ESG is gradually becoming an integral part of companies’ reporting obligations to financial institutions, investors and regulators. Drawing on international experience across sectors, Grant Thornton Advisory offers a wide range of services from implementing ESG reporting to maximising sustainability strategy for company growth.

What is ESG

ESG (Environmental, Social, Corporate Governance) is a set of environmental, social and corporate indicators, which, through their integration, characterize the corporate performance of a company. ESG is a metric that serves as a form of non-financial reporting and also speaks about the long-term sustainability of a company. ESG is gradually becoming an integral part of the decision-making process for investors, who consider not only the amount of profit but also the way, in which it is achieved.

The abbreviation ESG consists of three terms. The first term is Environmental, i.e. relating to the environment.  Here, the demand is placed on companies to behave responsibly in terms of their environmental impact. Reducing the carbon footprint is key. To be environmentally sustainable, the operations of a company must have the lowest possible impact on climate change. This is further linked to reducing the ecological footprint in general, for example by ensuring that the company uses its resources efficiently and does not waste them.

The second word in the abbreviation, Social, is aimed at the individual, who is affected by the actions of the company in some way. This is, for example, a matter of setting an ethical and fair company culture, so that employees feel comfortable in the company. It is, of course, important to comply with workplace safety rules, but also to deal fairly with customers and, more generally, to assess the impact of the company’s activities on society and to comply with both legal and ethical standards.

The last part, Corporate Governance, deals with the management of the company. The company must have well-set internal control, respect the rights and informing of shareholders, evaluate and take into account risks in its decision-making, as well as ensure transparent taxation of its income and have processes in place to eliminate corruption.

Why deal with ESG

There are many reasons. A number of regulations (CSRD, SFDR, Taxonomy, etc.) are gradually being developed in the EU under the Green Deal to improve environmental sustainability of the economy. In addition to meeting legislative and regulatory requirements, the implementation of non-financial management can also bring a number of other benefits. A systematic approach to ESG can enhance the reputation of a company and thereby gain greater trust from employees, customers, buyers and investors.

Environmental impact measures can also bring a number of cost savings to a company, for example in consumption of energy, fuel and office supplies. Active management of the social and management aspects of the company can then enhance its reputation with the employees and increase the quality and demand among applicants at times of labour shortages. For B2C-oriented companies, reputation is key and the public considers ESG elements increasingly in its consumption habits. Thus, ESG compliance may be expected to become a necessity in the near future, whether for regulatory reasons or due to attitudes in society.

What are CSRD, SFDR and Taxonomy and how does ESG fit in

Besides ESG, terms such as CSRD, SFDR, EU Taxonomy and many others are often mentioned in the various EU green initiatives. All of these new initiatives and regulations have one thing in common, and that is to put pressure on sustainability across the entire economic system. The individual regulations thus target different operational and investment activities.

Corporate Sustainability Reporting Directive (CSRD)

The draft CSRD extends the existing principles approved by the European Commission on companies’ reporting about how they manage social and environmental risks. The CSRD extends the reporting obligation to all listed joint stock companies that meet at least two of the three criteria. The criteria are as follows: more than 250 employees, a turnover of more than EUR 40 million and more than EUR 20 million in assets. Other small and medium-sized enterprises with shares traded at stock exchanges have a period of 3 years to apply reporting. The CSRD standardizes the form of these reports and expands it further. Last but not least, it also provides for an audit obligation focusing on ESG risks.

EU Taxonomy

The EU taxonomy defines economic activities that are considered environmentally sustainable. Its aim is to reduce the risk of the so-called greenwashing and it is intended for serve for better informing of investors. However, it is not a binding standard, by which investors would have to decide. The taxonomy defines specific conditions for an activity to be considered environmentally sustainable. For example, reducing pollution or mitigating the impacts of climate change. We can expect taxonomy compliance to play an increasingly important role in investor decision-making.

Sustainable Finance Disclosure Regulation (SFDR)

The SFDR establishes an obligation for financial institutions and financial consultants to provide information on the environmental risks associated with a given financial product to end investors. This allows investors to make an informed decision on whether or not the product they want is environmentally friendly.

How can we help clients with ESG?

ESG is a rapidly developing field. With increasing societal pressure, ESG compliance can be expected to be a business standard in the foreseeable future, and the European Union also continues to work towards wider and more consistent implementation of ESG criteria. Nowadays, ESG is becoming a key criterion for the healthy growth of companies.

Grant Thornton Czech Republic leverages the expertise of the global network of Grant Thornton Sustainability Centre of Excellence, which specialises in sustainability solutions such as CSR (Corporate Social Responsibility), carbon neutrality and also ESG.

Within ESG, we offer clients a wide range of services, from assisting with regulatory compliance to transforming companies towards long-term sustainability:

• Setting up an ESG reporting system in compliance with the required reporting standards such as GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board) to meet the requirements of financial institutions and regulators. 
• Setting up an ESG strategy and determining measures for long-term sustainability.
• Quantitative analysis of business environmental impacts, calculation of carbon footprint and the setting of carbon footprint reduction strategy.
• Accelerating growth by setting a sustainability strategy and improving the company’s non-financial management.

If you would like to learn more about ESG, or to offer our services to your clients, please do not hesitate to contact us.

Pavel Prokop
Senior Manager | Advisory, Business Risk Services
T +420 603 558 690
E pavel.prokop@cz.gt.com