If there is one major risk on a list that will continue to occupy the minds of directors and senior management in organisations on a global basis for 2024, it has to the likelihood and impact of sustainability (including the challenges of possible or actual climate change) and related Environmental, Social and Governance (ESG) concerns among a wide range of stakeholders.
Although many global organisations have been publishing their sustainability and ESG reports for some years, others in certain regions – including across the member countries in the African Union – have yet to directly address these topics. In 2024 that may well be set to change.
The influence of major global bodies such as the United Nations (UN) and the UN Sustainable Development Goals which were created in Rio de Janeiro in 2012, continues to grow.
Of particular importance is the initiative taken in the European Union over the last few years in the development, publication and, more recently, the expansion of the scope of the Corporate Sustainability Reporting Directive (CSRD). Because the potential impact of the expanded CSRD is so broad, it is worth quoting directly from the official European Commission website:
On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This new directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability.
The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues. Finally, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided. The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025.
Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). The standards were developed by the EFRAG, previously known as the European Financial Reporting Advisory Group, an independent body bringing together various different stakeholders. The standards will be tailored to EU policies, while building on and contributing to international standardisation initiatives.
The implications of the expanded 2023 CSRD rules will have a global impact, as any organisation reporting under the CSRD/ESRS regime will undoubtedly turn to members of their supply chain to demand a similar level of accountability to provide a holistic view of sustainability and social issues.
Have you evaluated whether your organisation is directly or indirectly liable under the CSRD? Are you and your organisation ready to meet this new reporting challenge?