The European Union tightened its sustainability disclosure rules, and more than 50,000 listed companies (listed with over 500 employees or more than €500 million in annual turnover), which includes printing companies, have been forced to make Environmental, Social and Governance (ESG) disclosures in annual reports from 2024 onwards.
ESG encompasses the measurement of a company’s impact on the environment and society. The report provides investors and consumers with transparent data regarding the environmental footprint, social commitments, and governance practices of a company.
ESG reporting is mandatory in the EU. In the UK, ESG reporting is required for major listed companies.
But for printers, reporting without prior experience could be difficult. Dr. Michael Has, Partner, Monopteros GmbH in Germany, suggests making at least a few attempts before being legally obligated to report, to gain appropriate experience.
OECD guidelines for multinational enterprises
The Organisation for Economic Cooperation and Development (OECD) guidelines summarises what a company needs to do in order to report ESG.
According to OECD guidelines, businesses should conduct activity in a manner that contributes to the broader goal of sustainable development. Some of the goals are:
- Establish and maintain an environmental management system for:
- * Collecting and evaluating information on the environmental impacts of activities.
- * Establishing measurable objectives and targets.
- * Periodically monitoring and reviewing progress towards environmental objectives.
- Provide adequate, measurable, verifiable and timely information to the public and workers.
- Communicate and consult in a timely manner with affected communities.
- Assessment and consideration of the foreseeable environmental impacts associated with the company’s processes, goods and services throughout its lifecycle.
- Lack of complete scientific certainty shall not be considered grounds for deferral.
- Establish and communicate contingency plans to prevent, mitigate, and control serious environmental hazards.
- Continuous effort to improve the environmental performance of the company and, where appropriate, its supply chain by promoting activities-specific proposals.
- Education and training of workers in environmental issues.
More regulations to be adhered
EU Corporate Sustainability Reporting Directive: This EU legislation requires EU businesses to disclose their environmental and social impacts, and how their ESG actions affect their business.
EU Taxonomy Directive: This regulation describes a framework to classify sustainable economic activities executed in the EU. For instance, an institution should obtain certain information, including carbon footprint data, from the company it has invested in, and summarise it in their annual report.
Emissions Trading System: This makes polluters pay for their greenhouse gas emissions and is meant to describe how you can buy and trade certificates.
Carbon Border Adjustment Mechanism: This is a tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.
Corporate Due Diligence Obligations in Supply Chains: This law applies to tier 1 deliverers and the customers. This law includes the establishment of a risk management system to identify, prevent or minimise the risks of human rights violations and damage to the environment in the entire supply chain.
See also: Meeting sustainability targets with CO2 footprint calculation
Report only what is applicable to your company
Companies can report based on the footprints (whichever is eligible) such as biosphere integrity, CO2 concentration, atmospheric aerosol, ocean acidification, land biomass change, freshwater change and more.
“There are many reporting items, which may range from 400-500 lists of things. This can be limited with the help of materiality and code of conduct,” Has said.
A materiality assessment is intended to identify and understand the relative importance of specific ESG and sustainability topics to an organisation.
In a supply chain, controlling the environmental footprints of suppliers can be challenging. Implementing a robust Code of Conduct (CoC) for companies in the supply chain is a solution.
A company can incorporate certain code to establish minimum standards that suppliers or sub-contractors must meet to maximise its ability to fulfil ESG commitments.
“By doing so, you can hold your suppliers accountable for their actions concerning their involvement in social and governance issues. This could also serve as grounds to terminate the relationship and mitigate potential risks,” Has said.
Three points to keep in mind:
- Report what is legally required.
- Report what is important to the company.
- Report the measurements taken internally in the supply chain as described in the Code of Conduct.
‘An iterative process’
Preparing an ESG report is difficult because it requires experience through the whole process. “It’s an iterative process. The report is often rewritten,” Has said.
The following points briefly explain how the report is prepared.
- Identification of applying footprints.
- Metrics used.
- Lifecycle assessment/evaluation for each footprint referring to internal processes, tier 1 and direct customers, total value chain.
- Measures to assess data and reduce risk internally and in the supply chain.
- Risk prior to measures.
- Measures to reduce footprints.
- Risk after measures.
Once the report is ready, it is internally reviewed and analysed, and certain measures are taken based on that.
The CEO, CFO or any other relevant figure within the company, reads the internal report and rephrases it. This report is then passed on to external reviewers or auditors, who will assess whether everything is sufficiently reported. Then, it is submitted to an external company or a rating agency to assess the company’s value.
‘ESG is as important as a financial report’
“In the first year, you can be certain that the version you have in your hands is not final,” Has said, adding, “However, it serves as an opportunity to familiarise with the processes.”
The report must be delivered four months after the end of the business year. Legislation gives equal importance to ESG reports as to financial reports, meaning they have a clear impact on the interest rates that a company pays to the bank.
“It is best to start learning sooner because, going forward, the regulations will be even stricter,” Has concluded.