10th February 2022 – According to EFRAG, the European Financial Reporting Advisory Group, companies in the EU are still struggling with high-level sustainability (ESG) reporting, especially climate-related reporting.
Being the centre of excellence for EU taxonomy and CSRD requirements, Oikon has recently performed research that showed that Croatian companies need to get on the fast track when it comes to reporting on the climate. The findings are to be published in the journal “Social Ecology” in a technical paper by Andreja Pavlović and Katarina Miler, titled: “Croatian companies obliged to disclose non-financial reports at the turning point: What do we know about climate change reporting and communication in Croatia?”
The paper’s final chapter provides a clear pathway for Croatian companies to immediately improve their climate-related reporting practices:
1. The concept of double materiality: companies will need to start looking at their own impact on climate change (environmental and social materiality) rather than just the impact of climate change on their business (financial materiality). This will require a significant improvement in the process of identifying material impacts across companies and a much more engaged approach to engaging different groups of the public. Only by looking at impacts in different timeframes can companies provide a full picture of their impacts, resilience, and adaptation options, enabling a comprehensive assessment of the financial impacts of climate change on their business.
2. The requirements of the Climate Delegated Act in Article 8 of the Taxonomy Regulation include, as a first step, the establishment of credible data collection and comprehensive contextualization that companies must report on in their 2021 reports and then publish in their 2022 reports. Calculations on three key performance indicators (revenue, “CapEx” and “OpEx”). This obligation on companies must be approached very conscientiously, as any errors in the calculation methodology will affect the rest of the reporting, i.e. the obligation to change the calculation retrospectively to ensure comparability between reporting periods.
3. Companies must already be prepared to assess the compliance of their activities with the Technical Screening Criteria (TSC) for climate mitigation and climate adaptation activities under the Sustainable Finance Taxonomy. This obligation will come into force in 2022 for the 2021 reports. Thereafter, companies must assess how their activities contribute to climate change mitigation and adaptation and whether they cause significant harm to other environmental objectives.
4. Without considering double materiality, it will be impossible to assess the risks of the company’s negative impacts on climate and thus the development of climate scenarios. Companies must not only consider current climate risks but also assume future risks and consider the possible evolution of the significance of current risks within a given scenario. Companies must also decide which global scenario to use as a reference, given the company’s scope of activity and specifics, in order to see the big picture. All of this is extremely demanding and requires specific expertise that companies do not currently have and will need if they really want to use the scenario as a management tool.