ESG Requirements: What are the legal requirements for sustainability reporting?
ESG stands for Environmental, Social, and Governance, and represents a way for companies to report on their sustainability efforts within these three areas.
But what are the requirements for ESG reporting, and who does the law cover? We’ll take a closer look here.
Benefits of ESG Reporting
Actively working with ESG can benefit a company on multiple levels.
ESG maps a company’s efforts within the environment, social issues, and corporate behavior – and therefore, many stakeholders benefit from the strategic work.
The benefits of ESG may include:
- Preservation of more natural resources.
- Reduction of the company’s carbon footprint.
- Easier to attract investors.
- Easier access to capital.
- Increased employee satisfaction.
- Strengthened stakeholder relationships.
Furthermore, ESG also helps to reveal where the company falls short in terms of sustainability. By actively working with ESG, you increase awareness of your climatic, management, and social conditions.
Ultimately, it makes the company more attractive while contributing to a more sustainable future.
Do you need more information about an ESG report?
An ESG report is a document that describes a company’s efforts and results in environmental, social, and governance areas. Read more about what an ESG report entails here.
Are there requirements for the ESG report?
An ESG report is part of a company’s annual accounts. Whether it is done voluntarily or is mandatory depends on the size of the company.
Some companies are obliged to report on their corporate social responsibility as part of the annual accounts.
These requirements have been expanded in 2024 with CSRD reporting (Danish)(Corporate Sustainability Reporting Directive).
CSRD Reporting: New legal requirement from 2024
In recent years, the EU has introduced more requirements for companies’ sustainability efforts.
In 2024, a new EU directive for large listed companies called CSRD was introduced. It is a directive that requires sustainability reporting.
The purpose of CSRD is to ensure that all companies in EU member countries report on sustainability efforts in the same way.
Who needs to comply with CSRD requirements?
The legal requirement for CSRD will be rolled out gradually over the coming years and only applies to large listed companies in the first year.
From 2025 (Danish), the rules will also cover other large companies in accounting class C (large), and from 2026, small and large listed companies will also have to submit a sustainability report.
Even if your company does not have to meet the requirements yet, it is a good idea to prepare.
That way, you are ready when the law comes into effect – but also gain the aforementioned benefits such as retaining and attracting employees and investors.
CSRD for SMEs: Voluntary standards
Small and medium-sized enterprises are not yet covered by CSRD legislation but can follow voluntary standards developed by the EU.
By documenting sustainable efforts through ESG data, the company becomes more competitive.
Furthermore, SMEs can be indirectly affected (Danish) by CSRD requirements if they supply products or services to large companies covered by the new law.
Here, you may be required to document your environmental impact and how you meet social and management factors – and thereby conduct ESG reporting.
ESG Reporting - Four Reasons to Get Started
Whether you are legally obliged to report on ESG or not, there are good reasons to do it.
- ESG is a strategic and measurable way to work with sustainability efforts.
- ESG makes it easier to attract and retain employees.
- ESG is an opportunity to differentiate from competitors.
- ESG makes it easier to identify, understand, and manage risks that can affect long-term sustainability.
Legal requirements for ESG reporting may change in the future – therefore, it is also advantageous to document your sustainability efforts as soon as possible.
Do you want to know more?
At Acubiz, we can help you with the digitization of your company’s expense management and integration with your company card and financial system. Learn more about what software integrations are here, or read more about the integrations options with Acubiz.
Contact us if you want to know how we can help your business or book a free online demo to learn more.
FAQ
What are the ESG requirements for companies?
What benefits does ESG reporting offer to a company?
Are small and medium-sized enterprises (SMEs) required to comply with CSRD?
While SMEs are not currently required to comply with CSRD, they can voluntarily adhere to EU-developed standards for sustainability reporting. Doing so can make them more competitive, especially if they are suppliers to larger companies that are subject to CSRD requirements.