08-03-2024

The 12 General Sustainability Reporting Standards (ESRS)

Are you on top of the new sustainability reporting requirements?

On 31 July 2023, the European Commission adopted a set of sustainability reporting standards, also known as ESRS. The ESRS contains 12 standards based on the ESG parameters that companies can include in their reporting. Each standard has an associated reporting template.

The 12 standards include the following:

General: General conditions and information about the company.
Environment: Climate change, water resources, circular economy, pollution and biodiversity.
Social: Employees, other workers in the value chain, impacted communities, customers, and end-users.
Governance: Business conduct.

As the above shows, reporting is not only a matter of sustainability, but also encompasses working conditions, job satisfaction, and social responsibility towards both employees and citizens globally and locally.

In the coming years, it is expected that a number of sector-specific standards and a somewhat voluntary standard for SMEs will be adopted.

You can read about H. Daugaard’s ongoing work with ESG and the UN’s Sustainable Development Goals here.

What should you report on?

The challenging part of the new rules is determining what you need to report on, as there is no requirement to include all 12 parameters. With the exception of ESRS2 (general business information), all the parameters are subject to a materiality assessment. It is up to each company to assess which information is relevant to include in the report.

The Double Materiality Principle

The 12 general standards are based on a double materiality principle. This means that you need to consider both how the company impacts society and the environment (inside-out/Impact Materiality), but also the social and environmental conditions (outside-in/Financial Materiality) that represent a potential risk or opportunity for the company – both financial and non-financial.

For instance, as a logistics partner, we’re highly dependent on fuel and vulnerable to fuel price increases due to raw material shortage, war, or climate change. This is relevant to report on due to the principle of double materiality, as it affects our prices and, by extension, our customers’ budgets, which can have an impact on their other activities.

On the other hand, it’s also relevant to report that all our trucks comply with the latest Euro 6 emission standards, i.e., that they’re more climate-friendly, but we must also be able to document the CO₂ emissions associated with replacing or upgrading all our trucks to meet these requirements.

There are, in other words, many things to consider, and that’s why it isn’t too early to start. Quite the contrary.

Take a look at the value chain

In the big picture, logistics companies have a major impact on the climate. This is why it’s crucial for us to do everything we can to improve. Many companies rely on freight for the transport of their goods, so we need to ensure our own competitiveness, and one of the ways we do this is by improving our ESG parameters and being able to document the impact of these efforts in detail.

Since it’s no longer a question of climate and CO₂ alone, relevant data points can be found anywhere in the value chain.

Here are a few examples of things that could be important to report on:

If your production generates waste that can have consequences for the environment or nature.
If your production causes noise that is a nuisance to the local community.
The impact of your current energy consumption on the climate.

These are all examples of negative impacts but, in many cases, it is equally relevant to report on positive impacts or any positive possibilities your company may contribute with or that the surrounding world offers to your company. This way, your ESG reporting will be nuanced and reliable.

Involve key employees in the work

All sustainability reporting items must be included in the annual report and have a signed review statement. The board of directors bears the ultimate responsibility for the reporting, so it’s crucial to set up a group or appoint a responsible person who is involved in the reporting process and can vouch for what is being reported.

It can also be a good idea to involve key employees from various departments to provide insight into specific work areas, tasks, and processes, and to help make the materiality assessment.

Best advice for getting started

According to the Confederation of Danish Industry, if your organisation is to achieve its reporting goals, it is important that ESRS standards are incorporated into the strategy and business model on an equal footing, preferably in coordination with the financial strategy. Otherwise, it won’t amount to more than a by-product that is deprioritised and viewed as a cumbersome task and less important than financial efforts.

The most important thing to know about the new requirements is that knowing your customers is essential. It was important before, but even more so now. It’s your job as a supplier to improve not only your own ESG performance, but also that of your customers – just as it is for us. This is the time to familiarise yourself with your potential to make a positive impact on their accounts to help them achieve their targets.

This also includes looking into your own value chain and finding out where you and your sub-suppliers can make a difference.

Here’s why:

Identify key items to report on in you company.
Understand your customers and ask what they need from you.
Set up a working group, prepare action plans, set targets and gather information.
Look down your own value chain and assess what you need from your suppliers.
Get started right away. The sooner, the better.
Practice, and follow up on what you learn.

We hope this article can help you to get started!