The question of whether the upcoming challenges in terms of ESG are sensible or not can be discussed in a variety of ways.
The fact remains: ESG regulation is the law and must be implemented by companies. The only difference lies in the point in time at which a company falls under the legal requirements and whether the company already has established processes in place.
However, consultants and auditors often use the current situation as an opportunity to sell comprehensive consulting packages and increase the fees for audits.
We want to set a counter-trend here and show what companies actually need in terms of ESRS and how companies need to position themselves for the future.
1. knowledge at eye level: qualification of internal resources is a must
ESRS are new for all stakeholders. This also applies to auditors, who also need to familiarise themselves with the subject matter.
From the outset, companies should decide to establish in-house discussion partners at eye level in dialogue with the auditor. This is because the basis of ESRS is the principle of materiality. Who, if not the internal accounting specialists, should have the best overview here? However, a targeted argumentation requires a holistic knowledge of the transparency requirements of the ESRS.
Tip number 1:
Qualification is the basis for a professional annual financial statement process.
2. financial reporting and ESRS reporting: the structure of IT processes
The aim of non-financial reporting is to create transparency and comparability. The requirements for ESRS reporting therefore go hand in hand with financial reporting.
The biggest challenge remains data procurement. However, the possibilities of ESRS should also be utilised here. Only those aspects and KPIs that can be derived from the materiality analysis are subject to reporting. The trick is therefore to report the right KPIs and choose a legally compliant structure.
However, the required data is often not stored in the existing IT systems. It is therefore important to develop a data structure for the key KPIs based on the materiality analysis. Do not forget that the requirements of the EU taxonomy must also be mapped.
Tip number 2:
Start identifying and adapting IT processes in good time. It’s not rocket science, but it does take time.
3. create the basis for documentation: The ESRS accounting guideline
The audit is characterised by the fact that meaningful documentation can be presented. This applies equally to the audit of the non-financial statement and to the annual financial statements as a whole.
Cost drivers for the audit are often questions of methodology, structure and documentation. The better the company’s preparatory work, the better the cost and process reliability in the annual financial statement process.
Recognised standards such as the German Sustainability Code facilitate discussions with the auditors when it comes to the basic structure of the non-financial statement.
Tip number 3:
- The German Sustainability Code provides guidelines for a legally compliant structure of the non-financial statement.
- The materiality analysis is the centrepiece for deriving the KPIs. Document the methodology and recording of the KPIs in a separate accounting guideline.
4 The freestyle: Creating added value beyond the regulatory requirements
Nevertheless, it is important to summarise: The implementation of ESG regulation will cost companies “money” for the first time. However, the added value will inevitably come: Through improved financing costs, stronger employee loyalty or as a driver of innovation.
But not every stakeholder will take a look at the annual financial statements. Pick up your stakeholders at the relevant contact points.
Tip number 4:
Build up target group-orientated communication beyond the legally required reporting in order to make added value visible outside the financial industry.