ESG (Environmental, Social and Governance) reporting requirements for companies increasingly focus on non-financial factors. Recent regulatory changes have ensured that sustainability has become a key risk factor, strategy and management for companies, as well as their leadership.

The article focuses on the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

On 6 July 2024, new European Union regulations (CSRD 2024) implementing the Corporate Sustainability Reporting Directive into Slovak law entered into force. As part of the EU Green Deal, the CSRD requires companies falling within its scope to disclose climate, environmental and social data on a dual materiality basis. This means that companies must take into account climate change risks and other ESG issues, as well as their impact on climate and society.

The CSRD replaces the previous Non-Financial Reporting Directive and requires sustainability information to be disclosed annually in a separate section of the management report. It extends non-financial reporting obligations to a wider range of companies and will gradually apply to listed entities and large companies. Although small and medium-sized enterprises that are not listed are not directly subject to the CSRD, they may be required to provide information to companies subject to these obligations if they are part of their value chain.

CSRD reporting must comply with the European Sustainability Reporting Standards (ESRS), which set out general reporting and disclosure requirements in two core standards and ten specific standards, including on issues such as climate change and the circular economy. Companies will therefore need to carefully consider their ESG impact, which requires a comprehensive review and assessment of their operations.

Compliance with the CSRD provisions will contribute to greater transparency for customers, shareholders and investors, allowing them to access a company’s ESG data. In addition to CSRD compliance, companies are expected to face increased scrutiny from stakeholders regarding their ESG performance.

The Corporate Sustainability Due Diligence Directive (CSDDD) was published on 5 July 2024 and Ireland must transpose it into law by July 2026. After a year, the rules will apply to companies that fall under them. The CSDDD will require companies to carry out due diligence on the human rights and environmental impacts of their own activities, as well as those of their subsidiaries and selected business partners.

Due diligence requirements will include the integration of due diligence systems into company policies, identification and assessment of negative impacts, preventive measures and evaluation of the effectiveness of the steps taken. The CSDDD initially applies to companies with more than 5,000 employees and will be gradually expanded to other entities over the next 3 to 5 years.

Finally, as companies’ ESG obligations increase, so does the risk of negative legal and business consequences if disclosures are inaccurate. Companies will need to carefully assess the regulatory frameworks that apply to them and prepare for their gradual implementation. Ensuring compliance with reporting deadlines will be just one aspect that will require significant effort, planning and management. (Co2AI)