The European Union’s CSRD (Corporate Sustainability Reporting Directive) on nonfinancial reporting that came into force on 5 January 2023 imposes new obligations on companies. The Directive still needs to be transposed into the Czech law, but our neighbouring states (such as Germany) have already incorporated obligations arising from this Directive into their legislation and those obligations are therefore likely to have a certain impact on Czech firms even before the transposition. As a result, it is advisable to be prepared.
The term “ESG” has been gaining more and more attention not only in corporations. What does this abbreviation stand for and what influence can it have on you and your company? We bring answers to these questions in our short summary below.
ESG means “Environmental, Social, Governance”, i.e. it deals with a company’s environmental impact, the objective being a sustainable and responsible approach to the environment. ESG reporting is nonfinancial reporting that will apply to large corporations (that will meet two of the following three criteria: more than 250 employees, a turnover above CZK 1 billion, and assets over CZK 0.5 billion) and all companies listed on regulated markets (except for micro enterprises) from 2024 (i.e. those entities will be obliged to report 2024 figures in 2025). This obligation is expected to be extended also to small and medium-sized companies as early as in 2026 (i.e. they will report their 2026 data in 2027).
In terms of environmental impacts, decarbonisation and the biggest possible employment of renewable sources is the goal. The Directive also addresses social aspects (work environment, equal opportunities and diversity), corporate social responsibility and, last but not least, leadership quality.
The reporting will include, among other things, communicating corporate culture, trading principles, management of supplier relationships, prevention and detection of corruption and bribery, political engagement, and payment procedures – the governance area. The carbon footprint, use of energy, pollution, waste management, biodiversity, use of clean energy – the environmental area. Human resources, corporations liaising with other entities – the social area.
The whole reporting will be subject to independent reviews (audits) in compliance with the CSRD, the EU Taxonomy and other standards.
Failure to publish the reporting currently results in no sanctions, but the reporting will play a significant role in supplier-customer relationships in the future and may provide a better access to loans and more favourable conditions. Last but not least, it will affect customers’ and investors’ behaviour: independent surveys show that they prefer companies with this reporting in place. If you therefore introduce the CSRD reporting on time, you may get well ahead of your competitors.
If you want more information on this topic, please feel free to contact us.
Lenka Kolmanová
kolmanova@edmutilitas.cz