Letter by Chief Consultant Marianne Frank from ITD Padborg
More and more businesses focus on social responsibility, and many take active responsibility and integrate i.a. climate, social and ethical issues into their activities and stakeholder interaction.
Corporate Social Responsibility or CSR, social accountability, sustainability and triple bottom line are some of the terms used to describe companies’ social responsibility activities.
No matter which term they use, companies are increasingly faced with written as well as unwritten demands from clients, staff, investors, authorities and other stakeholders when it comes to exercising and documenting their responsibility to society.
In Denmark, companies are not obliged to exercise CSR. However, the largest Danish companies are required to report CSR activities, cf. section 99a of the Danish Financial Statements Act. This involves explaining and substantiating their choices – even if the company does not have a CSR policy.
In order to strengthen CSR reporting, so-called ESG key figures have become more and more popular. ESG stands for Environment, Social and Governance and comprises non-financial key figures that can be used to determine to which extent a company meets its own sustainability and CSR targets.
Today, ESG data are used extensively to communicate a company’s sustainability strategy and performance to investors and banks, which then use these figures – as well as financial data – to identify the risk the company represents and the costs associated with investing in or lending money to the company.
This may result in more transparency, not just for investors, but also for clients and collaborators, who increasingly request ESG data, which they include in their own sustainability reports. To the company, ESG figures may improve the quality of the data used in risk analyses and strategy development – especially if the company sets targets for its key figures.
However, while companies have so far enjoyed a great degree of freedom when it comes to sustainability activities and reporting and ESG data, a new EU directive increases the requirements for non-financial reporting.
The Corporate Sustainability Reporting Directive (CSRD), which according to plan will be adopted by the Council on 28 November 2022, seeks to standardise reporting and increase transparency of sustainability activities, making it easier for investors, collaborators and other stakeholders to assess and compare companies’ social sustainability contributions.
To whom does the CSRD apply and when will it enter into force?
The CSRD will be implemented into Danish law in three phases:
- Phase 1: As of 1 January 2024, large companies of public interest (with a staff of more than 500), which are already subject to the directive on non-financial reporting, will be subject to the CSRD and required to publish reports as of 2025.
- Phase 2: As of 1 January 2025, large companies (with a staff of more than 250 and/or a turnover of EUR 40 million and/or total assets of EUR 20 million), which are not subject to the directive on non-financial reporting, will be subject to the CSRD and required to publish reports as of 2026.
- Phase 3: As of 1 January 2026, listed SMEs and other companies will be subject to the CSRD and required to publish reports as of 2027, though SMEs may opt out until 2028.
Initially, approximately 50,000 of the largest companies in the EU will become subject to the CSRD. However, even small companies may at this point be affected by the new rules as larger actors may have to collect information from their suppliers and collaborators to be able to meet the reporting requirements. Furthermore, investors, banks and others are increasingly seen to request sustainability data in connection with contributions and loans.
Therefore, even small companies are encouraged to begin to consider the new rules and their impact.
What should the reports contain?
The details of the information that companies are required to report on are currently being laid down in a series of EU standards. Basically, companies can expect to face requirements for more detailed reporting than with the ESG reports.
In addition, it will be mandatory for companies to have an audit of the sustainability information and to report it digitally.
Where do we start?
Many companies find it difficult to navigate CSR concepts, requirements, expectations and opportunities.
The increased focus on CSR, ESG, CSRD and not least the 17 UN Sustainable Development Goals (SDG), which in recent years have had a great impact on the sustainability agenda, has not gone unnoticed at ITD, which is a private Danish business association for transport and logistics companies. Thus, several members of the association have already adopted a systematic approach to or are getting enquiries about the subject.
In fact, a lot of members have already introduced social responsibility and sustainability activities on a small scale – though without using the label CSR. Such activities include e.g. donations, employee benefits, CO2 initiatives and participation in trade initiatives such as e.g. Lastbilkaravanen (the Lorry Caravan), which strives to bring focus to child traffic safety.
ITD has the following general advice for companies which have no experience with sustainability and social responsibility activities or which need to adopt a more systematic approach to CSR:
- Set the tone – outline concepts, rules and guidelines.
- Identify stakeholders and their expectations.
- Identify your goals, values and current activities.
- Lay down the framework and direction for CSR activities – consider risks and opportunities.
- Identify target figures (KPI, ESG) and follow up on initiatives and performances
– and try not to bite off more than you can chew.
