ESG Grand Review 2024: What to prepare for?

What new developments in sustainable finance and non-financial reporting to expect this year, what to prepare for and when? We have prepared an overview of the key changes not only in ESG reporting in 2024.

First wave of companies starts with mandatory sustainability reporting

From the start of the 2024 financial year, the largest companies covered by the CSRD must already collect data and information according to the requirements of the European Sustainability Reporting Standards (ESRS). This applies to banks, insurance companies and listed companies with more than 500 employees. In the Czech Republic, these include ČEZ, Škoda Auto, Komerční banka, Česká spořitelna and EPH. These companies must issue a sustainability statement (informally called an ESG report) as part of their annual report issued in 2025.

Other companies will be obliged to do so a year later (data collection for 2025, report release 2026), but already this year information requests from large companies and banks will start to trickle in, needing to collect information from suppliers and customers for materiality analysis or carbon footprint calculations.

For smaller companies that have to issue a mandatory ESG report with data for 2025, the next 12 months are also the last opportunity to try out reporting "for real" and put in place the necessary reporting policies and processes well in advance of the sustainability report being audited. This includes not only the automation of data collection, but also, for example, the implementation of a materiality analysis process, which is key to quality reporting.

‍"Smaller companies affected by mandatory ESG reporting in the second wave will face a number of challenges - from collecting the necessary data, to working with the supply chain, to implementing processes to manage and analyse materiality. We are already helping companies that want to be well prepared for the first ESG report to set up an implementation plan so that they have all key items in place and tested in 2025," explains Filip Gregor, team leader at Frank Bold Advisory and member of EFRAG's Sustainability Reporting Board.

Banks must disclose share of green investments

In parallel to the reporting obligations under the CSRD, companies are also subject to disclosure obligations under the Sustainable Activities Taxonomy Regulation. This information is reported in the context of the aforementioned sustainability statement in the annual report, but is governed by the taxonomy's own reporting rules.

In financial year 2024 (for 2023), banks and investors must now report specific indicators showing the proportion of loans and investments they have made in green projects according to the criteria of the Sustainable Activities Taxonomy. In particular, this is the green asset ratio indicator, which shows the proportion of taxonomy-aligned exposures compared to total assets.

"Companies need to prepare for the increased information requirements of banks and investors, who must mandatorily assess the compliance of their investments with the taxonomy," points out Filip Gregor of Frank Bold Advisory.

Large non-financial enterprises with more than 500 employees and listed securities already report specific indicators according to the taxonomy from 2023.

In particular:

• the proportion of turnover derived from products or services related to sustainable activities according to the taxonomy
• the proportion of capital and operating expenditure relating to assets or processes related to sustainable activities according to the taxonomy

From 2024, they will be obliged to include the economic activities included in the second delegated act on the taxonomy in their assessment and reporting of taxonomy-eligible activities.

The taxonomy reporting obligation will gradually be extended to all companies that fall under the CSRD (see above).

ČNB gets guidance on how to enforce ESG reporting

The European Securities and Markets Authority (ESMA) will issue guidance in 2024 on how the responsible national authorities should supervise the sustainability information to be reported by listed companies under the CSRD, ESRB standards and the Taxonomy Regulation. The aim is for national authorities such as the Czech National Bank to put in place the same level of oversight of sustainability reporting for listed companies as they do for financial reporting.

"A public consultation is now underway on the draft Guidelines on Enforcement of Sustainability Information. The final guidelines can be expected in the second half of the year," predicts Filip Gregor.

Major companies will address negative impacts throughout the supply chain

In mid-December, EU lawmakers reached political agreement on the text of the Sustainability Due Diligence Directive (CSDD), which will oblige the largest corporations to address negative impacts throughout their supply chains.

For example, covered companies, banks and investors will need to adopt and implement climate transition plans, including greenhouse gas reduction targets that are consistent with the goals of the Paris Agreement.

The Directive applies - from 2027 at the earliest - to companies with more than 500 employees and a turnover of more than €150 million. The new rules will also apply to companies with more than 250 employees and a turnover of €40 million, if more than 50% of this turnover comes from a high-risk sector (e.g. clothing or mining). The Directive will also apply to non-EU companies if they exceed certain turnover thresholds in the European single market.

EU negotiators will now work on finalising the technical details of the text before its formal adoption by the European Parliament and the EU Council.

New EU standard for green bonds

At the end of 2023, the EU Regulation on European Green Bonds, was formally adopted, which sets out the rules for bonds that wish to present themselves as "EUGBs" (i.e. European Green Bonds). The main part of the regulation will only apply from December 2024, with some provisions already applicable from December 2023.

The EUGB is a voluntary standard that requires bond proceeds to be spent on activities that are classified as sustainable according to the EU taxonomy. The regulation also requires bonds to be authenticated by an external verifier, which will be registered in a special register overseen by ESMA (European Securities and Markets Authority).

The EU's expectation is that investors will prefer to purchase green bonds labelled as EUGBs over green bonds issued under other methodologies (e.g. ICMA Green Bond Principles) due to the link to taxonomy criteria and greater transparency on the allocation of proceeds from sales.

A fundamental transformation of the real estate sector is coming

The revision of the Energy Performance of Buildings Directive (EPBD), which will significantly affect the entire building sector in the EU, has already been finalised as of December 2023. The final text of the Directive has been agreed zástupci Evropského parlamentu, Rady a Komise. Formálně by měla být směrnice přijatá v první polovině roku 2024, následně začne transpozice do národního práva členských států. 

The most significant changes introduced by the revision are:

• introduction of a zero emission building standard (ZEB)
• ending on-site heating and cooling of buildings by burning fossil fuels
• compulsory installation of solar energy sources on the roofs of buildings
• mandatory renovation of more energy-intensive buildings

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.