Sustainability Report & ESG: What Companies Need to Know Now

The requirements for corporate sustainability reporting are changing rapidly. What was once considered a voluntary exercise is now becoming mandatory for an increasing number of companies. ESG (Environmental, Social, Governance) is the key buzzword here. But what exactly does this entail, and what new reporting obligations does the Corporate Sustainability Reporting Directive (CSRD) bring with it? This article provides a detailed overview of the ESG criteria and the importance of the new European directive, and highlights how a structured audit process can help organisations meet these complex requirements and ensure transparency regarding their own sustainability performance.

ESG stands for Environmental, Social and Governance. These three pillars form a comprehensive framework for assessing a company’s sustainability and social responsibility. It goes far beyond traditional environmental considerations and takes into account a wide range of factors that are important to investors, customers and society.

The environmental dimension covers issues such as resource consumption, greenhouse gas emissions, waste management and the protection of biodiversity. At its core is the question of what impact a company has on the environment and what measures it is taking to minimise this environmental footprint.

The social dimension focuses on people. This includes working conditions throughout the supply chain, respect for human rights, commitment to the community, staff training, and diversity and inclusion. It assesses how a company treats its employees, suppliers and society.

The aspect of good corporate governance focuses on management and control structures. Transparency, ethical business practices, data protection and management accountability are key aspects here. Sustainable corporate governance ensures that decisions are based not only on economic considerations, but also on environmental and social factors.

A well-structured sustainability report is more than just a way of fulfilling a legal obligation; it is a strategic tool. It creates transparency for stakeholders such as investors seeking sustainable investment opportunities and customers who prefer environmentally friendly and fairly produced products. At the same time, the ESG report serves as an internal compass, helping to identify risks at an early stage, unlock efficiency potential and continuously improve the company’s own sustainability strategy.

ESG reporting enables companies to measure their performance and compare themselves with competitors. It forms the basis for building trust and demonstrating the future viability of their business model. A credible report shows that a company takes its responsibilities seriously and is prepared to face the challenges of the 21st century.

The Corporate Sustainability Reporting Directive (CSRD) is a directive issued by the European Commission that significantly expands and tightens the rules governing corporate sustainability reporting. It replaces the previous Non-Financial Reporting Directive (NFRD) and extends reporting obligations to a much wider range of companies. The CSRD, which came into force on 5 January 2023, aims to raise the quality, comparability and reliability of sustainability information to a level on a par with financial reporting.

A key element of the CSRD is the obligation to apply uniform European reporting standards, the European Sustainability Reporting Standards (ESRS). These standards are being developed by the European Financial Reporting Advisory Group (EFRAG) and are intended to ensure that all companies subject to reporting requirements provide detailed and transparent information on their sustainability performance. The reporting will also become a mandatory part of the management report and must be subject to external audit.

The CSRD is being introduced in stages and significantly expands the group of companies subject to reporting requirements in Germany and the EU. Whilst the NFRD affected only around 500 capital market-oriented companies in Germany, the CSRD is expected to cover an estimated 15,000 companies.
The reporting requirements apply to the following groups at different points in time:

• From the 2024 financial year (first reporting in 2025): Large public-interest entities (with more than 500 employees) that were already subject to the NFRD.
• From the 2025 financial year (reporting in 2026): All other large companies that meet at least two of the following three criteria: more than 250 employees, a balance sheet total of over 20 million euros, or net turnover of over 40 million euros.
• From the 2026 financial year (reporting in 2027): Listed small and medium-sized enterprises (SMEs), with the exception of micro-enterprises.
• From the 2028 financial year (reporting in 2029): Certain companies from third countries that carry out significant business activities in the EU.

The ESRS form the core of the CSRD. They provide a detailed framework for reporting and specify exactly what information companies must disclose. The ESRS cover all three ESG dimensions – environmental, social and governance – and are divided into various categories.

