What are ESG guidelines?
With the European Green Deal, the European Union has laid out a comprehensive plan for making the EU the first climate-neutral continent. The EU taxonomy, with which many companies are already familiar, is crucial to this. The ESG criteria contained in it set standards in the areas of environment, social affairs and governance. Each of these areas contains further specifications and guidelines. The Corporate Sustainability Reporting Directive - CSRD for short - describes the requirements in the environmental area, for example. The European Sustainability Reporting Standards (ESRS) specify how these requirements must be reported. They are also divided into the areas of environment, social affairs and corporate governance.
Important: What is mandatory for companies?
Before we delve deeper into the explanation of the EU directives, an important note should be made in advance:
More and more companies are now required to comply with the CSRD requirements. The ESRS E1 standard, the first of five climate-specific standards under the title "Climate Change", contains nine disclosure requirements (E1-1 to E1-9) that must be reported independently of a special materiality assessment. This means that, unlike other parts of the ESG, this standard is mandatory for (almost) all companies! In the ESRS E1-1 to E1-9, the three major steps to climate neutrality are ultimately packed: Starting with the balance sheet, to the establishment of measurable targets to the development and implementation of an action plan.
For clarity, we do not list the individual disclosure requirements here, but you can find them in the PDF at the bottom of this page.
What and how must be reported?
With the CSRD, a standard was created for what a company must show in the area of sustainability in its annual report. It is important to know that these reporting requirements do not apply to smaller companies, but they can still be affected by them. You can find more information about this and the CSRD in general in this video from us.
The European Financial Reporting Advisory Group, EFRAG for short, is a body that advises and supports the EU Commission in these processes. This body has now drawn up standards on how the required information is to be reported. The European Sustainability Reporting Standards (ESRS) still have to be adopted by the EU Commission, but far-reaching changes are not expected.
So again in a nutshell: The CSRD determines WHAT must be reported, while the ESRS determines HOW to report.
The basic 12 standards that comprise the ESRS can be divided into 3 areas. These are Environment, Social and Governance. Just like the ESG guidelines, they are made up of these three major areas. These areas are divided into further subgroups that break down individual aspects in more detail. For example, the topic of climate is covered by ESRS E1, while air and water pollution is represented by ESRS-E2.
Each area of the ESRS is made up of so-called "Disclosure Requirements". They are the core of the reporting requirements and make clear which data must be prepared and how. ESRS-E1 contains nine of these disclosure requirements.
In principle, only those areas are mandatory that actually affect a company. Let's take ESRS-E2 again as an example. As mentioned, it deals with air and water pollution. If water pollution is not an issue in your company, you do not need to report on it.
But which disclosure requirements are relevant for you and which are not? The linchpin here is the materiality analysis. This is where the points are recorded that are actually relevant for your company and have to be reported. This analysis should be prepared with great care and reviewed by an external consultant. If necessary, you may even have to draft your own disclosure requirements. You can find more information on this below in the video description.
However, the aspects on the topic of climate, which are written in the ESRS-E1, are mandatory and therefore relevant for every company. They require companies to show what their climate protection plan looks like, what they are specifically doing and what targets they have formulated. Figures on energy consumption and the composition of the electricity mix are also prescribed, as well as a corporate Co2 balance sheet, also known as a corporate carbon footprint or CCF for short, and the developments in these emissions. A document with the exact wording of the individual disclosure requirements can be downloaded here.
Did you know?
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So let's summarize, the EU Commission has adopted a set of guidelines (ESG) as part of the EU Green Deal, in which sustainability aspects relating to the environment and social issues become mandatory reporting. This includes the CSRD, which defines WHAT has to be reported, as well as the ESRS, which defines the standards HOW to report. However, the 12 standards articulated in the ESRS do not all have to be reported, only those that are also material to your business. To determine which of these disclosure requirements, or Disclosure Requirements, are material, a materiality analysis must be prepared and externally audited. However, a few of them, such as ESRS-E1 on climate, are mandatory for all and must be reported.
Recommendation for action
Every company that will be affected by the upcoming reporting obligations must ask itself whether it has the appropriate KPIs at hand to be able to fulfill these obligations. However, suppliers and SMEs may also be affected, as the companies obliged to report may demand figures from them. Sooner or later, every company will have to deal with sustainability andCO2 management.
Therefore, in order to have all information and data together in time, it is best to take care of setting up the necessary infrastructure and data sources now. Obtain more information on this topic or seek advice.
We recommend that you set up your own team for the topic and deal with any reporting obligations that may come your way now. Find reliable partners for energy andCO2 management who can help you.
Consider this topic less as an obligatory evil, but rather as an opportunity to become a pioneer compared to your competitors, because more transparency also ensures more trust among customers and investors.
With ENIT's products, you can get just about all the figures you need to comply with ESRS-E1 (and others). Here we can support you individually and tailored to your needs, of course also for reporting. Please do not hesitate to contact us.