ESG Reporting 2024

The year 2024 marks a decisive turning point for companies in the European Union when it comes to ESG reporting. The EU has introduced a series of comprehensive regulations intended to make business models more sustainable and increase transparency on environmental, social and governance issues.

In the following article, you will find an overview of the most important new rules for ESG reporting in the EU in 2024, which are intended to point in a new direction towards more transparency and environmental responsibility.

Quick overview of the most important ESG reporting rules in the EU in 2024

Sustainable Finance Disclosure Regulation (SFDR)
This regulation obliges investment managers in the EU to report on sustainability and is intended to increase transparency about how ESG risks are integrated into investment decisions.

Corporate Sustainability Reporting Directive (CSRD)
The directive on corporate sustainability reporting extends the requirements for EU and non-EU companies and improves the consistency and comparability of sustainability information.

Supply Chain Due Diligence Act (LkSG)
Germany’s Supply Chain Due Diligence Act (LkSG) imposes due diligence obligations on companies for human rights and environmental risks along their supply chains.

Corporate Sustainability Due Diligence Directive (CSDDD)
This directive requires companies to identify, prevent, mitigate and record adverse sustainability impacts in their operations and value chains. It also obliges companies to develop a climate plan showing how the 1.5-degree target is to be achieved and setting emission targets to contribute to climate neutrality.

Carbon Border Adjustment Mechanism (CBAM)
The European carbon border adjustment mechanism introduces a carbon price on certain imports to prevent carbon leakage and promote cleaner industrial production.

EU Taxonomy
A classification system for environmentally sustainable economic activities, intended to direct investment specifically into more sustainable projects.

Sustainable Finance Disclosure Regulation (SFDR)

The Sustainable Finance Disclosure Regulation, SFDR for short, which has been in force since March 2021, requires financial intermediaries and asset managers to disclose specific information on the sustainability of their investment products. The aim of this ESG reporting requirement is to increase transparency and provide investors with sound information that encourages more sustainable decisions.

Since the end of 2023, the European Commission has been holding consultations on the SFDR to identify weaknesses and develop proposals for improvement. The results of these consultations are likely to significantly influence the future development of the SFDR and EU regulatory policy.

The SFDR has been introduced gradually since March 2021. Companies must first explain how they integrate sustainability risks into their decision-making processes.
The regulation provides for annual reporting, with larger companies obliged to publish detailed reports on the principal adverse impacts of their investment decisions, while smaller companies can make more flexible statements.

The SFDR is part of a comprehensive framework for sustainable finance in the EU, which also includes the CSRD and the implementation of the EU Taxonomy key figures, to ensure coherent regulation.

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD), introduced in January 2023 as a central part of the European Union’s Sustainable Finance Package, marks significant progress towards sustainable economic development. Originally emerging from the Non-Financial Reporting Directive (NFRD), this ESG reporting instrument introduces new standards for transparency and accountability in corporate sustainability reporting.

The CSRD requires companies to report on their environmental impacts, including energy and resource consumption, and their impact on biodiversity. Social aspects such as labour practices, human rights and community engagement must also be disclosed. Governance structures are also examined, in particular how sustainability aspects are integrated into corporate decisions.

From 2024, extended reporting obligations apply to companies in the EU. Until now, only public-interest entities under the NFRD were obliged to report on ESG. This obligation is now being gradually extended:

• since 1 January 2024: large companies & parent companies of large groups (500+ employees)
• from 1 January 2025: other large companies (meeting two of three criteria: 250+ employees, €50+ million turnover, €25+ million total assets)
• from 1 January 2026: listed SMEs, unless they make use of the option to defer until 2028

Micro-enterprises are exempt from the reporting obligation.

Supply Chain Due Diligence Act (LkSG)

Germany’s Supply Chain Due Diligence Act (LkSG) imposes due diligence obligations on companies for human rights and environmental risks along their supply chains. Since January 2023, this ESG reporting law has applied to companies with at least 3,000 employees that have their head office, administrative headquarters, principal place of business, registered office or a branch in Germany.

On 1 January 2024, these obligations were extended to companies with at least 1,000 employees.

