By Thomas Christian Melskens, CEO of Yellow3 and Advisor in the Web3/Blockchain Space
In the dynamic and ever-evolving corporate responsibility arena that defines the contemporary business landscape, one term has become prominent: ESG, encompassing Environmental, Social, and Governance factors. ESG reporting has transcended its role as a mere compliance requirement, becoming a formidable catalyst for fostering positive change and upholding accountability. Within the pages of this article, we embark on a journey to uncover the future of ESG reporting in 2024, shedding light on the intricate tapestry of challenges and opportunities that lie ahead.
A Unified Regulatory Framework Takes Shape
As we venture into 2024, the European Union has been at the forefront of driving comprehensive ESG reporting standards. The Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation have emerged as pivotal pieces of legislation, weaving a common thread throughout the EU member states. These regulations are designed to create a unified framework for ESG reporting, emphasizing transparency and accountability.
The EU Taxonomy: Defining Sustainability
One key development in 2024 is the EU Taxonomy Regulation. This framework sets out strict criteria for determining whether an economic activity is environmentally sustainable. It provides a common language for investors, companies, and regulators to assess alignment with environmental objectives. Companies' adoption of these criteria is crucial data to highlight, reflecting their commitment to sustainability.
Reporting Standards and Consistency
To ensure consistency and comparability in ESG reporting, the EU has promoted international standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB). This emphasis on standardized reporting drives a sea change in how businesses communicate their ESG efforts to stakeholders.
Expanding the Scope: NFRD and CSRD
In 2024, the revised Non-Financial Reporting Directive (NFRD) and the new Corporate Sustainability Reporting Directive (CSRD) reshape the ESG reporting landscape. Large companies must disclose extensive ESG information in their annual reports under both directives.
Under the NFRD, large public-interest companies with more than 500 employees have to publish information related to environmental matters, social matters, treatment of employees, respect for human rights, anti-corruption, bribery, and diversity on company boards.
The CSRD will enter into force on 5 January 2024, modernizing and strengthening social and environmental information reporting rules. It expands the scope of reporting to include listed SMEs and ensures that investors and stakeholders have access to the information needed to assess the impact of companies on people and the environment.
By harmonizing the information provided, reporting costs will be reduced over the medium to long term.
Companies subject to the CSRD must report according to European Sustainability Reporting Standards (ESRS), developed by the EFRAG (European Financial Reporting Advisory Group). These standards are tailored to EU policies while contributing to international standardization initiatives.
Sustainability Reporting Standards
On 6 June 2024, the Commission will open a four-week public feedback period on the first set of sustainability reporting standards for companies. Considering technical advice from EFRAG in November 2023, these draft standards will play a pivotal role in shaping the future of ESG reporting.
Following the feedback period, the Commission will consider the feedback received and adopt the ESRS as a delegated regulation. The Commission will submit the ESRS delegated act to the European Parliament and Council for scrutiny.
Assurance and Digital Taxonomy
The CSRD also requires assurance on the sustainability information companies report and will provide for the digital taxonomy of sustainability information, further enhancing transparency and accountability.
A Global Ripple Effect
The EU's push for comprehensive ESG reporting has global implications. Multinational corporations operating within the EU market must align their practices with EU regulations. This global alignment showcases the EU's role as a trailblazer in advancing sustainability practices worldwide.
In conclusion, ESG reporting in 2024 is not just a regulatory obligation; it's a transformative force shaping the corporate world. It empowers stakeholders, enhances transparency, and encourages businesses to be accountable for their environmental, societal, and governance impact.
Embracing these changes is not just about compliance; it's about paving the way for a sustainable future.
As someone deeply immersed in the Web3 and Blockchain space, harnessing technology and innovative solutions will play a pivotal role in meeting these ESG challenges head-on. Let us embark on this journey together, leveraging the power of Web3 to build a more sustainable and responsible world.
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