Where to look for ESG principles in everyday functioning? Â
Written by Nadia RoÅ¡tek, Partner, RUŽIÄŒKA AND PARTNERS  Â
An amendment to the Accounting Act effective from June 1, 2024 introduced into the legal order of the Slovak Republic Directive (EU) 2022/2464 of the European Parliament and of the Council on the reporting of information on the sustainability of enterprises: ESG – “Environmental, Social, Governance”. One of the important obligations for entrepreneurs is the task of including in the annual report individual reporting of information on sustainability in the form of so-called Sustainability reports.
First entrepreneurs are required to prepare a sustainability report already for the current year 2024. This applies to commercial banks, insurance and reinsurance companies (except for health insurance companies) and issuers of securities on the EU regulated market, as long as they employ at least 500 employees and at the same time had assets in 2023 worth more than 25 mil. EUR or a turnover of more than 50 mil. euros and in 2022 they either had assets of 20 mil. EUR or a turnover of 40 mil. euro
In the following years, the circle of entrepreneurs who will be affected by this obligation will literally expand by a geometric number. In the horizon of 3 years, the issue of ESG and the reporting of aspects of sustainability in business activity will affect practically every entrepreneur. Anyone who is or will be affected by the obligations of monitoring and reporting aspects of sustainability must adjust their own sustainability assessment also with regard to the activities of their suppliers. Larger companies will thus create pressure on their smaller suppliers to have their own sustainability reports available and to be able to reliably demonstrate their assessment, the so-called ESG score . In selection procedures and tenders, the condition of meeting ESG criteria will be one of the exclusion factors, as it will be very disadvantageous, even problematic to cooperate with a supplier that does not deal with ESG.
Of course, the goal is for aspects of sustainability to be reflected in this way in the activities of all business entities operating in the markets of the European Union. Even if this legal obligation does not apply to you yet, it is wise to start preparing now. The process of implementing ESG and assessing the long-term sustainability of your business can be quite complicated and time-consuming. It is therefore appropriate to start addressing this topic today.
Moreover, in a situation where most entrepreneurs are just beginning to orientate themselves in the given issue, you can achieve an interesting competitive advantage thanks to your preparedness. This will allow you to gain access to customers or clients who will prefer your company precisely because of your approach to sustainability and the possibility of improving your own ESG rating.
What should a sustainability report contain and how to approach ESG implementation?
The most important thing is to identify and evaluate all aspects of sustainability that relate to your business.Â
There are three basic areas:
E – environmental impacts , i.e. the impact of your activity on the environment. It is not only the primary impacts from production activities. This area also concerns companies that do not produce and their impact on the environment may appear negligible.
Think about it, for example, and ask the contractor how energy-intensive the building you live in is. Are rainwater, green roofs, solar energy, recuperation, heat pumps used? Do you sort waste in your company? What cleaning products does your cleaning company use? How efficiently do you use the space, do you use air conditioning? What about your fleet? What is your carbon footprint? Even for companies that seemingly have no significant environmental impact, there are many questions to be answered in this area and certainly plenty of room for improvement in ESG scores. And many times at negligible costs and with an immediate effect.
S – social factors , i.e. care for employees and their working, but also living conditions and so-called wellbeing. However, this also includes the impact of your activity on the surrounding communities, cooperation and support of projects in the non-profit sector or volunteering.
Start with your own compensation and benefits program and gradually identify all the activities you participated in or supported in the previous period. Start keeping a separate record of all activities and get ideas on what else you could do in this area, what would make sense to you and where you could support the development of your business with a good thing at the same time.
G – governance , or a well-managed company. This area will be most understandable for medium and large companies, where the corporate environment naturally requires a system of internal regulations, ethical codes, transparency, rules of four eyes and other control or audit mechanisms. And also crisis management, risk management, KYC, anti-money laundering, whistleblowing, or compliance audits. This may sound like science fiction to smaller entrepreneurs, but there is no need to fear. Even in the conditions of a small company, it is good to choose areas and create (or rather capture in graphic or written form) a very simple system by which you declare how you take care of your company and what values ​​are important to you. Simply put, how your company is run. For small and medium-sized entrepreneurs, in cooperation with the Czech Association of Sustainable Business , we are preparing a training course on how to manage and dominate the area of ​​proper “governance” in the conditions of a smaller company.
Reporting according to European rules
All these aspects need to be reported according to certain legislative rules. The European Sustainability Reporting Standards (ESRS) are divided into 12 thematic areas, covering environmental, social and governance aspects of sustainability. If your sustainability report is subject to verification by an independent auditor, or you decide for such an independent verification, the verifier will also follow these standards. Each standard contains specific indicators and rules for calculating and publishing data. Their goal is that comparables are compared with comparables and that the evaluation metric has objective, transparent and measurable criteria. We will look at the ESRS standards in more detail in the next upcoming article.
Even if the issue of ESG looks complicated and demanding at first, you don’t have to worry about it, because you are not alone. Our company’s multidisciplinary ESG team, composed of experienced lawyers, economic, tax and accounting specialists, is dedicated to creating corporate strategies for responsible, ethical and sustainable business and implementing projects to fulfill ESG goals. We are ready to provide you with our experience in creating an effective ESG development strategy in the conditions of your company and to ensure its successful implementation in accordance with legislative requirements.