Corporate Sustainability Due Diligence Directive (CSDDD)

The Corporate Sustainability Due Diligence Directive (CSDDD) goes beyond the German Supply Chain Due Diligence Act by extending responsibilities to all large companies within the EU that have more than 1,000 employees and generate turnover of at least €450 million.
And this regardless of where they are headquartered. This rule also applies to companies outside the EU, provided they generate net turnover of €450 million within the EU.

From 2027, affected companies must identify negative environmental and human rights impacts in their supply chains in their ESG reporting and explain methods for preventing or mitigating them. In addition, they are obliged to develop a climate plan showing how they intend to achieve the 1.5 degree Celsius target and contribute to climate neutrality, accompanied by detailed carbon accounting as defined in the European Sustainability Reporting Standards (ESRS) .
Another important element of the CSDDD is the obligation for companies to end business relationships if serious negative impacts on the environment or human rights are identified among their business partners that cannot be remedied. The CSDDD also tightens the legal framework compared to the Supply Chain Due Diligence Act (LkSG): in the case of civil law violations, affected parties now have five years to assert claims.

Member states must transpose the directive into national law by 2026. From 2027, the thresholds for reporting obligations will be gradually lowered until, by 2029, companies within the EU with more than 1,000 employees and turnover of at least €450 million are affected. This covers around 5,300 companies.

Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) was introduced in 2023 as part of the European Union’s “Fit for 55” climate package. This package aims to reduce the EU’s greenhouse gas emissions by 55% by 2030. It is a comprehensive cross-sector overhaul that extends existing laws and introduces new rules affecting climate, energy, transport, buildings and land use.

CBAM is an important initiative within this package. The mechanism is intended to ensure that domestic and imported goods bear their own exact carbon costs, in order to pre-empt the option of “carbon leakage”.
Here, companies might relocate their production to countries with laxer emission rules in order to avoid additional costs imposed by climate policy. CBAM therefore aims to align the carbon price between EU products and imports in order to neutralise this effect.

CBAM applies to certain carbon-intensive goods such as iron, steel, cement, aluminium, fertilisers and electricity, as well as to foreign companies that export to the EU and operate in regions without carbon pricing systems equivalent to the EU’s. Companies must purchase CBAM certificates corresponding to the carbon price in the EU Emissions Trading System (ETS) and, since October 2023, track the embedded emissions of imported products precisely. This measure will be introduced gradually until 2026, with full implementation by 2034.

The legal text is available to read again here.

The EU Taxonomy

On the European Union’s path to a more sustainable future, the EU Taxonomy provides a framework for defining and promoting sustainable economic activities within ESG reporting.

All companies that must publish a sustainability report under the CSRD from 2025 must apply Art. 8 of the EU Taxonomy Regulation and therefore include taxonomy key figures and a narrative explanation in the report. Large listed companies with more than 500 employees have already been doing this since 2021.  

The EU Taxonomy is about defining and determining concrete key figures that must be stated as part of the sustainability report under the CSRD. These key figures indicate a company’s potential to make a substantial contribution to achieving the EU environmental objectives (taxonomy eligibility) and what contribution the company currently makes (taxonomy alignment).

The classification system assesses the environmental sustainability of activities against six main objectives, including climate change mitigation, climate change adaptation, transition to a circular economy and pollution prevention and control. It promotes transparency in sustainable investment decisions by helping companies determine which of their activities can be considered environmentally sustainable.

The EU Taxonomy timetable requires companies to disclose the share of their eligible activities since January 2022 and to report on the alignment of their activities with the taxonomy objectives since January 2024. From 2025, financial institutions must take taxonomy alignment into account in their non-financial reports in accordance with the rules of the Corporate Sustainability Reporting Directive (CSRD).

This gradual implementation aims to oblige companies by 2025 to report in their CSRD reports on the share of their taxonomy-aligned activities in turnover, capital expenditure and operating expenditure.

Telusio’s view

For 2024, the EU has planned numerous new ESG reporting rules and tightened existing regulations. This reflects the growing social and regulatory pressure on companies to take their responsibility for the environment and society seriously while remaining competitive in the long term.

When it comes to ESG reporting, you should not let yourself be overwhelmed by the sheer number of regulations. It is therefore essential for companies to prepare early and allocate resources to meeting the new criteria. This can be done together with external partners or internally.