What’s the latest on ESG Reporting?
For those not yet in the know ESG, is an acronym for “Environmental, Social, and Governance,” this represents a set of criteria that socially conscious businesses and investors use to assess investments.
ESG is gaining momentum amongst business owners who are becoming concerned about the environment in which their businesses operate, team working conditions, their social footprint and corporate decision-making. It is also gaining pace due to the new Reporting Standards.
As accountants ESG impacts upon our business, we too operate a business within a community, we have employees, suppliers and are governed by numerous regulations and ethical processes, all which impact upon the way in which we operate our business.
We are in the early stages of our own ESG reporting journey and we are looking forward to documenting our learning, discovery, and continued improvement. Alongside documenting our own journey, we are also looking at the impact ESG reporting has on our clients.
How does ESG reporting impact upon businesses?
It was announced on 23 December 2023 that the ESRS (European Sustainability Reporting Standards) had been approved and apply from 1 January 2024. The ESRS will apply to companies that fall within the scope of the CSRD.
A businesses’ first-time application date varies, starting from financial year end 2024, reporting in 2025. When a business needs to start reporting depends upon several factors, including the size of the business, whether it is listed or not, and whether the parent entity is EU based.
There is currently a directive out for consideration to adjust the size criteria for micro, small, medium-sized and large undertakings or groups. The proposal increases the existing thresholds by 25% and this is to take into account the impact of inflation. This will impact the entities that fall into the scope of the SCRD.
The current thresholds for medium-sized entities, for which you must meet 2 out of the 3 following criteria for 2 consecutive years are as follows:
- Net turnover £10.2m
- Balance sheet total £5.1m
- Total Employees 50
And; thresholds for large entities, again you must meet at least 2 of the 3 following criteria for 2 consecutive years as follows:
- Balance sheet total £18m
- Net turnover £36m
- Total Employees 250
Putting this aside, the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 introduced requirements for large and medium-sized companies to include information on environmental, employee, and social matters in their strategic report. Added to this large companies must include a non-financial information statement, which covers ESG matters.
This requirement applies to:
- UK public companies (PLCs)
- Large private companies.
Furthermore, the EU’s Non-Financial Reporting Directive was transposed into UK law through The Companies, Partnerships, and Groups (Accounts and Non-Financial Reporting) Regulations 2016. The NFRD requires certain large companies to disclose non-financial information, including ESG matters and the NFRD applies to:
- Large Public Interest Entities (PIEs) with more than 500 employees
- Listed companies, banks, and insurance companies.
These companies must report on their policies, outcomes, and risks related to environmental, social, employee, human rights, and anti-corruption matters.
If you are looking to implement ESG in your business, this involves a process. The first part of this process is assessing the current performance of the business and creating action plans to improve these will require embedding ESG into the operations of the business and tracking progress.
Regardless of the size of the business, embracing ESG will add value. If you start small, benchmark your starting point and gradually integrate ESG into the operations of the business with a pragmatic approach every business will be able to make sustainable progress in time.
If you would like to talk to us about ESG Reporting and how this might impact upon your medium or large entity, contact us or call us on 020 7870 9050
Our Financial Services team wrote an article recently about ESG investing, which you might also find of interest.