Boards can lead the way on ESG. We share the why, what, and how of effectively overseeing ESG.
An ESG report is a report published by a company or organization about environmental, social and governance (ESG) impacts. It enables the company to be more transparent about the risks and opportunities it faces. It is a communication tool that plays an important role in convincing sceptical observers that the company’s actions are sincere.
The growing importance of ESG reports is supported by the fact that the investors and other stakeholders are calling on companies to disclose more about their sustainability and environmental, social and governance strategies.
ESG reporting encompasses both qualitative disclosures of topics as well as quantitative metrics used to measure a company’s performance against ESG risks, opportunities, and related strategies.
ESG reporting is an ideal and effective means of enabling companies to answer in a single document a wide variety of questions that stakeholders may raise.
However, creating an ESG report can be challenging, as it must meet the requirements of the reporting methodology and have the right balance of information from the individual agendas. Moreover, the companies need to determine how to communicate relevant information and what ESG information and indicators to report.
The ESG contains three key elements, each containing a wide range of useful topics.
Modern companies perceive taxes as a tool that supports the implementation of environmental projects and the long-term sustainability of a social and economic oriented company.
Why are taxes, which historically have only been seen as one of the main company cost items, part of the discussion on ESG objectives?
1. Financing projects of sustainable value
Taxes are an important source of financing public sustainability projects
2. “Green deal”
“Green taxes” as an incentive for new environmental projects and compensation for damage with a societal impact.
3. Interest of investors and the public
Directive 2014/95/EU – the non-financial reporting directive (NFR Directive) – lays down rules on disclosure for non-financial and diversity information by large companies. Companies are required to include non-financial statements in their annual reports.
The NFR Directive requires that companies provide with relation to these matters as a minimum the following information:
The NFR Directive encourages the use of voluntary standards and frameworks for sustainability and ESG reporting.
The NFR directive has been implemented into the Slovak Act on Accounting No. 431/2002 Coll. as amended.
A public-interest entity with an average number of employees for the accounting period exceeding 500, must also provide in its annual report non-financial information regarding the development, performance, position and effect of the accounting unit activity on:
The company may apply for an exemption if its parent company prepares and issues an ESG report in line with an acceptable framework or standard.
However, more and more companies are voluntarily preparing and presenting ESG information over and above industry and legal requirements, to describe their long-term value creation strategies and to meet the demands of investors and other stakeholders.
Currently, companies have significant flexibility regarding disclosure of relevant ESG information and may undertake this in the way they consider most useful. It is encouraged to use reporting which relies on recognized frameworks and standards.
Frameworks provide principles-based guidance that helps identify ESG topics to determine how to structure and prepare the ESG information companies disclose.
The Task Force on Climate-related Financial Disclosures (TCFD) is a framework that provides principles-based recommendations for managing and reporting on climate risks.
The European Commission has published non-binding guidelines to help companies disclose relevant non-financial information in a more consistent and more comparable manner.
Under the Slovak Act on Accounting, companies may use the European Union framework or another international framework governing non-financial information as a basis, provided which framework was used is specified.
Standards provide specific and detailed information requirements that assist in determining which specific metrics or indicators to disclose for each topic.
The most common standards in Europe used by companies in their ESG disclosures are those issued by the Global Reporting Initiative (GRI). GRI Standards enable companies to report the impact of their social and environmental activities to stakeholders and can be verified.
The professional standards set forth requirements and guidance for the auditor’s involvement when other information is included in the document with audited financial statements. Sustainability reports and ESG information are often included in company reports that do not include audited financial statements. In these instances, the auditor has no responsibility for the ESG information in a financial statement audit.
However, the information reported by a company needs to be credible and well supported, so stakeholders are able to make informed decisions. As for the audits of financial statements, third-party assurance from an audit firm enhances the reliability of ESG information presented by companies to investors and other stakeholders.
An auditor’s report is designed to enhance the reliability of such information for the intended users of the ESG report by providing an objective and impartial assessment of the assertions, data and other disclosures made by management. Obtaining any level of assurance by the audit involves the evaluation of processes, systems, and data, as appropriate, and then assessing the findings in order to support an opinion.
The key benefit is to verify non-financial data and information to help companies gain stakeholders’ trust.
Assurance is performed in accordance with International Standard on Assurance Engagements 3000, Assurance Engagements other than the audit and review of historical financial information and International Standard on Assurance Engagements 3410, Assurance Engagements on Greenhouse Gas Statements.
We will be your trusted adviser and assist you in your sustainability and ESG reporting journey.
We will support your growth to give you a competitive advantage and provide a value-adding service by applying our knowledge and hands-on experience in the relevant area.
Partner, PwC Slovakia
Tel: +421 911 425 109
Partner, Assurance Leader, PwC Slovakia
Tel: +421 911 423 304
Senior Manager, PwC Slovakia
Tel: +421 911 423 309