Sustainability Now! Shifting the Business as Usual Paradigm

Marijana Babić participated at the ACAP conference held in 2023 in Zagreb, on the topic of the new ESG Regulation for Companies: in addition to the NFRD (Non-financial Reporting Directive), the implementation of the new CSRD (Corporate Sustainability Reporting Directive) and the ways in which the new Directive will affect the obligations of corporate, financial and mandatory new non-financial reporting of legal entities. Sustainability reporting is non-financial reporting in which a company publicly reports on its impact on the environment and society and obliges legal entities to disclose information related to environmental, social, human resources and issues related to respect for human rights, anti-corruption and bribery.

Companies will have to report according to the strict ESRS, which means that the structure of sustainability reports is strictly prescribed and it is defined what information from all three areas (E, S, G) should be reported. The sustainability report is no longer separated, but becomes an integral part of the Company’s reporting obligation and will have to be submitted at the same time as financial report. Persons authorized to represent the legal entity are responsible for submission. Report will also be submitted in the digital format XBRL (machine-readable format) to the central European database (EMAS). All information provided in the report must be verifiable and provable, and the important change is that the report will have to be audited by an auditor or an authorized third party.

The Corporate Sustainability Due Diligence Directive (CSDDD) defines strict verification rules, instructions and responsibilities for company owners and directors. The rules will be incorporated into local legislation in all EU countries during 2025 and will start to apply in 2026. This directive requires legal entities to prove how they have collected information from key stakeholders and identified key risks and opportunities, within their entire value chain, all in order to combat greenwashing. In the case of voluntary reporting in B2C EU also wants to further protect consumers with the Green Claims Directive, which prescribes penalties of four percent of turnover for companies that misrepresent sustainable products.

In addition to the fact that legal entities must report on sustainability, the entire financial industry must also do the same, for which there are reporting rules defined by SFDR (Sustainability Financial Reporting Directive). According to foregoing rules banks, pension funds, insurance companies and other financial institutions must report on how they manage sustainability risks in their own portfolio and how ESG factors are built into their operations and products as of 1 January 2023. In addition, banks must align their operations with EU regulations and the regulatory requirements of the EBA (European Banking Authority), where they must clearly show their existing share of green asset ratios, goals for its increase and an action plan on how they intend to achieve it, which is why they are looking for clients who do have implemented ESG strategies and sustainable investments. For this reason, banks are creating an ESG questionnaire for clients who will need financing. In Republic of Croatia, it is filled with the help of HROK.