Deloitte study: the first year of sustainability reporting under current European legislation was a challenge for companies, due to the complexity of the specific financial information required
Almost half of the companies analyzed included sustainability-related incentives in the remuneration of management teams
The first year of reporting according to the Directive on Corporate Sustainability Reporting (Corporate Sustainability Reporting Directive – CSRD) has proven to be a challenge for most companies in Central Europe, especially due to the complexity of financial information specific to environmental, social and governance factors (environment, social, governance – ESG), which the companies could present only to a limited extent, according to the Deloitte study “Connecting the dots: ESG and Finance. Auditor's Perspective on the European Sustainability Reporting Standards (ESRS) Reports in Central Europe”, conducted among reporting entities from nine countries in the region, including Romania. The study provides a comparative analysis (benchmarking) and was conducted among large companies and reporting public interest entities active in 11 economic sectors. Most companies do not have sustainability data integrated with financial information, and the study highlights the limited ability to calculate or estimate ESG-correlated financial information in their reports.
The Deloitte study highlights, in particular, the difficulty of reporting capital expenditures (CapEx) and operational expenditures (OpEx) required to implement planned actions related to specific ESG topics. For example, 42% of the Central European reports analyzed provided quantitative data related to CapEx/OpEx, 14% data related to the workforce and only 13% data related to resource use and the circular economy.
“Sustainability reporting involves drawing conclusions from ESG-related data and actions and transforming them into valuable information for the organization. In fact, entities reporting under International Financial Reporting Standards (IFRS) have a real opportunity to connect sustainability reporting with financial reporting, as financial reporting standards increasingly require information related to climate change. This connection contributes to improving risk management and the long-term financial stability of companies and also enables organizations to strategically address ESG issues,” a stated Corina Dimitriu, Partner, Audit and Related Services, Deloitte Romania.
Although currently not a widespread practice in Central Europe, the study shows that almost half of the analyzed companies (44%) have included sustainability-related incentives in the remuneration of their management teams, which are based on performance indicators in all three areas – environmental, social and governance. The most common performance indicators related to the environment are decarbonization and energy efficiency, indicators related to the social field are most frequently associated with diversity, equity and inclusion, while, in the field of governance, the most frequent performance indicators included the management of ESG-related risks. Among the economic sectors analyzed by the study, financial services stand out, with 64% of companies in this field associating managers' remuneration with ESG performance indicators. In Romania, the share of analyzed companies that implemented ESG-related remuneration policies for their management teams exceeded the regional average, being 53%.
“Despite the challenges encountered, the first year of reporting according to the requirements of EU legislation highlighted the ability of companies to adapt. Sustainability reporting is a long-term requirement that requires the definition of new processes or the refinement of existing ones, which is why an exercise benchmarking is extremely valuable at this stage. The study provides in-depth insight, allowing first-year reporting entities to reflect on the effectiveness of their reporting process and provides second-wave reporting entities with valuable information for their preparation effort,” said Oana Ionică, Director, Audit and Related Services, Deloitte Romania.
Of the 12 strategic topics for which the Corporate Sustainability Reporting Directive requires reporting under the European Sustainability Reporting Standards (ESRS), own workforce (99%) and climate change (98%) were most frequently covered by reporting entities across all industries. At the opposite extreme, biodiversity and ecosystems (34%) and affected communities (41%) are considered relevant under reporting standards by the fewest entities analyzed by Deloitte's study.
The European Sustainability Reporting Standards do not impose a sector-specific approach, so each reporting entity should consider specific information to include in its reports, the study explains. The sustainability reports analyzed by Deloitte included entity-specific information in ten of the 11 economic sectors, particularly in financial services (64% of reports) and technology and communications (57%). Cybersecurity is the most frequently encountered entity-specific information in the analyzed sectors (financial services, technology and communications, health, transport, extractive industry and mineral processing), followed by digitization.
The Deloitte study “Connecting the dots: ESG and Finance. Auditor's Perspective on the European Sustainability Reporting Standards Reports in Central Europe” analyzes ESRS-mandated financial reporting by 126 large reporting companies and public interest entities active in Central European countries that have transposed the Corporate Sustainability Reporting Directive into national laws by the end of 2024, namely Croatia, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. The reporting entities analyzed operate in the financial services, infrastructure, extractive and manufacturing sectors minerals, food and beverage, services, transport, manufacturing, technology and communications, health, consumer goods, as well as renewable resources and alternative energy.
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Article supported by Deloitte Romania
