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ESG Reporting and the European Green Deal

The European Green Deal aims to achieve net-zero greenhouse gas emissions by 2050. Several guidelines have been established to achieve this goal. One measure is the mandatory introduction of reporting known as ESG reporting, where E stands for Environment, S for Social, and G for Governance. Preparing an ESG report is a complex endeavor because it requires detailed data. This includes tracking not only the CO2 emissions of a company's entire supply chain but also the diversity of its workforce and all employees within its value chain. Collecting this data can be time-consuming and resource-intensive. As a result, companies need to start addressing this challenge today to find an appropriate and efficient solution.

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Navigating the ESG Landscape

As of January 1, 2024, large-listed companies, large banks and insurance companies with more than 500 employees must collect data and prepare a report by the end of the year. In 2025, the reporting requirement will be extended to a much larger number of companies. Specifically, it will apply to all companies that meet two of the following three criteria: more than 250 employees, more than €40 million in revenue, or more than €20 million in total assets. In 2026, companies with at least 10 employees, more than €700,000 in revenue, or more than €350,000 in total assets will have to report. Again, two of the three conditions must be met. However, these can be deferred until 2028. As of October 1, medium-sized capital market-oriented subsidiaries outside the EU with a net turnover within the EU of more than €40 million will also be affected.

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Sustainability Starts Today

So why should my startup start collecting data now if I don't have to report until 2026 at the earliest? Quite simply, if you want sustainable venture capital, you will have to report to them sooner or later, even if you have not yet produced your own company report. As an investing partner, you are part of the supply chain and are going to be included in the VC's ESG reporting. In a business environment that is increasingly focused on sustainability, it is essential to embrace change at an early stage. In this way, startups can not only impress potential investors, but also align their business with the goals of the European Green Deal in the long term.

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Currently, ESG reporting affects about 11,700 companies in Europe, including 500 in Germany. This will change on January 1, 2025, when all companies that meet two of three criteria - more than 250 employees, more than €40 million in revenue or more than €20 million in total assets - will be required to collect data. For the financial year 2025 reports, 50,000 companies in Europe will be required to report. In Germany, 15,000 companies will have to report. This means 30 times more than today.

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Datapoints Everywhere!

In order to determine which issues are relevant to a company, a materiality analysis must first be conducted. Without reduction through analysis, 1,178 datapoints would be required for reporting.

But that is not all. There is a lot of work behind each datapoint. For example, the total amount of water recycled and reused could be included. This means that even if 1,178 datapoints are not required to be collected, ESG reporting is still an enormous undertaking for companies.

But to put the number 1,178 into perspective:

  • The Oberjoch Pass in the Alps is 1,778 meters high.
  • The direct distance from Karlsruhe to Belfast is approximately 1,178 km.
  • After 1,178 km, you will have covered almost the entire Empire State Trail.

Whether you climb the Oberjoch Pass, travel from Karlsruhe to Belfast, or hike the Empire State Trail, 1,178 is much more than you think.