In a bid to curb emissions, and inch closer to carbon neutrality, the European Commission (EC) devised the Corporate Sustainability Reporting Directive (CSRD), which will apply to all EU member states, including Malta.
The influence of ESG factors cannot be ignored; this directive seeks to take tangible steps toward effectively tackling sustainability, placing it at the forefront of our collective attention, rather than treating it as an afterthought.
The CSRD comes into effect in the 2023 financial year for large companies, while SMEs will have until the 2026 financial year to comply.
Reporting of ESG criteria will be obligatory. Some 50,000 companies in the EU, including Maltese companies, will therefore have to report on their sustainability.
What is ESG?
In today’s world, organisations and companies need to take into account how their actions affect the Environmental, Social and Governance (ESG) dimension. This awareness needs to expand to encompass how ESG factors can also influence the workings of a company, on a deep level. What ESG boils down to is monitoring an organisation’s bi-directional relationships between environmental (global warming, pollution, deforestation), social (equity, equality, human rights), and governance factors (employee relations, management structures). This two-way relationship is referred to as “double materiality”.
Malta Enterprise is working hard at an EU level to shape the conversation surrounding this new CSRD, to safeguard the effective operation of Malta’s business community, and to ensure that we move forward sustainably, while leaving enough “wiggle room” so as not to impede growth.
The CSRD comes into effect in the 2023 financial year for large companies, while SMEs will have until the 2026 financial year to comply.
As from 2023, companies will have to report on their matrices, as laid out in the CSRD.
The Commission will set in place compulsory reporting requirements for large companies, of which there are 50,000 in Europe. A large company is defined as fulfilling two of these three criteria: (a) €40 million in net turnover; (b) €20 million in assets; (c) 250 or more employees.
Separate, proportionate standards will be introduced for listed SMEs, which will have to report in like manner.
In order to verify the content contained in these reports, it will be necessary for external audits to be carried out. This will help maintain integrity and fidelity across the board. The data will have to be machine readable and will be submitted digitally, reducing pollution and paper waste. Integration with the Blockchain would conceivably add another layer of trust, accessibility and verification, which would also serve to further catalyse the joint green and digital transition.
Companies that fall outside the scope of this mandate will be encouraged to report their ESG data, as this will be expected by various market actors.
It is crucial that businesses act now, and start looking into what changes they need to make to accommodate this mandate.
Malta Enterprise’ CSRD conference
Malta Enterprise, together with the Ministry for Energy, Enterprise, and Sustainable Development, has organised a CSRD conference, which was very well attended, to shine a light on this emerging topic.
Kurt Farrugia, CEO of Malta Enterprise said that CSRD should not be seen as a tick box exercise involving a PR stand. We should see it as an important tool that can assist our enterprises with the transformation to a more sustainable business model. Being utilised as a tool kit, the reported sustainability data can be used to keep track of milestones and measuring matrices that will earmark your enterprise’s progression.
Peter Sant, from the Permanent Representation of Malta to the EU, gave some local perspective to the CSRD, in stating that over 70 large companies will be affected in Malta.
The launch of the ESG Portal on www.sustainabledevelopment.gov.mt/esg was announced by Steve Ellul, Chartered Financial Analyst, and panel moderator at the event.
This portal is required to ensure that proper private capital flows into companies embracing sustainability and will make Maltese companies’ ESG credentials readily available online, so consumers and institutions can make informed decisions.
Miriam Dalli, Minister for Energy, Enterprise and Sustainable Development, asserted that Malta has to become a “critical enabler of this transition”, in de-carbonising our economy and “embedding ESG into everything we do”.
On a local level, Malta Enterprise is tasked with assisting businesses in making the twofold green and digital transitions, and has already released a number of schemes – such as the Smart and Sustainable Investment Grant and the Energy Efficiency and Skills Development schemes – to incentivise this timely, necessary paradigm shift.
Decision-making and risk assessment should reflect this new reality and internalise the ESG outlook. External factors such as climate change and the pandemic have shaken up many a world view in just the last few years, and businesses which reacted quickly and intelligently seized the opportunity presented to them.
Performing a simple SWOT analysis will reveal that this pending mandate brings to the fore several weaknesses, and apparent threats, which, if approached with an innovation mind-set, can soon turn into new strengths and lucrative opportunities. Businesses are encouraged to do their due diligence while they still can, to avoid costly compliance complications in the near future. This is one scenario where it pays to be an early adopter.
