While companies in Romania are already used with financial reporting, new obligations are to be imposed upon them as the ESG requirements at EU level will gradually start to apply in the Member States. A sustainability report that outlines the environmental, social, and governance (ESG) effects of their operations shall have to be  issued by a large number of companies in the future.

This report enhances comprehension for stakeholders, allowing them to assess the company's influence on the environment and society, and evaluate associated risks and opportunities. Serving as a communication medium, it crucially demonstrates the authenticity of a company's initiatives, aiding in building trust among stakeholders.

WHAT DOES ESG STAND FOR?

1. The ”E” from ESG concept represents the ENVIRONMENT pillar which refers to the organization’s processes, policies, practices and impact in relation to the natural environment (climate change, nature degradation, availability of potable water resources, air pollution, solid waste and availability of natural resources).
2. The ”S” from ESG constitutes the SOCIAL pillar of the concept and it is, as the name suggests, about people - both those inside the company and those outside the company with whom the organization interacts. The World Economic Forum has identified three main themes for the S pillar: dignity and equality, health and well-being and skills for the future. Unlike environmental issues, which vary quite a bit depending on the nature of a business's operations and its impact on the environment, there are a multitude of social factors that most companies address, regardless of their field of activity.
3. The ”G” from ESG refers to Corporate GOVERNANCE policies and practices focus on accountability, fiduciary duties and audit and control mechanisms. Strong corporate governance policies also provide the necessary framework for an organization to conduct its business ethically, honestly, transparently and fairly. The governance pillar addresses a company's board and management structures, anti-corruption policies, whistle blower, compensation, tax and accounting, cyber security, etc.

WHEN DO ESG STANDARDS APPLY AND TO WHOM?

On 26 January 2024 the Corporate Sustainability Reporting Directive (CSRD COM/2021/189) was transposed into Romanian law through Order No 85/2024. The new regulations will have to be applied according to the following timeline:

• 1^st of January 2024 for large companies (with more than 500 employees) already covered by the Non-Financial Reporting Directive (NFRD), with reports due in 2025;
• 1^st of January 2025 for large companies not currently subject to the NFRD (with more than 250 employees and/or turnover of €40 million and/or total assets of €20 million), with reports due in 2026;
• 1st of January 2026 for listed SMEs and other enterprises, with reports due in 2027. SMEs can opt out until 2028.

OBLIGATIONS FOR ROMANIAN COMPANIES

The non-financial statement must include details of the current and foreseeable environmental, health or safety impacts of the entity's operations, use of renewable and non-renewable energy, greenhouse gas emissions, water use and air pollution.

ESG information can be presented in an annual report, a stand-alone sustainability report or an integrated report combining the two approaches by linking the company's sustainability with its financial performance. Companies can select the most appropriate reporting format for their needs as long as all regulatory requirements are met.

ESG reporting should provide a succinct description of the company's business model, in which companies should consider including the following characteristics: business activities, products and services offered, the markets served, and also the size of the company (in terms of workforce, business locations, revenues, etc.).

From a sustainability perspective, ESG reporting should disclose whether the company integrates sustainability risks and opportunities (including those related to climate change) into its business strategy and risk management process and describe the role of management and supervisory bodies in relation to sustainability issues.

CONCLUSION

In the end, ESG reporting has evolved from being merely a suggestion for companies to becoming an imperative and a chance for advancement. Embedding ESG principles into business strategies not only yields financial and reputational advantages but also advocates for a more ethical and sustainable resource management and stakeholder engagement. It's evident that ESG compliance is indispensable for business sustainability; failing to do so may result in market repercussions, such as consumers refusing environmentally harmful offerings, as well as administrative sanctions.