Introduction to ESG
Environmental, Social, and Governance (ESG) reporting has rapidly become a cornerstone of corporate strategy and risk management. ESG reporting involves disclosing a company’s impact on the environment, its social responsibilities, and its governance practices.
In the European market, the regulatory landscape around ESG reporting is tightening. Companies that fail to comply with these new standards risk facing significant penalties, reduced access to capital, and damage to their reputation.
The urgency to adopt ESG practices is not just about staying ahead of regulations but also about securing a competitive advantage in an increasingly conscientious market.
Key European ESG Regulations
The two main regulations overseeing ESG reporting in the EU are the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). Among these, the CSRD is the one that most companies in the EU will report on due to its broad applicability across various industries.
| Corporate Sustainability Reporting Directive (CSRD) | Sustainable Finance Disclosure Regulation (SFDR) | |
| Who | All large companies and all companies listed on regulated markets, including SMEs. Around 50,000 companies in the EU will need to start reporting under the CSRD starting in 2025. | Financial market participants, including asset managers, pension funds, and financial advisors. |
| When | Companies under the NFRD must start reporting from January 2024 for the 2024 financial year. Starting January 2025, all other large companies, including SMEs meeting specific criteria (more than 250 employees, more than €40 million in net turnover, or more than €20 million in total assets), must comply. | SFDR has been in effect since March 2021, with key requirements enforced by January 2023. |
| What | Companies must provide detailed information on their ESG impacts, risks, and opportunities. This includes data on climate change, social and employee matters, respect for human rights, anti-corruption and bribery issues, and board diversity. | Financial entities must disclose how they integrate sustainability risks into their investment decisions, classify financial products by their sustainability characteristics, and provide detailed disclosures on these products. |
The Risks of Non-Compliance
As regulatory bodies impose stricter ESG reporting standards, companies must act now to ensure compliance and avoid potential penalties. Non-compliance can lead to financial penalties, restricted access to capital, and significant reputational damage:
- Financial Penalties: Regulatory bodies can impose hefty fines on companies that fail to meet ESG reporting standards.
- Reputational Damage: Inadequate ESG reporting can lead to loss of consumer trust and investor confidence.
- Restricted Access to Capital: Investors are increasingly looking for companies with robust ESG practices. Non-compliance could limit access to investment.
- Operational Risks: Failing to address ESG issues can result in operational disruptions, legal liabilities, and negative impacts on long-term sustainability.
How Centida Can Help
At Centida, we offer comprehensive support to help you navigate these complex regulations and ensure your ESG reporting is thorough, accurate, and compliant.
- Framework Selection: We guide you in selecting the right ESG frameworks and standards tailored to your business.
- Data Collection and Integration: Our experts assist in gathering and integrating ESG data, ensuring it meets regulatory requirements.
- Materiality Assessment: We help prioritize ESG issues that are most significant to your business.
- Reporting and Disclosure: We streamline the reporting process, ensuring your disclosures are clear, transparent, and compliant.
Starting your ESG reporting journey now not only ensures compliance but also positions your company as a leader in sustainability. Embrace the opportunity to enhance your corporate reputation, attract investment, and secure a sustainable future for your business.
For more information on how Centida can assist with your ESG reporting needs, feel free to reach out. Together, we can build a more sustainable and resilient future.