ESG Compliance

What is ESG

ESG, which stands for Environmental, Social, and Governance, has emerged as a set of practices that organizations implement to limit negative impact or enhance positive impact on society and governance bodies.

The environmental component focuses on aspects such as emissions, resource use, and water stewardship.

The social component encompasses diversity, labor practices, and community relations.

The governance component involves executive pay, audits, internal controls, and shareholder rights.

Additionally, ESG reporting can help companies mitigate risk through training and creation of risk and performance measures and ensure a centralised ESG data and reporting system, which has the benefit of greatly facilitating ESG monitoring, increasing reporting accuracy, transparency, and efficiency.





ESG reporting can offer several benefits to businesses, including attracting investors and lenders, offering a competitive advantage, making company operations sustainable, improving the company's reputation and business ethics, and preparing the company for regulatory checks and avoiding interventions.


REPORTING

WHY to become
ESG compliant and HOW?

ESG reporting is becoming increasingly important as it helps companies and stakeholders track and assess their sustainability and social responsibility efforts.  To achieve ESG compliance, companies can utilize various reporting frameworks such as the Sustainability Accounting Standards Board (SASB), the International Financial Reporting Standards (IFRS), and the European Sustainability Reporting Standards (ESRS). These frameworks provide a structured approach to evaluating a company's practices and ESG-related performance, covering aspects such as environmental impact, social practices, and governance.

By aligning with these reporting frameworks, companies can effectively disclose their ESG performance and meet the growing demand for transparent and standardized ESG reporting.

Frameworks

ESRS and its relation to CSRD

The ESRS, or European Sustainability Reporting Standards, is an ESG reporting framework that has gained prominence within the European Union (EU). It closely relates to the Corporate Sustainability Reporting Directive (CSRD), a significant regulatory development in the region. The ESRS provides a common reporting format aligned with CSRD requirements, making it easier for companies to comply.

WHO needs to report?

The CSRD mandates sustainability reporting for large companies and all public-interest entities operating within the EU. While smaller entities are exempted from the CSRD, for the moment, they may still voluntarily choose to use the ESRS for reporting until it will become mandatory for all companies.

WHEN does the company need to report

The CSRD mandates sustainability reporting for large companies and all public-interest entities operating within the EU. While smaller entities are exempted from the CSRD, for the moment, they may still voluntarily choose to use the ESRS for reporting until it will become mandatory for all companies.

WHAT needs to be reported?

Under the CSRD, companies must disclose a wide range of ESG information, including climate change, environmental, and social aspects. The ESRS, by extension, is designed to capture this required information in a standardized format.

WHAT are the exceptions of reporting?

The CSRD defines clear thresholds for reporting, exempting smaller companies. However, the ESRS focuses on harmonizing reporting standards for those within the CSRD's purview.

WHAT are the penalties for reporting wrong or not reporting?

Penalties for non-compliance with CSRD can include fines and legal consequences as specified by EU member states. Accurate reporting is essential to maintain transparency and regulatory compliance, and inaccuracies may lead to reputational damage and legal action.

Other reporting frameworks

SASB - Sustainability Accounting Standards Board

SASB provides industry-specific standards to help companies disclose financially material ESG information in their financial filings. SASB reporting is typically aligned with financial reporting cycles and requires companies to report on ESG topics that are financially material to their industry, focusing on risks and opportunities. False or misleading disclosures can lead to legal and regulatory consequences, including fines and litigation.

IFRS - International Financial Reporting Standards

IFRS is a global accounting framework that primarily focuses on financial reporting.
IFRS is primarily used by publicly traded companies worldwide, and ESG integration is voluntary at this stage. While IFRS primarily addresses financial information, companies may choose to include ESG information if it is considered financially material.

Why to comply?

ESG reporting is a critical aspect of a company's sustainability and social responsibility efforts. While there are no specific legal penalties for all cases, the consequences of inaccurate reporting or non-disclosure can be severe, including reputational damage and financial repercussions.

Companies should carefully consider which framework aligns with their goals, stakeholders, and regulatory requirements to ensure transparent and accurate ESG reporting.

FAQs - Your questions answered

What does ESG stand for?

ESG (Environmental, Social and Governance) refers to sustainability factors such as carbon footprint, climate change, employee well-being, diversity, ethics, and corporate governance.

Why is ESG increasingly important for businesses today?

ESG helps companies manage climate risks, comply with sustainability regulations, attract investors, and meet customer expectations.

What are material ESG issues?

Material ESG issues are sustainability topics that have the biggest impact on a company and its stakeholders. They are identified through double materiality assessments and stakeholder engagement.

Are companies legally required to report on ESG?

In the EU, ESG reporting is already mandatory for large companies under CSRD, and the global trend is moving in the same direction. Even though not all businesses are required to report yet, those that do quickly gain investor trust, attract more clients, and secure easier access to financing.

What’s the role of ESG ratings and risk scores?

ESG ratings and risk scores measure a company’s sustainability performance and risk exposure, helping investors and clients compare companies

What are the main benefits of having a sustainability strategy?

A sustainability strategy helps a company generate more revenue by improving reputation, building trust with stakeholders, reducing regulatory risks, and increasing competitiveness.

How can ESG initiatives reduce operational costs?

By improving energy efficiency, reducing waste, optimizing supply chains, and improving employee knowledge, ESG programs cut costs.

Can ESG performance improve financial results and access to capital?

Yes. Companies with strong ESG practices often access cheaper financing, attract long-term investors, and deliver better financial performance.

How does ESG affect relationships with investors, clients, and regulators?

Strong ESG performance builds trust, ensures compliance, strengthens client partnerships, and improves investor relations.

What are the first steps to building an ESG program?

Start with a carbon footprint and double materiality, define a sustainability strategy, and set measurable and achievable targets.
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