How does the EU size criteria adjustments 2024 enhance ESG reporting

The EU's 2024 updates to company size rules improve ESG reporting, aiding sustainable growth under the Green Deal for businesses.

In brief

• The EU has raised financial thresholds for business size categories, allowing for application to align with the Corporate Sustainability Reporting Directive (CSRD).
• Adjusted size criteria aim to simplify reporting, encourage sustainable investments, and support the European Green Deal's sustainability goals.
  

On December 24, 2023, the European Union enacted the Delegated Directive 2023/2775/EU, introducing pivotal amendments to the EU Accounting Directive 2013/34/EU. These modifications were set to raise the financial thresholds defining micro, small, medium, and large enterprises, as well as "small groups," under the Companies Act 2014, by 25%.

Ireland, under the guidance of Minister Peter Burke TD, has swiftly enacted the European Union (Adjustments of Size Criteria for Certain Companies and Groups) Regulations 2024 (the “Regulations”). This proactive move not only aligns with the EU's directive but also offers Irish businesses the flexibility to apply these changes retrospectively to financial years beginning January 1, 2023.

Revised financial thresholds:

While it is widely reported that the increase in thresholds can be attributed to a response to inflationary pressure, it can also be understood as a step toward alignment with the broader goals of the European Green Deal. By adjusting the size criteria, the modifications introduced by the Regulations have served as a timely precursor to the roll out of Corporate Sustainability Reporting Directive (“CSRD”) for micro, small, medium-sized, and large undertakings, or groups.

Here’s how it set the stage for the CSRD:

Updated size criteria: By updating the size thresholds, the Regulations ensure that the criteria for determining the size category of a company are current and reflective of economic conditions. This alignment is crucial for the consistent application of the CSRD across different company sizes and jurisdictions.

Streamlined reporting requirements: The Regulations streamline reporting requirements, reduce administrative burdens and enhance corporate governance. The Regulations have spared a number of businesses from the reporting requirements introduced by the CSRD.

Support for sustainable investments: The adjustments better facilitate sustainability reporting, which in turn will support sustainable investments by providing clear and reliable information on companies’ sustainability performance.

CSRD integration: advancing business through ESG compliance in the EU

The CSRD came into effect in Ireland on 6 July 2024 and are a key component of the European Green Deal. The CSRD aims to both enhance and standardise sustainability reporting across the EU by mandating companies to disclose their impact on environmental, social, and governance (ESG) factors. 

By integrating sustainability and ethical practices into core strategy and operation, businesses are better positioned to thrive:

1. Alignment with consumer values: we know that consumers are increasingly looking for products and services that align with their values. By focusing on ESG, businesses can attract and retain customers who prioritise sustainability and social responsibility.
2. Risk management: ESG-focused businesses often have robust risk management practices that help them anticipate and mitigate risks related to climate change, social issues, and governance scandals.
   
3. Regulatory compliance: With regulations around sustainability and corporate responsibility tightening globally, ESG-focused businesses are often ahead of the curve in compliance, avoiding fines and penalties.
   
4. Investor attraction: There is a growing trend of investment in ESG-focused companies. Investors are increasingly looking to support businesses that have sustainable practices, as these are seen as better long-term bets.
   
5. Innovation and efficiency: ESG initiatives often drive innovation, as companies look for new ways to reduce water consumption, waste, lower emissions, and improve social outcomes. Therefore, leading to cost savings and new business opportunities.
   
6. Employee engagement and attraction: Companies with strong ESG commitments can attract and retain top talent, especially as workers increasingly seek employers whose values match their own.
   
7. Brand reputation and trust: A commitment to ESG can enhance a company's reputation, building trust with consumers, investors, and other stakeholders.
   
8. Access to Capital: ESG-focused businesses may have better access to capital, as banks and financial institutions increasingly factor in sustainability when assessing creditworthiness.
   
9. Market leadership: By leading in ESG, companies can set industry standards and shape market expectations, positioning themselves as market leaders.
   
10. Long-term perspective: ESG-focused businesses are typically managed with a long-term perspective, which can lead to sustainable growth and profitability over time.
    

These benefits collectively support the broader goals of the European Green Deal by promoting a more equitable and transparent business environment.