Do You Qualify for Mandatory ESG Reporting in 2025?

Oct 14, 2024

With the January 2025 deadline for mandatory ESG reporting approaching, many leaders are asking themselves if their organization will be affected. This article aims to clarify the specific criteria companies need to meet to be required to comply with ESG reporting regulations. We’ll explore the details, from company size to geographic region, to help you determine if your business qualifies for these new rules.

What Is ESG Reporting?

ESG reporting involves disclosing detailed information about a company’s environmental, social, and governance practices. This includes how a company manages its carbon emissions, energy usage, waste management, employee welfare, diversity, business ethics, and more. Investors, regulators, and other stakeholders use ESG reports to assess a company’s sustainability practices and overall impact on society.

The goal of ESG reporting is to provide transparency, enable better decision-making, and ensure companies are held accountable for their sustainability efforts. With increasing regulatory pressures and investor demand, many companies are now required to report on their ESG metrics.

Criteria for Mandatory ESG Reporting

To determine whether your company qualifies for ESG reporting from January 1, 2025, it’s important to understand the key criteria. The European Union’s Corporate Sustainability Reporting Directive (CSRD) provides clear guidance on which companies are required to comply. Let’s break it down:

Company Size

Large companies will be required to report if they meet two of the following three criteria:

1. More than 250 employees: This is the most straightforward criterion. Any company employing over 250 people will likely need to comply.

2. A net turnover of more than €50 million: This criterion refers to the company’s revenue (income from normal business activities) over the past fiscal year. If your company exceeds this threshold, you likely fall under the reporting obligation.

3. Total assets of more than €25 million: Total assets are the value of everything the company owns. If your company holds assets above this value, you will need to comply with ESG reporting.

These size thresholds are designed to capture large and economically significant companies, ensuring that their environmental and social impacts are documented and monitored.

Public vs. Private Companies

Both publicly traded companies and private companies are included if they meet the size criteria. This means that even privately held companies are not exempt if they reach the thresholds mentioned above.

Listed small and medium-sized enterprises (SMEs) are given a bit more time and must start reporting from 2026, although they can opt out until 2028 if needed.

Non-EU Companies

Non-EU companies are also affected if they generate more than €150 million in turnover within the EU. If these companies have a subsidiary or branch within the EU that meets the general size criteria, they will also be required to report under the CSRD. This ensures that large multinational corporations cannot evade these requirements simply because they are headquartered outside of Europe.

Industries

The ESG reporting requirements apply across all industries, without sector-specific exemptions. Whether your company operates in manufacturing, technology, financial services, or another field, you will need to comply if you meet the size and other thresholds.

ESG refers to the three central factors in measuring the sustainability and societal impact of a company

Global Reach of ESG Reporting Requirements

To give a broader view, ESG reporting is not just an EU-centric obligation. Other regions are implementing or preparing similar requirements, ensuring companies around the globe take ESG practices seriously. Let’s explore different regions where ESG reporting will become mandatory.

The European Union

The EU’s Corporate Sustainability Reporting Directive (CSRD) has laid the foundation for mandatory ESG reporting across the region. Companies in the EU, as well as non-EU firms operating within the EU, will be required to follow the EU Sustainability Reporting Standards (ESRS), as detailed below.

The United States

While the U.S. does not yet have broad federal ESG reporting mandates like the EU, the Securities and Exchange Commission (SEC) has proposed climate disclosure rules that are expected to require publicly traded companies to report on climate-related risks, greenhouse gas emissions, and other ESG factors. These rules are still being finalized but could significantly impact U.S.-based companies.

Asia-Pacific Region

Australia has announced plans for mandatory climate-related disclosures starting in 2025 for large and medium-sized companies. Like the EU, Australia’s disclosure rules will align with global standards such as the TCFD (Task Force on Climate-related Financial Disclosures) and will require businesses to disclose climate-related risks and opportunities in a structured format.

Singapore has also introduced voluntary sustainability reporting requirements, with plans to introduce mandatory ESG reporting for listed companies in the near future, ensuring the region catches up to global standards.

Reporting Standards and Frameworks for ESG Reporting

Once a company determines it qualifies for mandatory ESG reporting, the next step is understanding which frameworks and standards to follow. These frameworks provide the structure and specific data points required for ESG reporting. Below are the main frameworks companies will use starting in 2025:

European Sustainability Reporting Standards (ESRS)

The ESRS is the main framework for companies reporting under the CSRD. It was developed by the European Financial Reporting Advisory Group (EFRAG) and is designed to align with international frameworks. ESRS provides detailed guidance on the environmental, social, and governance metrics companies need to disclose.

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD is a globally recognized framework that focuses on climate-related risks and opportunities. Companies in the EU and other regions may be required to report under TCFD, especially in industries like energy and agriculture.

Global Reporting Initiative (GRI)

GRI standards are one of the most widely used frameworks for ESG reporting. They cover a broad range of ESG topics and are compatible with both ESRS and other international frameworks.

Sustainability Accounting Standards Board (SASB)

SASB provides industry-specific guidelines for ESG reporting and is popular in the U.S. and globally. Companies can use SASB standards to disclose material ESG issues that are financially relevant to their industry.

Feeling Overwhelmed? Centida Can Help

Navigating the complex landscape of ESG reporting can be overwhelming, especially if you are new to these requirements. That’s where Centida can assist. We offer comprehensive ESG reporting services, including guidance on materiality assessments, framework selection, and data management.

References

European Commission – Corporate Sustainability Reporting Directive (CSRD)

EFRAG – European Sustainability Reporting Standards (ESRS)

Global Reporting Initiative (GRI)

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ESG
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