What is CSRD
The Corporate Sustainability Reporting Directive (CSRD), which regulates non-financial reporting standards, came into effect on January 1, 2024. It imposes non-financial reporting obligations, over time, on all large, as well as small and medium-sized, publicly listed companies (estimated at up to 50,000 companies).
For the purposes of this reporting, the European Commission adopted the first set of European Sustainability Reporting Standards (ESRS) as a delegated act on July 31, 2023. These standards provide detailed guidance for companies on the extent and manner of measuring and disclosing non-financial information.
For comparison, its predecessor, the Non-Financial Reporting Directive (NFRD), imposed the obligation to disclose non-financial information only on large public interest entities (approximately 11,000 such entities across Europe), but without the obligation to apply standards for reporting information.
What is ESG
ESG is an acronym that stands for the three main pillars of the responsibility of institutions – including businesses – for their environment:
Environmental – environmental,
Social – social,
Governance – corporate governance.
Each of the elements mentioned is important in assessing and managing the sustainable development of an enterprise and is covered by the non-financial reporting obligation.
Environmental , i.e. the environmental aspect, refers to activities for environmental protection, shows the impact of the company's activities on the natural environment and covers, among others, issues such as: greenhouse gas emissions, management of the use of natural resources, protection of biodiversity, waste management.
Social addresses issues related to the entrepreneur's impact on employees and local communities, emphasizing diversity and inclusion, customer relationships, and business ethics.
Governance means corporate governance and includes management structure, business ethics and transparency of operations.
Reporting schedule
Reporting requirements are being implemented in stages, with different deadlines for different groups of companies depending on their size. Whether the company was previously subject to the NFRD is also important.
The timetable for implementing the CSRD directive is as follows:
In 2025, the obligation will apply to large public companies subject to the NFRD if they employ more than 500 employees and have a net turnover exceeding EUR 40 million or a balance sheet exceeding EUR 20 million.
Then, in 2026, large companies that were not previously subject to the NFRD and that employ 250 employees and/or have a turnover of EUR 50 million and/or total assets of EUR 25 million will be required to submit a report.
From 2027, CSRD requirements will apply to SMEs listed on the stock exchange, and in 2029 the reporting obligation will also cover some companies outside the European Union.
Importantly, from a practical point of view, data reporting requires prior collection in accordance with a previously adopted sustainable development strategy, which may require transformation of the company's business model.
Sanctions
In Poland, ESG reporting is regulated by the Accounting Act. Failure to report non-financial information can result in a fine or even imprisonment for up to two years. The fine can range from over one million to almost 30 million złoty, depending on the company's revenue. The Accounting Act also provides for fines or imprisonment for failure to publish non-financial reporting documents on the company's website.
Additionally, the Financial Market Supervision Act gives the Polish Financial Supervision Authority the power to enforce ESG regulations.
Interestingly, greenwashing practices (manipulative practices that involve attracting consumer attention through false ecological promises and emphasizing alleged efforts to reduce a company's negative environmental impact) are considered by the Office of Competition and Consumer Protection (UOKiK) to be a violation of the collective interests of consumers. The President of UOKiK can order the cessation of such practices and impose a fine of up to 10% of the company's annual turnover.
Another significant change is that reported non-financial data will be subject to mandatory audit, and providing unreliable data will be subject to criminal and financial liability – also for management board members.
Failure to report non-financial data in accordance with CSRD may have consequences beyond legal ones, for example, leading to a loss of trust among stakeholders, such as contractors, investors, customers, and employees, and consequently, reducing the company's market value. Competitiveness is also important – it is expected that investors will be more willing to cooperate with entities that prioritize sustainable development and are perceived as responsible and credible.
Summary
ESG is a new perspective on the role of business in society. It represents a holistic approach that integrates environmental, social, and governance issues. ESG reporting not only meets regulatory requirements but also provides an opportunity to better understand and manage companies' impact on their environment. This allows businesses to effectively plan their sustainable development strategy while minimizing risks and capitalizing on growth opportunities. It also represents an opportunity to improve a company's image and competitiveness.
As previously mentioned, the ESRS introduces extremely stringent reporting rules. Preparing such a document will likely be a significant challenge, especially for entities with limited experience in sustainability reporting. Given this, it's worth familiarizing yourself with the ESRS requirements as soon as possible and beginning the transformation of your business model towards sustainable development well in advance – so that you can meet the ESRS reporting requirements in a timely manner, on schedule.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of October 2, 2024
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