Transparency about ESG: Telling an honest story about sustainability

Major social issues continue to have an increasing impact, also on the business community. And these issues increasingly require corporate involvement. Remko Renes (member of the Nyenrode Corporate Governance Institute) and Auke de Bos (associated with the EUR and EY) elaborate on Environmental, Social and Governance (ESG) factors. They think about the meaning and the importance of ESG, and the influence of this topic’s focus and transparency on organizations and directors and the roles of supervisors and audits. Based on their insights, they give recommendations to directors, supervisory directors, advisers and accountants.

Long-term value creation

In reference to long-term value creation, Renes and De Bos describe a number of relevant developments that will affect the requirements and structure of reporting as performed by companies in the near future. To give an example, in 2015, the United Nations defined 17 Sustainable Development Goals (SDGs). These goals aim to end extreme poverty, inequality, injustice and climate change. In addition, public attention for social topics is increasing and within Europe there is a huge focus on the environment. Look for example at the so-called Green Deal, launched by the European Commission in 2019, to transform the European Union (UN) into a fair, healthy, sustainable and prosperous society and to improve the way we interact with mother nature.

It is clear that the developments of long-term value creation, both nationally and internationally, are moving forward at a high speed and that organizations will be dealing with various rules in the nearby future to enforce more transparency in order to get the subject on top of the management agenda.

More transparency about ESG

Until recently, ESG requirements were straightforward. A major change has resulted from the Corporate Sustainability Reporting Directive, which was published in 2021. This EU Directive prescribes that large companies must start reporting on ESG and that accountants must provide assurance accordingly. The EU has already submitted the first concrete proposals for detailed reporting rules, or the so-called European Sustainability Reporting Standards. The introduction of these standards will bring about major change and is an important next step in the development of the quality and content of corporate reporting and the ESG aspects included therein.

The latest insights tell us that these standards will apply to large, listed corporations as of 2024 and in the following year to the other large corporations. SMEs will also be dealing with this, as the requirements for large corporations in areas such as climate are expected to become the standard for them as well.

Responding to sustainability by directors, supervisory directors, advisers and accountants

Because the developments are going so fast, partly due to the great pressure exerted by the European Commission, swift action from directors, supervisory directors, advisers and accountants is required. Although there are no definitive and unambiguous standards yet, this is the time for all parties involved to shape and substantiate the reorganization of corporate reporting with good dialogue, as new standards will soon become final.

It is clear that in the future the story behind the figures will be paramount. What good are high profit figures if they are not focused on the long term and if they don’t take ESG factors into account? If need be, directors, supervisory directors, advisers and accountants will be able to recalibrate the moral compass, together.

The whole article can be found here (in Dutch).