ESG in annual accounts reporting anno 2022 and beyond
27/04/2022

Introduction

Environmental, social and governance (ESG) factors will become a part of all material investment and business processes and for almost all companies. To achieve a sustainable economy, the EU launched its green deal in 2019 aiming to become climate neutral by 2050. 

As part of this framework, EU law requires certain large companies to disclose information on the way they operate and manage social and environmental challenges.

At this time of the year, many companies are coming to the end of their financial year and need to publish their annual report. To give you the big picture of what needs to be reported, we provide an overview below of what, where or when ESG related information has to be reported in order to comply with the whirlwind of ESG legislation.

What has to be reported in 2022?

At present, two important pieces of ESG reporting legislation have entered into force. The first one is the ‘Non-Financial Reporting Directive’ (NFRD) which was transposed into Belgian legislation by the law of 3 September 20171. This reporting obligation applies to (i) companies of public interest2 as defined in article 1:12 of the Belgian Code of Companies and Associations with 500+ employees and either a total balance sheet of EUR 17 million or a turnover of more than EUR 34 million and to (ii) companies of public interest that are also parent companies of a large group and that exceed the threshold of 500+ employees.

These companies will have to draw up a statement of non-financial information. The statement is part of the annual report but may also be included in a separate report. In the former case, the information required may be included, in full, in the statement of non-financial information. Alternatively, the statement of non-financial information may make reference to the place or places the information is contained within the financial statements.

Subsidiary companies who meet the criteria on their own are exempt if the reporting requirements are already fulfilled by the parent company in its annual report.

The report must at least cover environmental, social and human rights and the fight against corruption and bribery. In order to ensure the comparability of such reports, they should be drawn up on the basis of ‘European and internationally recognised reference models’.

The second piece of legislation which has already entered into force is the ‘Sustainable Finance Disclosure Regulation’ (SFDR). This regulation has been applicable since 2021. It lays down sustainability disclosure obligations for financial market participants and advisors (e.g. asset managers, institutional investors, insurance companies, pension funds, etc.). Companies in scope will need to disclose ESG information at product and entity level. The information must be published on the company’s website. However, some of the information must also be published in the company’s annual report such as information on the promotion of environmental and social characteristics and the sustainability impact of their products.

What does the near future hold in terms of additional reporting obligations?

The NFRD is currently being revised and a proposal for a Corporate Sustainability Reporting Directive (CSRD) has been published. The proposal extends the scope of the NFRD to all large EU companies as well as to small and medium-sized enterprises (SMEs) listed on an EU market. According to the binding ‘EU sustainability reporting standards’ that are being developed by the European Financial Reporting Advisory Group (EFRAG),companies will need to disclose, in their annual report, the same information as required under the NFRD as well as some additional information. SMEs will be allowed to follow ‘lighter’ reporting standards.

The scope of the CSRD also extends to subsidiaries/subgroups that are either EU-listed or large, under parent companies outside the EU. In addition, all EU parent companies of large groups should compile their sustainability reporting at group level. Subsidiaries/subgroups may be exempt if they are included in the consolidated management report of their parent company and if the consolidated annual report is drawn up under a regulation that is considered equivalent to the one required by the sustainability reporting standards. 

Companies will have to comply with the CSRD for the first time in their report due in 2025 (for the financial year 2024). SMEs have a longer period to prepare, as they do not have to start reporting until three years after the effective date, i.e. 1 January 2026.

With the deadlines fast approaching, the corporate officers in charge of compiling this reporting need to be well-prepared. Are you a corporate legal secretary or compliance officer? Do you have any questions or would like to discuss how to best prepare for future reporting? Click this link to get in touch with our specialists at PwC Legal.

 

(1)  Law of 3 September 2017 on the disclosure of non-financial information

(2) As defined in article 1:12 of the Belgian Code of Companies and Associations
 

Pierre Queritet - Partner

Voir aussi : PwC Legal

[+ http://www.pwclegal.be]


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