The year began and with it the effectiveness of the European Union’s Corporate Sustainability Reporting Directive – CSRD (Directive No. 2464/2022) and the International Financial Reporting Standards (IFRS) that bring the general requirements of IFRS S1 for Disclosure of Financial Information Related to Sustainability, as well as IFRS S2 that deals with Climate-Related Disclosure. In this way, 2024 becomes a key year for the implementation of ESG issues in the global context, driven by regulatory changes.
The Corporate Sustainability Reporting Directive (CSRD) requires companies to indicate the impact of corporate activities on ESG (environmental, social and corporate governance) and also requires an audit (accreditation – assurance) with the reporting of information. The main objective is to provide transparency to stakeholders (investors, shareholders, consumers, society, etc.), as well as to establish a culture of transparency in relation to the impact on people and the environment.
A crucial issue also brought up by the standard is the context of double materiality, in which risks and impacts individually present a materiality perspective (financial and impact).[1]
It should be noted that the standard revised the provisions established in the Non-Financial Reporting Directive (NFRD), which was the predecessor of the CSRD and had a greater limitation of scope. In this sense, with the expansion of the Corporate Sustainability Reporting Directive, it is expected to increase the impact to approximately 50,000 (fifty thousand) European and non-European companies.
It is important to highlight that the regulation is within the strategic vision of the European Union brought in the commitments of the European Green Deal and in the Sustainable Finance Disclosure Regulation (SFDR) with the purpose of bringing transparency to sustainability information before stakeholders and mitigating greenwashing practices.
It should be noted that the European Green Deal aims to transform the European Union into a modern and efficient economy, aiming to achieve climate neutrality, without greenhouse gas emissions by 2050[2]. It also advocates making the European Union a modern, resource-efficient and more competitive economy.
In this sense, one of the concrete goals of the European Union is the adoption of a set of climate, energy, transport and taxation policies that are adequate to achieve the reduction of net greenhouse gas emissions. Therefore, the goal is to reduce it by at least 55% (fifty-five percent) by 2030, compared to 1990 levels.
In this context, in turn, the Sustainable Finance Disclosure Regulation (SFDR) is premised on the premise that asset managers have the duty to disclose ESG risks, policies, and results in a transparent manner. Therefore, the central purpose of this is to bring the impact of investments and the comparison of financial products in terms of sustainability.
In addition, the commitments related to CSRD are also related to the 2030 Agenda for Sustainable Development and the Paris Agreement.
Regarding the termCorporate Sustainability Reporting Directive – CSRD It is based on the following application provisions:
· From 1 January 2024 with the first report already in 2025: large companies with more than 500 employees and that are already subject to the NFRD;
· From 1 January 2025: large companies not currently subject to the NFRD;
· From 1 January 2026: Small and Medium Enterprises – SMEs, optional until 2028, listed and other companies, with delivery of updated reports in 2027.
In view of the above, it is relevant to emphasize that one of the main points also brought by the regulation is the requirement of standardization of reports, as well as the reliability of the information and data presented. In this way, the CSRD contributes to the achievement of reporting standards globally with the obligation to carry out audits.
Thus, to ensure the reliability of the information, the report should be issued by an independent auditor who will be responsible for indicating the compliance of the sustainability information with the verification of the requirements and guidelines presented in the respective standard.
It should also be noted that the report must be published together with the management report containing all the company’s sustainability information.
Therefore, compliance with the standard is critical for European companies, which will apply not only to their headquarters, but also to subsidiaries established in other countries and regions. In addition, companies that have significant activities in the European Union must also report and adapt to the new requirements.
In this same timeline, the provisions of the International Sustainability Standards Board – ISSB, which issued the IFRS Sustainability Disclosure Standards, will also be effective from January 2024, with IFRS S1 relating to the Disclosure of Sustainability-Related Financial Information and IRFS S2 to Climate-Related Disclosures. It should be noted that the ISSB standards establish a global baseline of high-quality sustainability[3].
IFRS S1 has disclosure requirements designed to allow companies to communicate sustainability-related risks and opportunities to investors, with the aim of communicating risks and opportunities, based on the four elements established in the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (Governance, Strategy, Risk Management, Metrics and Targets). Along these lines, reports should be comprehensive in indicating relevant information for decision-making.
With regard to IFRS S2, it presents climate-related guidelines with requirements that point out risks and opportunities. It is emphasized that IFRS S2 is based on the requirements set forth in IFRS S1 and integrates the recommendations of the TCFD.
A relevant point is that the International Organization of the Securities and Exchange Commission (IOSCO) has even announced the adoption of the ISSB requirements[4].
In view of the above, the advances in the above regulations and guidelines are very important to bring about a transformation in the context of Environmental, Social and Corporate Governance issues, with the consolidation of guidelines and the effective implementation of requirements by organizations around the world.
Thus, we are facing a new challenge for companies, governments and organizations in general that must be incorporated into its core, after all, as Peter Drucker said, “Culture eats strategy for breakfast”. [5] Therefore, changing the organizational culture in favor of the ESG vision will be fundamental.
With this, the outlook is also in line with what Michael R. Bloomberg points out, who emphasizes that “greater transparency makes markets more efficient and economies more stable and resilient”. [6]
In this panorama of the Risk Society, the new vision of Regenerative and Stakeholder Capitalism represents an archetype with notable challenges, in which everyone is responsible by adopting effective and concrete measures, because only in the future will it be possible to infer how urgent this Copernican transformation will be in favor of a “Living ESG”. [7]
[1] DIRECTIVE (EU) 2022/2464 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 December 2022.
[2] NASCIMENTO, Juliana Oliveira. Living ESG: The New Journey of Globalization for the Transformation of Regenerative and Stakeholder Capitalism in the Business World. NASCIMENTO, Juliana Oliveira. ESG: The Green Swan and Stakeholder Capitalism: The Regenerative Triad of the Global Future. São Paulo: Revista dos Tribunais. p. 68
[3] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. Available at: https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s1-general-requirements/. Accessed: 03.Jan.2024.
[4] Introducing the ISSB. Available at: https://www.ifrs.org/sustainability/knowledge-hub/introduction-to-issb-and-ifrs-sustainability-disclosure-standards/. Accessed on: 03.jan.2024.
[5] NASCIMENTO, Juliana Oliveira. Living ESG: The New Journey of Globalization for the Transformation of Regenerative and Stakeholder Capitalism in the Business World. NASCIMENTO, Juliana Oliveira. ESG: The Green Swan and Stakeholder Capitalism: The Regenerative Triad of the Global Future. São Paulo: Thomson Reuters/Revista dos Tribunais. p. 74.
[6] NASCIMENTO, Juliana Oliveira. Living ESG: The New Journey of Globalization for the Transformation of Regenerative and Stakeholder Capitalism in the Business World. NASCIMENTO, Juliana Oliveira. ESG: The Green Swan and Stakeholder Capitalism: The Regenerative Triad of the Global Future. São Paulo: Thomson Reuters/Revista dos Tribunais. p. 74.
[7] NASCIMENTO, Juliana Oliveira. Living ESG: The New Journey of Globalization for the Transformation of Regenerative and Stakeholder Capitalism in the Business World. NASCIMENTO, Juliana Oliveira. ESG: The Green Swan and Stakeholder Capitalism: The Regenerative Triad of the Global Future. São Paulo: Thomson Reuters/Revista dos Tribunais. p. 75
