Sustainability reporting has undergone a significant evolution, transitioning from a supplementary corporate practice to an integral component of corporate governance and disclosure. These standards are constructed following a four-pillar reporting structure that encompasses various ESG (Environmental, Social, and Governance) aspects. Let's delve into the key dimensions of sustainability reporting:
Governance: This dimension focuses on the processes, controls, and governance procedures used to monitor and manage sustainability-related impacts, risks, and opportunities.
Strategy: Here, we examine how a company's strategy and business model interact with its material impacts, risks, and opportunities, including the strategy to address them.
Management of Impacts, Risks, and Opportunities: This aspect delves into the processes by which impacts, risks, and opportunities are identified, evaluated, and managed through policies and actions.
Metrics and Objectives: It involves how a company measures its performance, including progress towards established objectives.
When it comes to environmental reporting, the ESRS E1 (Climate Change) standard takes center stage. It emphasizes the measurement of CO2 emissions, including Scope 3 emissions, risk and opportunity identification, assessment, and quantification related to climate change, and climate change adaptation and mitigation plans. This impact, risk, and opportunity assessment approach extends to other standards as well, such as ESRS E2 (Pollution), ESRS E3 (Water and Marine Resources), ESRS E4 (Biodiversity and Ecosystems), and ESRS E5 (Resource Use and Circular Economy), highlighting the importance of financial quantification.
The ESRS separates social issues into four focal areas: own workforce, workers in the value chain, affected communities, and consumers and end-users. Each area emphasizes the importance of visualizing the relationship between people, business strategies, and associated impacts and dependencies.
Governance standards address various aspects of corporate conduct, including ethics, corporate culture, anti-corruption, whistleblowing protection, animal welfare, supplier relationships (especially regarding small and medium-sized enterprises), and political influence. Transparency is promoted, particularly concerning political activities and commitments related to political contributions.
Where to Publish this Information?
Sustainability information should be included in the Management Report of Financial Statements. These reports must be submitted in electronic format, using a digital tagging system similar to that used for financial information, ensuring consistency and comparability. The unique European Single Access Point (ESAP) serves as a technological platform for companies affected by the Directive to deposit their sustainability reports, enabling easy access to reliable, uniform, and comparable data.
Double Materiality Concept:
The CSRD adopts a double materiality concept, whereby companies identify the information they must disclose based on a dual perspective: how sustainability matters impact both the company's environment (environment and society) and its financial performance, position, and development (financial materiality).
Recent changes in standards make the evaluation of double materiality applicable to most disclosure requirements. Companies are no longer obligated to provide an explanation if an issue covered by a standard is deemed not material; it becomes a voluntary disclosure. This revision may have implications in the financial sector, as ESRS standards are linked to other reporting obligations, such as the Benchmark Regulation, Third Pillar disclosures, and the Sustainable Finance Disclosure Regulation, among others.
Sustainability reporting is evolving, becoming an essential tool for companies to demonstrate their commitment to a sustainable future.