On December 16, 2022, Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No. 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU with regard to corporate sustainability reporting (Text with EEA relevance) was published in the Official Journal of the European Union. This introduces a number of further obligations covering individual businesses.
What does the directive say?
The provisions of the newly introduced directive expand the obligation to report ESG (an extension of the acronym – Environmental, Social, Governance – as these are the criteria for the report to be prepared). As of January 1, 2025, the reporting obligation additionally includes, among other things, information on:
- the ways in which the company manages issues related to climate risk;
- the plan and strategy of actions taken, while indicating a description of their potential opportunities and risks;
- the manner in which the company will measure its goals and the ways in which it will implement the established activities;
and will no longer apply only to companies listed on the stock exchange that met the various criteria indicated in the European Union regulations.
Scope of ESG reporting obligation coverage
The European legislator has identified 3 groups of entrepreneurs that will gradually be included in the group of entities required to prepare the report:
1) Large companies – the reporting obligation for the 2024 financial year will apply from January 1, 2025 to companies listed on regulated markets in the EU and not listed on stock exchanges, if they meet 2 of the following 3 prerequisites:
- balance sheet total greater than 20 million euros;
- net turnover per year greater than 40 million euros;
- the average number of employees during the financial year is at least 250.
Other large enterprises that do not meet 2 of the 3 prerequisites above will be required to prepare a report for the 2025 financial year from January 1, 2026.
2) Small and medium-sized enterprises – the reporting obligation for financial year 2026 will apply from January 1, 2027 to companies listed on regulated markets in the EU, if they meet 2 of the following 3 prerequisites:
- balance sheet total greater than 350 thousand euros;
- net turnover per year greater than 700 thousand euros;
- the average number of employees during the financial year is at least 10.
3) Capital groups – the reporting obligation for financial year 2028 will apply from January 1, 2029 to capital groups listed on regulated markets in the EU and unlisted on stock exchanges if they meet the following prerequisites:
- net turnover in the EU of the entire group in the last 2 financial years greater than €150 million;
- a minimum of one branch of the company will be subject to ESG reporting requirements, or a minimum of one branch of the company in the EU will have an annual net turnover greater than €40 million.
The Directive on the ESG Reporting provides a framework for companies, investors and financial institutions to help them integrate sustainability considerations into their decision-making processes. It also introduces additional reporting requirements and standards to assess and compare the sustainable practices of different entities. The introduction of the ESG rules is intended to promote more sustainable and socially responsible practices in business and investment.
To learn more about the details of the obligations imposed on businesses, we invite you to a webinar on the ESG Directive organized by our Law Firm on December 20, 2023.
The webinar is free of charge, registration>>
Mateusz Turowski, Trainee attorney-at-law (PL)