Companies and ESG – Commitment and Criticism

The sustainable transformation is an objective at the top of the agenda for a lot of companies. But the road ahead to achieving this transformation is a rocky one. The study "Companies & ESG - transformation or just reporting?", presented today by Deutsches Aktieninstitut together with the law firm Hengeler Mueller, shows that despite the support for the transformation by companies, there is still a need for adjustments in European sustainability reporting.

"The sustainability transformation has arrived in the engine room of companies. They can see the opportunities it offers," emphasises Henriette Peucker, Member of the Board of Deutsches Aktieninstitut. "However, European regulation on sustainability reporting lacks the necessary precision and effectiveness to effectively support the transformation."

"Despite the challenges associated with reporting, the transformation is making progress. For example, it is positive to note that companies are already using key performance indicators (KPIs) in the areas of environment, social and governance (ESG) in corporate management. ESG KPIs are also already playing an important role in board remuneration," emphasises Dr. Daniela Favoccia, Partner at Hengeler Mueller.

High Level of Participation in the Survey

The study is based on a survey conducted of supervisory board and audit committee chairmen as well as CFOs of companies in the DAX group. A total of 114 people took part, which corresponds to a response rate of just under 30 percent. The study is a follow up to the previous study "Companies in the Transformation Process" from 2022 and consists of two parts.

The first part focussed on governance issues. Among other things, participants were asked what drives companies to operate more sustainably and what measures are companies taking to drive forward and monitor the ESG targets they have set themselves. 

The second part of the study focussed on the participants' assessment of the European sustainability reporting requirements. They were asked about the requirements of the Corporate Sustainability Reporting Directive, the European Sustainability Reporting Standards and the EU Taxonomy Regulation, but not about the supply chain regulation, which has not yet been adopted. 

Reporting under Criticism

When it comes to the implementation of the sustainability standards, companies primarily see challenges in the following areas:

• the granularity of the requirements,
• data collection along the value chain and 
• the unclear reporting requirements.

Companies are particularly critical of the EU Taxonomy Regulation. Only a few participants see any real benefit in the large reporting effort required by the Taxonomy Regulation. Transition plans, which companies use to describe their path to climate neutrality and set corresponding targets, are viewed much more favourably by companies.

"The study shows: The density of reporting is clearly too high and not target-orientated. A rethink and a practical revision would be necessary," warns Favoccia.

"However, criticism of sustainability reporting should not be confused with criticism of the transformation," emphasises Peucker. "There is a great deal of commitment to the transformation among companies. However, the current transparency rules do not sufficiently support this. This is mainly due to the fact that companies see no effect in terms of financing."

Recommendations

In order to support companies in their commitment to the sustainability transformation, the following adjustments to reporting would be advantageous:

• A significant streamlining of the European Sustainability Reporting Standards (ESRS)
• A practice-orientated revision of taxonomy reporting by the next EU Commission in close consultation with companies
• Commitment by the EU Commission to an international guideline for transition plans that avoids global fragmentation in this area

You can find our study "Companies & ESG – transformation or just reporting?" here.