The disclosure by undertakings of relevant, comparable, and reliable information on ESG matters is a significant aspect of public policies in the field of sustainability and a prerequisite for the realization of sustainability goals. A requirement on undertakings to include information on ESG matters in their management reports enables understanding of the undertaking’s impacts on sustainability matters and, in turn, how sustainability matters affect the undertaking’s development, performance and position.

The sustainability information disclosed in the annual management reports of undertakings is aimed at reaching two primary groups of users:

• investors who want to better understand the risks and opportunities that sustainability issues pose for their investments and the impacts of those investments on people and the environment,
• civil society actors, including non-governmental organizations, social partners, communities affected by undertakings’ activities, who want to be acquainted with the impact of these activities on people and the environment, as well as the undertakings’ responsibility.
• Other stakeholders might also make use of sustainability information disclosed in annual reports, in particular to compare across and within certain sectors.
• Business partners and customers may rely on sustainability information to understand sustainability impacts and risks across the value chain.
• Public policy makers and environmental agencies can use such information, particularly in aggregate, to monitor environmental and social trends, contribute to environmental matters, and informed public policy.
• The disclosure of sustainability-related information also benefits reporting companies, particularly through increasing awareness, understanding of risks and opportunities within the company, diversifying the investor base, lowering the cost of capital and improving constructive dialogue with all stakeholders.

                                                             Sustainability reporting in the law of the European Union

At the European Union (EU) level, already Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial information by certain large undertakings and groups (Non-Financial Reporting Directive (NFRD)) has introduced a requirement on large public-interest companies (listed companies, banks, insurance companies and other companies designated by national authorities as public-interest entities) with more than 500 employees to report information on, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. With regard to those topics, the Directive required undertakings to disclose information under the following reporting areas: business model; policies, including due diligence processes; the outcome of those policies; risks and risk management; and key performance indicators relevant to the business.

In the meantime, Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFRD) has governed how financial market participants and financial advisers are to disclose sustainability information to end investors and asset owners.

New Directive (EU) 2022/2464 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Corporate Sustainability Reporting Directive (CSRD)) has amended the existing reporting requirements of the NFRD by extending the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises), requiring the audit (assurance) of reported information, introducing more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards. In the management report, the required information includes, in particular: the undertaking’s business model and strategy; the time-bound targets related to sustainability; the role of the administrative, management, supervisory bodies and their expertise with regard to sustainability matters; the undertaking’s policies in relation to sustainability matters; the due diligence process implemented by the undertaking with regard to sustainability matters; the principal risks to the undertaking related to sustainability matters and relevant indicators for these information.

However, the Omnibus 1 Directive (EU) 2026/470 limited the scope of application of the Corporate Sustainability Reporting Directive (CSRD) to companies that on the balance sheet date exceed a net income of 450,000,000 euros and an average number of employees of 1,000 during the financial year. For third-country companies, the net turnover threshold was raised to €450 million generated in the EU, with an additional threshold of €200 million for subsidiaries or branches. In order to facilitate voluntary reporting of sustainability information by undertakings which, on their balance sheet date, do not exceed an average number of 1 000 employees during the preceding financial year, and to limit the information that may be required for the purposes of this Directive from such undertakings in the value chain, the European Commission will, based on its authorization from this Directive, determine, by means of delegated acts, voluntary sustainability reporting standards.

                                                                               Sustainability reporting standards

Based on the authorizations established in CSRD, the European Commission has already adopted Commission Delegated Regulation (EU) 2023/2772 supplementing Directive 2013/34/EU as regards sustainability reporting standards that undertakings, subject to mandatory reporting, shall include in the management report in accordance with CSRD (European sustainability reporting standards (ESRS)). ESRS specify the information that an undertaking shall disclose about its material impacts, risks and opportunities in relation to environmental, social, and governance sustainability matters:

• the term “impacts” refers to positive and negative sustainability-related impacts that are connected with the undertaking’s business, as identified through an impact materiality assessment;
• the terms “risks and opportunities” refer to the undertaking’s sustainability-related financial risks and opportunities, including those deriving from dependencies on natural, human and social resources, as identified through a financial materiality assessment.

Collectively, these are referred to as “impacts, risks and opportunities” and reflect the double materiality perspective of ESRS. As a result, undertakings are obliged to report on sustainability matters based on the double materiality principle.

At the global level, there are several sustainability reporting frameworks:

The Global Reporting Initiative (GRI) has developed GRI Standards as a modular system of interconnected standards, which can be used by any organization, large or small, public or private, from any sector or location. The GRI framework requires disclosure of both the positive and negative impact a company has on the environment, social issues and economy, as well as performance measurement.

International Organization for Standardization (ISO) has developed the internationally recognized ISO 14001 standard for environmental management systems (EMS). It provides a framework for organizations to design and implement an EMS, and continually improve their environmental performance. By adhering to this standard, organizations can ensure they are taking proactive measures to minimize their environmental footprint, comply with relevant legal requirements, and achieve their environmental objectives. The framework encompasses various aspects, from resource usage and waste management to monitoring environmental performance and involving stakeholders in environmental commitments.

Principles for Responsible Investments (PRI) have been developed by an international group of institutional investors, convened by the United Nations Secretary-General. The six Principles act as a guide for investors to integrate environmental, social, and governance (ESG) factors into their investment practices.

The Sustainability Accounting Standards Board (SASB) has developed SASB Standards, which enable undertakings to provide industry-based disclosures about sustainability-related risks and opportunities that could reasonably be expected to affect their cash flows, access to finance or cost of capital over the short, medium or long term.

Task Force on Climate-related Financial Disclosures (TCFD) has set out Recommendations for businesses to identify the information that investors, lenders and insurance underwriters need to properly assess and price climate-related risks and opportunities.

United Nations Global Compact is a voluntary initiative based on the commitment of companies to apply universal sustainability principles and support UN goals.