When we last posted about sustainability reports at the end of 2022, stakeholders were increasingly looking to purchase from, work for, and invest in companies with sustainable practices.
The United Nations had made clear that achieving global Sustainable Development Goals (SDGs — a set of 17 global goals and 169 targets) by 2030 would require the collective efforts of enterprises of all sizes. Sustainability was becoming a cornerstone of responsible organizations’ strategies (and integral to brand management), as companies focusing on Environment, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) not only delivered better outcomes for the planet and people, but also saw positive effects on their bottom lines.
On 5 January 2023, the EU CSRD revised the Non-Financial Reporting Directive (NFRD) as the legislative framework for sustainability reporting across the EU and extended the reporting requirement to include non-listed EU entities and qualifying EU subsidiaries of non-EU companies to report on a range of sustainability issues.
With the CSRD, many more organizations will be required to provide comprehensive and verifiable sustainability reporting with mandated third-party auditing of all disclosures.
What’s changed?
The CSRD introduces 12 European Sustainability Reporting Standards (ESRS), to make sustainability reports consistent and comparable, and mandates that companies conduct a Double Materiality Assessment (DMA) to identify and prioritize sustainability issues that are most important to the organization and its stakeholders.
Under the CSRD, financial and non-financial companies are required to report on their sustainability performance using ESG key performance indicators (ESG KPIs) that are aligned with the EU Taxonomy classification system of environmentally sustainable economic activities.
The taxonomy defines six environmental targets (to date, detailed indicators have been provided for only the climate protection and adaptation to climate change targets), and is devised to help guide green investment decisions and enable comparative analyses based on quantifiable metrics.
The ESG KPIs measure performance on topics that are specific to each organization’s industry and sector, geographies, and sustainability strategy, and should help companies clearly communicate their sustainability story and values.
The CSRD requires organizations within its scope to publish information on their activities and initiatives across their entire business, including supply chains, related to:
- Environmental protection (ecological footprint and CO2 emissions)
- Social responsibility and treatment of employees
- Respect for human rights
- Fighting corruption and bribery
- Company board diversity (age, gender, education, and professional experience)
The CSRD also introduces several new obligations, such as the inclusion of the sustainability statement in the management report and the provision of assurance on sustainability reporting. In the future, companies subject to the CSRD will have to report according to European Sustainability Reporting Standards.
Who is affected by the new reporting obligation?
The CSRD expands the sustainability reporting obligation to EU and non-EU subsidiaries in a phased approach from FY24 (reporting in 2025) through FY28 (reporting in 2029).
Starting with FY24 reports, the CSRD applies to large EU companies and non-EU subsidiaries that meet two of the following criteria: 250 or more employees, net revenue of EUR 50 million or more, and/or total assets of EUR 25 million or more.
Many businesses with operations or securities in the EU (including SMEs), as well as non-EU parent companies with cumulative group turnover in the EU of more than EUR 150 million, will also fall under the CSRD. There are exemptions; the CSRD outlines ESRSs with different data collection and reporting requirements for each group.
In addition, the German Act on Corporate Due Diligence Obligations in Supply Chains, which came into force at the start of 2023, creates new requirements for companies, regardless of their capital market orientation, and regulates German enterprises’ responsibility to respect human rights in global supply chains.
Starting in January 2023, the law applied to companies with at least 3,000 employees; from 2024, the law broadens in its application to include companies with at least 1,000 employees in Germany.
In 2026, other large EU companies, not previously mandated to comply with the NFRD, will need to report on FY25. In 2027, SMEs listed in EU-regulated markets will be required to report on FY26.
In addition, the European Financial Reporting Advisory Group (EFRAG) published exposure drafts of the ESRS for listed SMEs (“ESRS LSME” Exposure Draft ED) and voluntary sustainability reporting standards for non-listed SMEs (“VSME ED”) in January 2024.
The first of these, the ESRS LSME ED, will be issued as a delegated act and will come into effect on 1 January 2026. However, listed SMEs may elect to opt out for an additional two years. The voluntary reporting standards for non-listed SMEs will help non-listed micro, small, and medium-sized enterprises to respond to the inquiries and requests for sustainability information that they receive from their business partners.
The exposure drafts are open for public comment until 21 May, 2024.
Additionally, in 2028, the CSRD will also apply to certain non-EU parent companies’ FY27 reports.
And, in 2029, some third-country undertakings will need to report on FY28.
Additional requirements mean more hurdles for reporting companies
Yes, the CSRD will improve the disclosure process and provide stakeholders with reliable, comparable information about organizations’ ESG impacts, but it is also creating greater burdens on reporting companies.
Companies obligated to report on ESG metrics will need to collect, standardize, audit, and digitize a lot of quantitative data, and communicate the disclosures in specific ways. In addition, companies will need to substantiate any voluntary green claims they make by complying with new assessment requirements aligned with the EU Green Claims Directive.
With the substantial investment of time and money required to successfully fulfill the CSRD 2023’s mandates, you must be sure the integrity of the collected data is maintained through to the final sustainability reports.
Successfully navigate the final hurdles of reporting by partnering with expert linguists
Your company’s legally binding external-facing documents are integral to your company’s reputation and must clearly convey precise, consistent messaging to stakeholders in your key markets. The newly expanded and stricter sustainability reporting obligations that mandate specific content and terminologies make it essential to partner with linguistic experts who have proven experience in localizing sustainability reports that are accurate in all languages in which they’re published.
To create multilingual sustainability reports, we use a process similar to how we translate and edit annual financial reports. We build interdisciplinary account teams, led by our team managing the adaptation of these reports that works closely with your corporate communications, sustainability/CSR, and IR teams, as well as with your agencies, as needed. And, since organizations use different editorial systems and workflows, we adapt to clients’ processes and coordinate with clients’ agencies for maximum efficiency.
Through the full range of services from translation and terminology management to copywriting, editing, layout checks and desktop publishing, our seasoned financial and sustainability reporting experts maintain your report’s alignment with the latest applicable regulations and have you covered in the final miles to publishing your report.
You’re not required to issue non-financial FY24 reports — now what?
Be confident partnering with Leinhäuser
The expanded reporting obligations require a higher level of granularity and quality of your disclosed data. Ensuring this information’s integrity across all languages in which your report is printed requires experienced linguists and teams who are precise in their work.
Leinhäuser is a trusted advisor and a leading provider of the full range of language services for DAX, MDAX and Fortune 500 companies, and the small- and medium-sized enterprises of Austria’s, Germany’s, and Switzerland’s Mittelstand.
As a premium language partner for international communications, we understand what it takes to create nuanced adaptations of financial, sustainable, and integrated reports that comply with mandatory EU reporting standards and contain consistent messaging and accurate content across multiple markets and languages.
We have more than a decade of experience partnering with clients to create multilingual sustainability reports. (In fact, our expertise in dates back to 2011 when we adapted the first sustainability report ever to be published by a DAX 30 company.)
And, when it comes to sustainability, Leinhäuser leads by example. We have committed ourselves to the ten principles of the UN Global Compact and undergo an annual audit by EcoVadis, the world’s largest provider of business sustainability ratings.
We were awarded a silver medal in 2023 for our engagement, with an overall score that placed us in the 85th percentile of all companies in our category.
Let’s discuss how we can help you effectively and efficiently communicate your achievements in multilingual sustainability reports. Connect with us at info@leinhaeuser.com.