All large companies will have to report sustainability information

Bratislava, 20 September 2021

The European Union has toughened its rules aimed at ensuring carbon neutrality. Europe is to achieve it by 2050. That's why the EU is strengthening rules on non-financial reporting. A new directive encourages businesses to take a responsible approach to business.

Hundreds of Slovak companies will be affected by the new rules

In Slovakia, more than 600 companies should report sustainability in their annual reports under the new criteria. [1] This obligation is imposed by the Corporate Sustainability Reporting Directive (CSRD). Reporting will be mandatory for companies that meet at least two of the following three criteria:

1. More than 250 employees
2. More than EUR 40 mil. in the balance sheet
3. More than EUR 20 mil. in turnover

Even companies that have their securities traded on a stock exchange, including small and medium-sized enterprises, will not be able to avoid a sustainability report. However, they will have a delayed obligation of three years compared to large businesses. 

Slovak companies lag behind in reporting their responsible approach

"Based on our analyses, approximately 30 Slovak companies currently have experience with the so-called sustainability report card, and almost a third of them would not meet the stricter reporting criteria. Until now, the directive in force imposed this obligation on companies with over 500 employees with a certain turnover and balance sheet. Most of the companies, in accordance with the applicable legislation, used the exemption provided by the regulation and, as subsidiaries of foreign companies, included the information in the consolidated non-financial statement of the parent company," said Jana Ružická, expert on reporting non-financial data at Mazars. The new directive will be much more binding and member states will not have as much flexibility in the process of incorporating it into national legislation.

Sustainability information is also of interest to investors

The European Commission argues that the financial sector needs transparent, credible and comparable information on how companies' activities affect the environment and the society. Investors are increasingly driven not only by indicators on the financial health of companies, but also by information on the impact of their activities on climate change and on their approach to employees – be it representation of women in management or reduction of the gender pay gap, etc. The aim of the directive is to encourage the flow of capital towards sustainable activities, for which accurate and standardised data are needed so that companies do not slip into the so-called greenwashing.

Sustainability will be reviewed by auditors

For maximum transparency, reports will have to be verified by an independent third party. In the future, verification of non-financial data is to be brought up to the level of a financial audit. In addition, data will be published in digital format in a European database, together with financial indicators. The exact standards that companies will use in their reporting will be known in a year's time. They are being prepared by the European Advisory Group on Financial Reporting and will be based on existing and used standards.

The EU will be a global leader

Around 11,000 companies across the European Union currently publish a sustainability report. This number will now rise to almost 50,000. This will make the EU a global leader in setting standards for sustainable finance. Large companies will probably have to report on sustainability in their annual report for 2023. Companies will then have one and a half years to set up processes to collect data from January 2023 and get their activities up to a level that will be communicated publicly.

[1] Source: www.finstat.sk