- “Speaking the same language”?
As provided by the CSRD (Corporate Sustainability Reporting Directive), companies operating within the European Union will gradually produce – beginning this year – their first sustainability reports under unified ESRS (European Sustainability Reporting Standards), ensuring that all corporations “speak the same language when telling their sustainability stories.” - Slowing down regulatory compliance?
However – ironically – just as ESG was about to reach its long-awaited widespread adoption, the European Commission, through its Omnibus proposal (https://omnibus.gr), now seems to be turning back regarding obligatory ESG reporting by providing:
a. the postponement of the entry into application – by 2 years – for large companies and listed SMEs (waves 2 and 3), and
b. the limitation of the scope of reporting only to large corporations (with more than 1,000 employees and either a turnover of over EUR 50 million or a balance sheet above EUR 25 million). - ESG Due Diligence and deal implications
On the other hand, a recent breakthrough KPMG survey (“KPMG 2024 Global ESG Due Diligence” / https://kpmg.com) showed that four out of five dealmakers globally indicate that ESG considerations are on their Mergers & Acquisitions agenda, with 45% of them encountering significant deal implications as a result of material ESG due diligence findings (with more than half of these experiencing a “deal stopper”).
Thus, ignoring ESG risks could lead to serious deal implications. - Platforms quantifying ESG
Helsinki-based company Upright (https://www.uprightproject.com) has just launched a groundbreaking platform designed to quantify the impact of ESG risks and opportunities – such as climate change, pollution, and business conduct – on key financial metrics including revenue, operating profit, profit before tax, company assets, liabilities, and cash flow movements.
Thus, ignoring ESG risks translates into tangible financial metrics. - Rating agencies recognising ESG factors
Rating agencies, once focused solely on financial fundamentals, have expanded their methodologies to recognize the direct impact of ESG factors – such as corporate corruption or rising sea levels caused by climate change – on credit default risk.
Thus, ignoring ESG risks is increasingly seen as credit misjudgment.
Through the above-mentioned latest tools (KPMG survey, platform, ratings), it is clearly shown that ESG issues aren’t just qualitative concerns but are also translated into tangible financial metrics, leading to serious business implications for companies.
Thus, ignoring ESG factors in business decisions is increasingly proven to be financially highly irresponsible.
Therefore, despite the proposed changes of Omnibus I – by which obligatory reporting may be delayed for some companies – corporations should nevertheless still adhere to (voluntary) reporting as a strategic tool, focusing on the two-dimensional analysis (double materiality) still provided in the CSRD, through which they will trace the impacts, risks, and opportunities related to ESG issues – enabling them to plan their future (financially) sustainable strategies accordingly.
Concluding, ESG should be regarded as a valuable, priceless strategic tool – far beyond a regulatory compliance framework.
By Maria El. Stefanaki,
Attorney at Law (LLM Cambridge)
ESG Officer
