Gregor: Companies need to learn to report their impacts to make it useful for them and society

Filip Gregor, chief ESG expert at Frank Bold Advisory and member of the Sustainability Reporting Board EFRAG, an advisory body to the European Commission, was a guest on the podcast Frankly Speaking on responsible business. He discussed with Richard Howitt the importance of European standards for sustainability reporting and advised companies on what they should do first.

Why are European sustainability reporting standards important?

With the introduction of the standards, the European Union has taken a very specific approach to the transition to a sustainable economy through the market. It is a mix of hard and soft obligations. People complain that the EU over-regulates, but it is essentially a market-based approach with a huge dependence on financial markets. That is what makes us different from China, for example.

If we expect the market to bring about change in the green transformation, if we expect investors to bring about change, then we need to provide them with relevant information about companies in terms of sustainability and environmental impact.

This information can only be delivered to investors with good reporting standards - simple as that. I think you once said during your time in the European Parliament that reporting is not very sexy, but information is, because information is power. That is the whole point and importance of standards.

How do the European sustainability reporting standards change the game in terms of corporate sustainability?

The European standards do not actually introduce any new topics. All those who work in the sustainability field are familiar with topics such as climate change, pollution, circular economy, biodiversity and water resources on the environmental side, and on the social side, topics such as own workforce, workers in the supply chain, consumers, communities. And then the standard, which is all about ethical considerations of corporate behaviour. These are not new things; they have been in European legislation for a long time.

The game-changing aspect is that it's now mandatory and there's some common methodology that everyone should do it by. The criteria are not new, what is new is that everyone will follow the same rules. And that's very important. Up to now, everyone has been following different rules, which has had a negative impact on real practice

Read more: Final standards for ESG reporting are on the table. Companies must learn to track their impacts

Why couldn't an existing methodology have been used?

The standards applied so far, such as the Global Reporting Initiative (GRI), are voluntary or private initiatives, which gives too much space and flexibility to all those who apply these standards. That is all changing now. Companies will need to learn how to measure and report on their impacts in a way that is truly useful and meaningful to all.

However, the European standards take into account the reporting frameworks used to date and are consistent with all major international initiatives, including TCFD, GRI and international standards under IFRS. Large corporations already reporting under GRI, for example, do not need to move to a completely different system with which they would have no experience at all.

How should companies proceed now? Start measuring their carbon footprint?

This depends primarily on the size of the company, including the number of employees. For the time being, only banks, insurance companies and listed companies with more than 500 employees have to report data for the next year. All other large companies have an extra year, and will issue their first report under the new standards in the 2026 financial year. 

It is now really important for these companies to start calculating their carbon footprint. Companies with fewer than 750 employees need only report Scope 1 and 2 GHG emissions in the first year. This is basically the emissions of the fuels they burn themselves, whether in cars or in industrial plants and boiler rooms, and the emissions from purchased power. This is an easy task for them.

Calculating Scope 3 emissions, which include supply chain emissions, is much more difficult as it requires the use of quite complex methodologies. That is why the Commission has also given smaller companies an extra year to report Scope 3 emissions. Nevertheless, I would recommend that companies really waste no time and start preparing now. The data they have to collect is really a lot and the implementation is time consuming.

We will calculate your company's carbon footprint and help your company better analyze risks and opportunities by implementing ESG tools. Contact us.

If I have already mastered carbon footprinting, what is the next step?

The next really very important step is to perform the first phase of materiality analysis. Here it is important to note that the standards define very precisely what such an analysis should look like - it cannot be done intuitively or based on stakeholder opinion, as has often been the case to date. Small companies in particular can do a full materiality analysis later, but they need to understand how the company operates in the context of sustainability issues now, to map their actual and potential impacts, risks and opportunities in advance, and to understand where they have gaps.

In this regard, it is important to take stock of internal processes, which is the third major step for companies starting with reporting. This is because there is a set of processes that a company needs to have in place in order to be able to properly perform and describe materiality analysis.

For example, once you have identified and assessed the impacts, risks and opportunities, you also need to determine the level to which they interact with your strategy and business model. This means asking the question: Is my business model sustainable over the next few years? For example, is it not based on burning coal? And what can I do about it so that my business doesn't go out of business in a few years? You need a process to evaluate this, you also need a process to analyse financial risks and so on.

Frank Bold Advisory is growing, we are currently looking for reinforcements to our reporting team. Read more.

‍So you need to see if the company can handle all the reporting obligations and prepare for them.

Yes. I would recommend that companies develop a plan to implement European standards for sustainability reporting. Some things are very clear, such as the need to have a calculated carbon footprint, but that is just one of the implementation projects. Other implementation projects are, for example, process setup and materiality analysis. Companies also need to have an idea of which parts of the European sttandards are relevant to them and their business area and whether they have a data collection system set up for these areas. It sounds like a lot of work, but it's all about setting up a good plan and system at the beginning and just maintaining and improving it in the following periods.

Listen to the full episode of the Frankly Speaking podcast with Filip Gregor in English.

‍Get ahead with ESG reporting

We help companies set up an ESG strategy and prepare ESG reporting in accordance with the new European legislation, thus obtaining key data for their clients, business partners and financial institutions.