support green activities.

Advantage of ESG reporting is seen by companies in better risk management.

Indeed, the explosion of demand for sustainability information from different actors is shown to be the true future cost to business, inevitable unless a more widely accepted set of reporting standards is established, allowing the existing 'fragmented' landscape of reporting demands to 'converge'. The public consultation conducted by the European Commission on the CSRD shows that 80% of companies who prepare reports supported the establishment of common reporting standards. Another advantage of ESG reporting is seen by companies in better risk management. Two-thirds of companies surveyed by CEPS supported that integration of sustainability with financial risks was providing benefit to their business.

Benefits accrue across Europe and to all companies

Evidence that sound ESG reporting benefits EU companies comes from further, national studies too. For example, there is new research from Romania showing that the quality of sustainability reporting leads to better business growth.

Common reporting rules are also supported by SMEs. The survey by the German Banking Association shows that 75 % of surveyed SMEs welcomed the fact that the EU wants to extend the scope of sustainability reporting requirements to include their companies as well. They are seeking guidance on proper ESG reporting to access sustainable finance. Therefore, they do not want to be left out of the new legislation, which is intended to provide companies with such guidance.

Although companies are improving in ESG reporting, key data is still missing. 

Current sustainability reporting rules are guided by the 2018 Non-Financial Reporting Directive (NFRD), which requires large listed corporations to disclose relevant information on climate, environmental, human rights and anti-corruption risks and impacts. However, an analysis conducted by the Alliance for Corporate Transparency and led by Frank Bold on company sustainability reports from 2021, shows that although companies are improving in ESG reporting, key data is still missing. 

Guiding companies through the changes

Experts from Frank Bold have been working on ESG reporting for 10 years directly in Brussels and are now involved in the development of reporting standards as part of the EFRAG Project Task Force on EU Sustainability Reporting Standards. Thanks to their extensive expertise, the Frank Bold experts can prepare companies for legislative changes and help them leverage the opportunities of the Green Deal. 

Frank Bold will guide companies through changes in the law, support them to define rules for quality ESG reporting, and arrange the entire green bond issuance. For real estate developers, Frank Bold experts will help align projects with criteria of the EU Taxonomy Regulation; for real estate funds, we will facilitate the process of portfolio transitioning to the new Green Fund standard.

See how Frank Bold can help you.

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