- What is ESG and why is it important for companies?
ESG (Environmental, Social, Governance) is gaining increasing attention in investor circles, and the English term refers to environmental, social, and governance aspects. The aim is to consider not only the financial performance of companies but also their environmental, social, and governance policies and activities. ESG now plays a key role not only in business decision-making but also in the evaluation of companies, becoming an increasingly important indicator. Soon, it will also be a legal obligation at the EU level.
- ESG Regulation and Non-financial Reporting: Applicable EU Directives
It is important to note that the European Union already has directives that impose ESG reporting obligations, although these are currently applicable only to a limited group. According to Directive 2014/95/EU, also known as the Non-Financial Reporting Directive (NFRD), large public-interest companies with more than 500 employees have been required since 2018 to report on their environmental policies, social and employment issues, respect for human rights, anti-corruption and anti-bribery policies.
- The CSRD Directive: New Obligations in the ESG Reporting
However, the current ESG regulation needs improvement in several areas. The reporting obligation affects only about 11,700 companies in the EU, does not meet the increased information needs of investors, non-governmental organizations, and social partners, is difficult to access, and since companies prepare their reports based on different frameworks, they are not easily comparable. All of this justified the review and rethinking of ESG reporting rules, leading to the creation of the Directive on Sustainability Reporting (CSRD), which would expand the reporting obligations and introduce several new elements.
Dr. Katona Géza, LL.M. Rechtsanwalt
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