ESG reporting: sustainability is becoming a competitive factor

This is how IT makes an important contribution to successful implementation

NFRD, CSRD, ESG, ESRS – when it comes to expanding EU-wide documentation requirements for sustainable corporate practices, there's an abundance of acronyms that, at first glance, seem anything but transparent. Yet, transparency is precisely the goal: investors, employees, business partners, and consumers should be able to gain a clear understanding of how sustainable a company is within its industry and compared to its competitors. This is why the EU's Corporate Sustainability Reporting Directive (CSRD) came into force at the beginning of 2023, replacing the previous Non-Financial Reporting Directive (NFRD).

From 2025 onwards, the CSRD will gradually require more and more companies within the EU to publish a sustainability report, typically as part of their annual report. To ensure cross-country comparability, unified reporting standards were developed based on the three pillars of environmental and social sustainability, and sustainable corporate governance (ESG = Environment, Social, Governance). These categories, defined in Set 1 of the European Sustainability Reporting Standards (ESRS), serve as binding guidelines for a company's ESG reporting.

In this article, we explore the current status, discuss the competitive advantages of ESG reporting, and highlight why the IT sector plays a crucial role in a company's implementation process.

What does ESG reporting entail for companies?

Through ESG reporting, companies or organizations disclose how their economic activities impact the three areas of environment, society, and corporate governance. This includes aspects such as climate change, resource consumption, the emission of harmful CO2, employee welfare, and the development of working conditions within the value chain.

Until now, only large, capital market-oriented companies with more than 500 employees were required to disclose their sustainability activities. Starting in January 2025, companies with more than 250 employees, a balance sheet total of 20 million euros, or an annual turnover of 40 million euros will also be obligated to report. Smaller and medium-sized enterprises will follow from January 2026 but can postpone compliance until 2028 under certain conditions to better prepare for the reporting requirements.

ESG Reporting: An Overview of the Categories in ESRS Set 1

To ensure transparency and comparability in practice, the EU Commission defined and adopted the first unified reporting standards at the end of 2023. The so-called ESRS Set 1 consists of twelve categories, divided into general cross-cutting standards and topic-specific standards. The topic-specific standards are assigned to the three overarching areas of Environment, Social, and Governance, as illustrated in the following graphic:

Principle of "double materiality" limits reporting

According to the current version of the CSRD, the ESRS follows the principle of "double materiality," meaning that companies are not required to report on all sustainability aspects of their economic activities, but only on those that are material to their business.

The principle of double materiality arises from the requirement that the aspects must either:

1. Have significant impacts on people or the environment (impact materiality), or
   
   
2. Have significant financial impacts on the company (financial materiality).
   

As soon as at least one of these criteria is met, the sustainability aspect must be reported. This focuses ESG reporting on activities that are material to the company and intentionally separates them from immaterial ones. However, this does not mean that activities deemed immaterial can be ignored, as the responsible parties must be able to justify their decisions in the event of an audit.

Example ESRS E5: Used Software Conserves Resources and Promotes the Circular Economy

In the IT sector, software is ideally suited for resource-efficient reuse, even second or third-hand. Since software does not age or wear out, companies can buy or sell used volume licenses, particularly for widely used standard software like Microsoft or Adobe, through a reputable provider, complying with legal requirements. This offers businesses significant price advantages of up to 70% compared to purchasing new versions. Moreover, it contributes actively to sustainability, which can be documented and disclosed as part of their ESG reporting obligations.

The sustainability benefits of purchasing or selling used volume licenses are clear:

• Active promotion of the circular economy in software asset management
  
  
• Global resource conservation by extending hardware usage cycles, averaging 4.9 years
  
  
• Reduction of the corporate CO2 footprint
  
  
• Effective contribution to corporate digital responsibility
  
  
• Proof that sustainable practices are not just for image but a crucial step towards climate neutrality

Interested in more sustainable software license management? The PREO licensing experts are ready to provide personal consultation, demonstrating how used software can sustainably relieve your IT budget and actively contribute to climate protection.

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The IT sector plays a crucial role in transitioning to ESG reporting

As crucial as it is for companies to successfully navigate the path of climate-neutral transformation, the challenges loom large. According to a PwC study on ESG strategy and reporting in German SMEs, 76% of respondents feel overwhelmed by the bureaucratic and organizational requirements of the CSRD. Additionally, 73% of German SMEs struggle to identify, collect, and analyze the necessary data for ESG reporting. Here, internal IT departments will play a pivotal role in the future. Establishing a systematic data foundation, integrating appropriate analysis tools (with new ones constantly emerging), and defining clear measurement and evaluation criteria with defined KPIs are essential for successful ESG reporting. The ESG reporting obligation is expected to accelerate investments in digitalization, especially among companies that have been hesitant thus far. Simply filling Excel sheets will likely become a dead end.

Based on their study findings, PwC consultants derive the following recommendations for companies mandated to begin ESG reporting from 2025:

1. Sustainability is a matter for the top management

Declare sustainability a top management priority and integrate it into corporate goals.

2. Clear roles and responsibilities 

Establish an internal organisational structure with clear roles and responsibilities. Implement a sustainability team if necessary to steer, support, and drive required activities internally.

3. Data is indispensable

Quickly gain an overview of data procurement and architecture, identifying potential deficiencies. Start conceptualising and acquiring data now, and select suitable analysis tools.

4. No time to waste

Make the most of the remaining preparation time (typically until 2025), as CSRD compliance will swiftly involve auditing obligations.

5. Build or acquire resources and expertise

Develop internal resources and expertise while fostering sustainable awareness at the executive level and within the workforce. Consider external support if needed by selecting a suitable partner to professionally guide your company through implementation.

*https://www.pwc.de/de/mittelstand/esg-strategie-und-reporting-im-mittelstand.html

More sustainability and lower licence costs with used software from PREO

As one of the pioneers in the European market for used software licences, transparency and sustainability are crucial values in PREO's business operations. Therefore, since 2023, PREO has been evaluating and publicly disclosing its own corporate performance metrics in the areas of social responsibility, environmental impact, and responsible corporate governance (ESG), despite not being legally obligated due to its size. PREO is currently the only B2B software reseller listed with a scorecard at EcoVadis, the world's largest provider of sustainability ratings.

With PREO, businesses, organisations, and public administrations benefit not only in terms of sustainability from used software licences but also from:

• High savings on ongoing licence costs of up to 70% compared to the respective new versions.
     
  
• 100% legally and audit-compliant licence acquisition with complete transparency in all transaction steps, including comprehensive documentation in the PREO License Portal "Easy Compliance."
  
  
• Long-standing expertise in integrating used software licences into traditional network structures or hybrid licensing models.
  
  
• Detailed market knowledge and extensive experience through the audit-proof transfer of over one million used software licences.
  
  
• Existing capacity for software licence management in large-scale IT infrastructure projects with thousands of workstations and cross-border locations.
  
  
• Compelling reference projects for numerous SMEs and large companies across various industries
  
  

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