CLV Partners

CLV-02

Sustainability reporting obligations

 

COMPANIES COULD FACE NEW SUSTAINABILITY REPORTING OBLIGATIONS

Introduction

After a long period of time based on the warning signs of the environment, we may have come to realize at an individual level that the existence of the natural conditions around us is not self-evident. It is clear that rampant exploitation has serious natural consequences, and that our daily lives cannot be continued in their present form for long, as they are not sustainable. There are many national and international efforts to protect the environment, as well as awareness and willingness to act at an individual level is growing. Of course, enterprises are not to be left out of this list, as their importance is demonstrated by the fact that the revenue generated by some group of companies can rival the GDP of certain countries.

There is no requirement for companies to report on sustainability in a similar way to accounting reporting. Nevertheless, we see that more and more companies have some form of corporate social responsibility. One example is the widespread use of CSR (Corporate Social Responsibility). In order to make this commitment conscious, transparent and accountable, the European Commission presented a proposal in April 2021 (hereinafter: “Proposal”) to amend corporate sustainability reporting.

New Proposal

The Proposal seeks to reform the Non-Financial Reporting Directive (NFRD), which amends the Accounting Directive. The main objective is to require companies to report in a similar way to accounting reports. The Proposal would change the current system of voluntary commitments and obligations under the NFRD, which only affects a limited number of companies, as follows.

According to the plan the reporting obligations would affect approximately 30% more persons concerned and the known text also specifies in more detail the subject matter and the method of providing information.

The report should be presented in a standardized electronic format, ensuring quick and easy access, same file format, comparability and paperlessness.

One of the most important innovations of the Proposal is that it requires reporting according to uniform standards. This is of particular importance as it will allow companies’ reports to be retrieved chronologically and to be comparable with those of their competitors.

Another innovation is that the content of the report will also be subject to appropriate auditing to ensure its independent and objective validation.

Summary

Although the Proposal is still pending adoption and would only be phased in over a number of years, its practical implementation is of paramount importance. It gives cause for optimism that it will take corporate social responsibility for our environment to a new level. It will undoubtedly impose a significant additional burden on those concerned in the beginning, however it is in the interest of all of us in the long term.

Sustainability expectations will be transparent for companies that they need to meet. Another benefit is that companies will be able to benchmark themselves against their competitors on the basis of harmonized reporting standards. And those that have already committed to sustainability will be able to reduce the unfair advantage of their exploitative peers and even gain a competitive advantage. All of this suggests that there are many benefits to be gained from fulfilling reporting requirements, in addition to compliance, so it is worth making a gradual and conscious effort to prepare starting from now.

Should you have any questions regarding the above, feel free to contact us.

CLV Partners contact us