There are two overarching standards that apply to all companies, as well as ten topic-specific standards focusing on aspects such as climate change, environmental pollution, workers in the value chain and business ethics. A key component of applying the ESRS is conducting a dual materiality analysis. In doing so, companies must not only assess the impact of sustainability issues on their business (outside-in perspective), but also the impact of their own actions on the environment and society (inside-out perspective). This approach ensures that the reporting covers all relevant issues.

Preparing a sustainability report in accordance with the CSRD is a challenging process that requires careful planning. First, the relevant company information must be gathered, which serves as the basis for selecting the specific questions. This includes data on the industry, company size, geographical presence and specific characteristics such as resource management or the supply chain.

Based on this information, a bespoke ESG questionnaire is compiled. This is aligned with international standards such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the UN Sustainable Development Goals (SDGs). The selection of questions is rule-based and context-sensitive to enable a precise and relevant assessment. Systematically answering these questions and gathering supporting evidence form the basis for the actual sustainability report.

The EU Taxonomy is a classification system that defines which economic activities are considered environmentally sustainable. It is a key instrument of the EU Action Plan on Sustainable Finance and is closely linked to the CSRD. Companies falling within the scope of the CSRD must also disclose, as part of their sustainability reporting, the extent to which their economic activities comply with the criteria of the EU Taxonomy.

Specifically, they must disclose the proportion of their turnover, capital expenditure (CapEx) and operating expenditure (OpEx) that is associated with environmentally sustainable activities. The EU Taxonomy thus establishes a common language for sustainable investment and helps to prevent ‘greenwashing’ by setting out clear, science-based criteria for assessing sustainability.

As a digitally connected and internationally active IT consultancy, metanoy embodies responsibility at all levels – environmental, social and corporate. To give expression to this commitment, a structured ESG assessment process has been established, based on three formats, which serves as a compass for sustainable action – both internally and externally.

1. Internal Annual Audit
   Once a year, a comprehensive ESG audit is carried out on metanoy itself. This involves assessing the company’s own processes, structures and measures using a comprehensive ESG questionnaire. The aim is to document progress, identify new opportunities and continuously refine the strategic ESG direction.
2. Assessment of potential service providers
   When selecting new service providers, an ESG assessment is carried out based on publicly available ESG reports. These are analysed and evaluated using an internal questionnaire. This ensures that new partners share metanoy’s values and act responsibly.
3. Regular assessment of existing partners and subcontractors
   Existing partners and subcontractors are audited on a regular basis. They are provided with an ESG questionnaire tailored to their profile. The results help to assess ESG compatibility, identify risks at an early stage and jointly develop improvement measures.

The process begins with the collection of relevant company information, such as sector, size and sustainability measures. On this basis, a bespoke ESG questionnaire is drawn up, aligned with international requirements. The selection of questions is context-dependent and rule-based to enable an accurate assessment.

Once the questions have been answered, the responses are analysed and an ESG score is calculated. Each answer is weighted according to the relevance of the question, the completeness of the answer and the quality of the information provided. The score, which is presented on a scale of 0 to 100, comprises both an overall assessment and individual assessments for the Environment, Social and Governance dimensions. This score serves as an internal management tool and is used externally to promote transparency and guide the selection of partners. A low ESG score is not a criterion for exclusion, but rather an opportunity for joint development.

Calculating the ESG score is the starting point for strategic development. The results of the analysis are used to identify areas for improvement, such as a lack of training programmes or untapped green IT opportunities. This leads to concrete measures, such as the introduction of a digital sustainability report or the optimisation of remote working policies.

Furthermore, the analysis serves to assess partner relationships in terms of compatibility of values and sustainability strategy. All ESG assessments are documented, regularly updated and incorporated into strategic ESG planning. They form the basis for annual ESG reports, internal target agreements and external communication with stakeholders. This creates a learning system that not only evaluates but also inspires improvement, collaboration and shared responsibility.