SUSTAINABILITY REPORT: ADVICE FOR YOUR COMPANY

A sustainability report should include information about a company’s environmental, social and economic performance and the associated impact on society, backed up with facts, figures and data. Thus, a sustainability report usually covers the following points:

An overview of the organisation’s sustainability strategy, goals and objectives.
An organisational profile
Information on the company’s governance structure, management approach and stakeholder engagement activities
Information on the organisation’s environmental impacts, including data on energy and water consumption, greenhouse gas emissions, waste and recycling
Information on the organisation’s social impacts, such as labour practices, employee diversity and their community involvement
Data on the economic impact of the organisation
Future sustainability goals and strategies and the strategies to achieve them.

In most cases, the preparation of a sustainability report is not currently mandatory, but is increasingly expected by a company’s stakeholders. Governments in several countries have also enacted regulations that require companies above a certain size to report on environmental, social and governance (ESG) issues. The front-runner in global standards for sustainability reporting is the EU. Since November 2022, around 50,000 companies are covered by new regulations within the Corporate Sustainability Reporting Directive (CSRD) adopted in the European Parliament.
For example, large companies in the EU are affected if they exceed two of the following three criteria: more than 250 employees, more than €40 million in net sales, more than €20 million in total assets.
However, small & medium-sized capital market-oriented EU companies must also comply with the obligation if they exceed at least two of the three criteria: ten employees, €700,000 in net sales and/or €350,000 in total assets.
Covered companies must disclose in their sustainability report, among other things, non-financial information on the following topics:
Business model, strategy, resilience, opportunities and compatibility with the transition to a sustainable economy.
Targets and objectives
Governance, policies and practices
Key impacts
Business risks related to sustainability factors
Businesses need to provide information appropriate to these issues:
qualitative and quantitative
retrospective and forward-looking
provided with short, medium and long-term time horizons
Furthermore, the placement of the disclosure plays a role: the sustainability report must be integrated into the management report.
Completely independent of the given legal requirements, many companies voluntarily prepare an annual sustainability report, as they see it as part of their commitment to transparency.

There are many advantages to producing a sustainability report:

It increases transparency about the company’s sustainability performance.
It increases stakeholders’ trust in the organisation.
It leads to improved risk management in relation to climate change, resource depletion and social unrest.
It helps identify opportunities associated with sustainability issues.
It increases accountability as companies hold themselves accountable for their sustainability performance.
It helps to set clear goals and targets and track compliance.
It motivates a company to improve its sustainability performance and take action to address issues.
It provides a platform to share sustainability issues with others.
It can give organisations a competitive advantage by demonstrating their commitment to sustainability and setting them apart from the competition.
It can help attract customers and employees who value sustainability.

Within the EU, certain companies of public interest have had to report on their sustainability for a few years now. Since 2014, this has been regulated by the Non-Financial Reporting Directive (NFRD). In November 2022, the EU Parliament adopted the Corporate Sustainability Reporting Directive (CSRD), which replaces the NFRD.

With the CSRD, both the scope and the type of non-financial reporting will change profoundly in the future, especially with regard to sustainability aspects. Affected from now on are:

 

Large companies that meet two of the following three criteria:

→ a balance sheet total of at least 20 million euros;

→ a net turnover of at least 40 million euros; or

→ an average number of employees of 250 in the business year (European Commission, 2021).

Small & medium-sized enterprises, excluding micro-enterprises, in the public interest (e.g. listed SMEs), which meet two of the following three criteria:

→ a balance sheet total of at least 4 million euros;

→ a net turnover of at least 8 million euros; or

→ an average number of employees of 50 in the financial year (European Commission, 2021).

 

Parent companies of large enterprise groups that meet two of the following three criteria at the consolidated level:

→ a balance sheet total of at least 20 million euros;

→ a net turnover of at least 40 million euros; or

→ an average number of employees of 250 in the financial year (European Commission, 2021).

 

Companies in third countries with a turnover of €150 million in the EU whose subsidiaries achieve a turnover of more than €40 million. According to estimates, this means that 49,000 companies will be subject to reporting requirements in the EU as a whole instead of 11,600 in the past (European Commission, 2021).

However, this will not all happen at the same time. The first reports will be made on the financial year 2024 by companies & parent companies in the public interest that show a number of employees greater than or equal to 500 in their balance sheet for the financial year. One year later, starting with the financial year 2025, all other companies & parent companies considered large will report for the first time in accordance with the CSRD. Small and medium-sized public interest entities, small non-complex credit institutions, and captive insurance companies will start reporting for the financial year 2026. And the above-described companies in third countries with turnover in the EU will be obliged to report for the first time with the financial year 2028 (European Commission, 2021).